By Savyata Mishra
(Reuters) -Dollar General Corp cut its sales and profit forecasts for the year on Thursday as Americans, pinched by higher prices, shopped more for essentials and pared back purchases in categories including home goods and clothes, leading its shares down as much as 20%.
The discount store chain saw traffic to its stores decline during the quarter as its low- to middle-income customer base shifted away from discretionary goods like clothing and houseware - a challenging trend seen across retailers.
Low-cost retailers like Dollar General (NYSE:DG) face stiff competition from bigger retailers like Walmart (NYSE:WMT) in the grocery and food business, which has lifted its annual outlook as it offers lower prices on groceries compared to rivals Target Corp. (NYSE:TGT)
"We continue to see signs of increasing financial strain on our customers as they seek affordable options," CEO Jeffery Owen said in a post-earnings call.
Shares of Dollar General were set for their worst day on record, if losses hold, as it also said an earnings decline would be "most significant" in the second quarter.
The Tennessee-based company's gloomy outlook echoes disappointing results at its biggest rival Dollar Tree (NASDAQ:DLTR) last week, which took a hit from slowing demand for non-essentials and elevated cost pressures.
Dollar General now expects fiscal 2023 same-store sales to rise between 1% and 2%, compared with its prior outlook of an increase of 3% to 3.5%, while lowering earnings per share to range from being flat to an 8% decline year over year.
"The updated CY23 guide appears to provide a right-sized expectation set for the more challenging retail and consumer backdrop," said Michael Montani, analyst at Evercore ISI.
The company's first-quarter same-store sales and profit were also below analysts' average estimate as customers appeared to have reduced their spending budgets.
"While we believe they (customers) will ultimately adjust their budgets and recover, the depth and the duration of the current pressure is difficult to predict," said outgoing CFO Kelly Dilts.