Dollar General warns poorest US consumers they are running out of cash

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Low-income U.S. households are running out of money at the end of each month, discount retailer Dollar General said, as it posted disappointing results that sent its shares down more than 30 percent, their biggest one-day drop on record.

The nation’s largest dollar store chain, with more than 20,000 locations in 48 states, has painted a grim financial picture for many of its customers after years of inflation and the depletion of savings built up during the pandemic. Shrinkage, a byproduct of inventory losses in the industry that includes shoplifting, is also on the rise, it added.

The Tennessee-based company's small stores sell a variety of low-priced groceries and household goods, many for $1. Its stores are concentrated in rural towns and poorer urban neighborhoods. Our core customers are often among the first to be hit by negative or uncertain economic conditions and among the last to feel the effects of improving economic conditions, company documents say.

General Manager Todd Vasos said those core customers, who account for about 60% of Dollar Generals' sales, come mostly from households earning less than $35,000 a year and are now feeling financially constrained.

The majority of them say they feel worse off financially than they did six months ago, as rising prices, falling employment levels and increased borrowing costs have had a negative impact on the sentiment of low-income consumers, he said.

Dollar General said its same-store sales, an industry gauge for stores open at least a year, rose 0.5% in the quarter that ended Aug. 2, below its own forecasts and those of Wall Street analysts. The growth was driven entirely by consumer goods, such as food, rather than more discretionary items like clothing, seasonal items and housewares.

Executives noted that sales were weaker in the last week of each month. Speaking of her typical customer, CFO Kelly Dilts said, “She started running out of money at the end of the month.”

The comments contrast with those of several other retailers. Discount clothing chain Burlington Stores said Thursday that low-income consumers were still very vulnerable, but that their situation had improved somewhat because of lower inflation.

Walmart, the largest U.S. retailer, and its big-box rival Target also reported solid sales growth in their latest quarterly results, with Walmart adding that it had taken market share from its rivals.

The Bentonville guys are doing a really good job of attracting available traffic from other retailers, Vasos said of Walmart, which is headquartered in Bentonville, Arkansas.

However, Vasos told analysts that customer traffic has not slowed at Dollar General: It increased 1% in the second quarter, while lower retail prices led to a 0.5% decline in the average amount spent by shoppers.

Dollar General shares closed down 32.2% at $84.03. The company's net sales rose 4.2% year over year to $10.2 billion. Operating income fell 20.6% to $550 million, which Dilts attributed in part to markdowns and increased inventory damaged or lost due to markdowns.

Dollar Tree, which operates stores under its own banner and the Family Dollar brand, is expected to report results next week. Its shares closed down 10.4%.

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