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Low-income American households are running out of money at the end of every month, the discount retailer Dollar General announced when it released grim figures. The company’s share price then fell by more than 30 percent, making it the biggest single-day drop ever.
The largest U.S. dollar store chain, with more than 20,000 stores in 48 states, painted a grim financial picture for many of its customers after years of inflation and the eroding of savings accumulated during the pandemic. Shrinkage, an industry term for inventory losses that include shoplifting, is also on the rise, it said.
The Tennessee-based company’s small stores sell a variety of groceries and household goods at low prices, including many for one dollar. The stores are concentrated in rural communities and poorer urban neighborhoods. “Our core customers are often among the first to be affected by negative or uncertain economic conditions and among the last to feel the effects of improving economic conditions,” the company said in filings.
According to CEO Todd Vasos, these regular customers, who account for about 60 percent of Dollar General’s sales, mostly come from households with an annual income of less than $35,000 and now feel “financially constrained.”
“The majority of them say they feel worse off financially than they did six months ago, as higher prices, lower employment and increased borrowing costs have negatively impacted the sentiment of low-income consumers,” he said.
Dollar General reported that its store sales – an industry indicator of stores open for at least a year – rose 0.5 percent in the quarter ended Aug. 2, below its own forecasts and those of Wall Street analysts. The growth came entirely from consumables such as groceries, and not from less popular items such as apparel, seasonal and home goods.
Executives pointed out that sales are weakest in the last week of each month. Chief Financial Officer Kelly Dilts said of the typical consumer, “She ran out of money toward the end of the month.”
The comments contradicted those of several other retailers. Discount clothing chain Burlington Stores said Thursday that low-income shoppers were still “very fragile” but “their situation has improved somewhat” as inflation has fallen.
Walmart, the largest U.S. retailer, and its rival Target also reported solid sales growth in their latest quarterly results, with Walmart adding that it had taken market share from its competitors..
“The guys in Bentonville are doing a pretty good job of attracting available traffic from other retailers,” Vasos said of Walmart, whose headquarters are in Bentonville, Arkansas.
However, Vasos told analysts that customer traffic at Dollar General has not slowed: It increased 1 percent in the second quarter, while falling retail prices led to a 0.5 percent decline in average customer spending.
Dollar General shares closed 32.2 percent lower at $84.03. The company’s net sales rose 4.2 percent year over year to $10.2 billion. Operating profit fell 20.6 percent to $550 million, which Dilts attributed in part to markdowns and an increase in inventory damaged or lost due to shrinkage.
Rival Dollar Tree, which operates stores under its eponymous name and the Family Dollar brand, will announce its results next week. Its shares closed down 10.4 percent.
