By Granth Vanaik
(Reuters) -Dollar General on Thursday warned of constrained customer spending, especially in categories such as clothes and home goods, heading into the new year even as the discount retailer beat analysts' estimates for the third quarter.
The company's shares, which rose as much as 4% in early trading, reversed course and fell nearly 2%. The stock is down 45% this year.
"Our customer continues to tell us they are feeling significant pressure on their spending which is supported by what we see in their behavior," CEO Todd Vasos, who was re-appointed for a second stint in October, said on a post-earnings conference call.
Discount store operators have been struggling with a shift in shopper preferences for essentials over general merchandise, while they face stiff competition from larger retailers such as Walmart (NYSE:WMT).
Dollar General (NYSE:DG) has been taking measures to keep prices low on everyday staples as well as offering discounts and promotions to clear excess stock.
Its total merchandise inventories were down 1.8% on a per-store basis. But gross margin fell 147 basis points to 29%, as it grappled with a rise in retail shrink, where inventory is either lost, damaged or stolen.
Dollar General, which reaffirmed annual sales and profit forecasts, said it was expecting shrink-related headwinds to continue into 2024. In October, it cut the full-year forecasts for the third time this year.
After several earnings misses and lowered forecasts, Dollar General reiterating its outlook suggests that it is finally reaching a bottom for earnings for 2023, Truist Securities' Scot Ciccarelli wrote in a note.
Last week, rival Dollar Tree (NASDAQ:DLTR) trimmed annual sales forecast on weaker spending from lower-income households.
Dollar General posted a better-than-expected quarterly profit of $1.26 per share.
Its same-store sales fell 1.3%, versus LSEG estimates of a 2.08% drop, cushioned by stronger store traffic.