Dollar General Corp. shares dropped 12 percent by Monday afternoon after the company posted a weaker-than-anticipated earnings report for the second quarter, while also issuing a warning about consumer trends and theft.
The company said it expects net sales growth between 1.3 percent and 3.3 percent, down from a prior expectation of 3.5 percent to 5 percent. It also expects fiscal 2023 same-store sales growth to range from a 1 percent decline to 1 percent growth, which is also down from previous expectations, according to a news release.
“Gross profit as a percentage of net sales was 31.1 percent in the second quarter of 2023 compared to 32.3 percent in the second quarter of 2022, a decrease of 126 basis points. This gross profit rate decrease was primarily attributable to lower inventory markups and increased shrink, markdowns, and inventory damages, as well as a greater proportion of sales coming from the consumables category, which generally has a lower gross profit rate than other product categories,” the release said.
“Shrink” is an industry term that refers to when a company loses inventory from causes other than sales. It often refers to theft or shoplifting, which retail groups have said has been dramatically on the rise in recent months.
It also said that same-store sales decreased by 0.1 percent, down from previous expectations. Operating profit also decreased by 24.2 percent to $692.3 Million, and diluted earnings per share decreased 28.5 percent to $2.13 per share, the release said.
“While we are not satisfied with our overall financial results, we made significant progress in the second quarter improving execution in our supply chain and our stores, as well as reducing our inventory growth rate and further strengthening our price position,” Jeff Owen, Dollar General’s chief executive officer, said in a statement.
But Mr. Owen said that Dollar General is “pleased with the advancements we have made, and we are now taking further actions and making additional investments to accelerate our progress and ultimately serve our customers even better,” adding that those investments will “strengthen our foundation as we move into 2024 and focus on driving sustainable growth and creating long-term shareholder value.”
In a call with analysts, Mr. Owen said that consumers are showing signs of careful spending, prioritizing items they need over items they want. He said that the firm made price reductions on several key items in the meantime.
Separately, Neil Saunders, retail analyst and managing director with GlobalData, said that Americans are pulling back on shopping due to relatively high inflation.
“One of the key reasons for this is because Dollar General’s core customers are feeling the acute pressure of the cost-of-living-crisis,” Mr. Saunders said in a report Thursday, according to CNN. He noted that low-income consumers are cutting back on buying certain items.
“This has been exacerbated by cuts in SNAP payments as temporary pandemic benefits came to an end. As a result, lower-income shoppers are cutting back on non-consumable and indulgent purchases from the chain in a bid to save money,” he said. “Unfortunately, this dynamic will not change any time soon as, if anything, finances will tighten over the second half of the year.”
Meanwhile, Jefferies analyst Corey Tarlowe wrote that Dollar General’s results were soft. “Looking ahead, we believe [Dollar General] is faced with industry-wide headwinds and incremental investments, but stays well-positioned due to its high mix of consumables, private label expansion, and organic growth opportunities,” he wrote, according to MarketWatch.
In recent weeks, more than more retailers have also issued warnings about an increase in shoplifting and theft impacting profits. That includes places like Target, Walmart, Dollar Tree, Foot Locker, Kohl’s, and more.
A Dollar General official stated that the company will attempt to take action to curb theft at its locations.
“While we expect this pressure to continue for the remainder of the year and recognize this is a challenge throughout retail, we are actively working to reduce these levels through multiple targeted actions,” said Dollar General Chief Financial Officer Kelly Dilts, referring to shrink. “These include reducing our inventory position, refreshing and refining our processes, leveraging additional tools and technology, and improving execution in our stores.”
Retail theft, or shoplifting, has become a significant, multi-billion-dollar problem. The Nation Retail Federation said in a recent report that it is costing companies some $100 billion each year and appears to be growing.
