(Reuters) -Dollar General warned on Thursday profit margins would be pressured in the holiday quarter due to higher promotions and discounts as shoppers stuck to buying more essentials like groceries, sending its shares down as much as 5%.
A shorter 26-day period between Thanksgiving and Christmas, coupled with frugal consumer spending, has pushed U.S. retailers to launch more promotions this year.
Dollar General (NYSE:DG) is offering 50% off every day for 24 days during the holiday season on products ranging from Bluetooth speakers to thick cut bacon, as it seeks to take on deep-pocketed rivals such as Walmart (NYSE:WMT) and Amazon.com (NASDAQ:AMZN).
"The consumer is seeking value... (And)is trying to make ends meet," CFO Kelly Dilts said on a post-earnings call.
The warning on margins overshadowed the company's forecast for higher annual sales and plans to remodel its stores to address concerns over customer experience.
Dollar stores have been ceding ground, with customers complaining about messy shelves and too much inventory.
Dollar General said it would fully remodel roughly 2,000 old outlets and incrementally remodel another 2,250 stores in the fiscal year ending January 2026. This compares to the about 1,600 remodels outlined for the current year.
"(Dollar General) is accelerating their store remodeling efforts. This is a shift in strategy which may slow total sales growth, but likely a good one as it could help boost comparable store sales," said Scot Ciccarelli, analyst with Truist Securities.
Dollar General trimmed the upper end of its annual profit forecast and said it includes the impact of bigger-than-anticipated hurricane-related expenses of $32.7 million in the third quarter.
The company now expects annual net sales to rise between 4.8% and 5.1%, compared to prior expectations of growth between 4.7% and 5.3%. Analysts were estimating a 4.77% rise, as per data compiled by LSEG.
The company, like its main rival Dollar Tree (NASDAQ:DLTR), however, signaled that traffic to stores had improved in the third quarter, along with shoppers buying more on average per trip.
Dollar General also posted better-than-expected third-quarter net sales, but the company's earnings of 89 cents per share missed estimates of 94 cents.