Dive Brief:
- Dollar General’s second quarter net sales rose 4.2% year over year to $10.2 billion, up from $9.8 billion, the company said in a Thursday earnings announcement. However, net income fell 20.2% to $374.2 million from $468.8 million. Top line income and a nearly flat same-store sales were below expectations, CEO Todd Vasos said.
- Growth in consumables drove the comp sales rise, as customer spending remained focused on essentials. That growth was partially offset by declines in seasonal home and apparel.
- In anticipation of continued softness in sales, the company updated its full-year outlook. Dollar General now expects net sales growth ranging from 4.7% to 5.3%, down from 6% to 6.7%, while same-store sales growth is expected to range from 1% to 1.6%, down from 2% to 2.7%.
Dive Insight:
Dollar General’s core customers — lower income consumers — continue to struggle in the current economic climate, Vasos said during a Thursday earnings call. Despite that, the retailer is still seeing growing market share in dollars and unit sales in its consumables segment.
“We are disappointed by soft 2Q24 results and more so by the magnitude of the 2024 guidance cut, related to tough consumer spending at the lower end,” Telsey Advisory Group analysts led by Joe Feldman said in a note. “Historically, Dollar General has done well during these tough times, but stronger competition seems to be taking a toll.”
The company acknowledged that reality. Customers who make less than $35,000 annually contribute about 60% of the company’s overall sales. At the same time, Vasos said 60% of households in that demographic say they’ve had to cut back on buying basic necessities due to higher costs for those items, as they struggle to keep up with other basics — rent, utility and health care expenses.
“It appears to us very strongly that ... this lower end consumer continues to be very much financially strapped especially as it relates to her ability to feed our families and support her families,” Vasos said. “[T]his is a cash strapped consumer right now, even more so than what we saw in Q1.”
However, Feldman said middle-income and more affluent households have stopped trading down to Dollar General. Instead, Feldman said, these demographics are likely increasing their spending at Walmart and other stores like Aldi, Lidl, Grocery Outlet and Ollie’s Bargain Outlet.
In light of the ongoing macroeconomic environment, Vasos said the company remains committed to its back-to-basics transformation strategy of focusing on improving the front-end and checkout experience, reducing shrink, inventory management and enhancing distribution productivity.
Dollar General is also progressing toward a goal of a net reduction of 1,000 SKUs across the chain by year end. Non-consumable inventory decreased 13% versus last year and it decreased 17% on a per store basis, Chief Financial Officer Kelly Dilts said during the call, according to a transcript. While shrink in Q2 was a year-over-year headwind of 21 basis points, Dilts said that was in line with expectations.
Dollar General is maintaining its previously announced plans to open 730 stores, remodel 1,620 locations and relocate 85 stores during its 2024 fiscal year. The company ended Q2 with 20,345 stores under five banners in the U.S. and Mexico.
“In summary, while we're not satisfied with the financial results for the second quarter, we are pleased with the continued progress in our back-to-basics work, and we believe we're taking the necessary actions to build on this progress and drive the business forward,” Dilts said.
