Dollar General CEO on retail chain's challenges: 'We've left sales on the table'
Dollar General wants to grow its grocery business. It might be too late though, as Walmart continues to gain value shoppers.
Dollar General aims to provide value for shoppers, who are facing growing headwinds.
But CEO Jeff Owen admitted the company could be doing more.
When it comes to the retailer's challenges, "quite frankly, some were self-inflicted," Owen said at the Goldman Sachs Global Consumer Conference in New York City on Wednesday. "We've left sales on the table."
To be sure, Dollar General (DG) has had a bumpy year. Typically, dollar stores do well during times of economic uncertainty. In 2008, for instance, Dollar General saw a 9.4% sales jump in its fourth quarter results in the middle of the Great Recession.
Now, not so much.
In the second quarter, same-store sales came under pressure, down 0.1% year over year, driven by a drop in foot traffic, though that was partially offset by people spending more per trip. An uptick in retail theft also hit profits in recent quarters.
The Tennessee-based retail chain lowered its full-year earnings forecast in August. It now expects earnings to decrease 22% to 34% for the year compared to its previous estimate for a 0% to 8% decline.
And year to date, Dollar General's stock is down over 50%.
As part of its turnaround effort, Dollar General wants shoppers to buy groceries there.
"We still see, from a share perspective, where our primary dollars are the same they've been for many, many years," Owen said. "And we believe there's still much share for us to gain there, and that's primarily drug and grocery."
Dollar General primarily caters to lower- and middle-income shoppers, who have remained relatively resilient so far but may be more vulnerable to financial pressures.
According to the company, its core customer has an average household income of around $35,000. Now, that customer is being hit with "accelerating" gas prices and higher housing costs, Owen said.
"We'll keep a close eye on that," Owen said about gas prices, which drove inflation higher in August. "When you look at the gas prices, there's usually a ... couple of dollar band, where [it] really starts to impact [the customer's] purchase decision."
Dollar General's typical customer likes shopping within a radius of 3 to 5 miles, he added, so it could be positive for shoppers who need something quickly. Potential employees also may be more inclined to apply, as 80% of Dollar General stores are in rural communities of 20,000 or less.
"Staying close to home, combined with higher gas prices, and working close to home and not having to drive further also is a very attractive opportunity for workers perspective as well at Dollar General," Owen said.
That's if Dollar General's competitor, Walmart (WMT), doesn't tap prospective employees first.
"Notably, Dollar General has 20% of its stores within a 10-minute drive of a Walmart store, which is likely able to offer higher pay to Dollar General's store managers," UBS analyst Michael Lasser wrote in a note to clients.
Walmart is also stealing market share among consumers.
"Dollar General’s softer same-store sales was attributed to weakness in the discretionary categories of home, seasonal, and apparel," Lasser wrote. That "performance stands in contrast to value-oriented retail peers like Walmart US (6.4% 2Q comp), suggesting its losing share on a same-store basis."
Those market share gains, particularly in grocery, will likely stay with Walmart, according to Goldman Sachs analyst Kate McShane.
McShane told Yahoo Finance that Walmart's average item is "priced at a 10% discount relative to the average [retailer]. ... They have such power over their vendors."
Meanwhile, Oppenheimer analyst Rupesh Parikh warned investors to hold off on jumping into the dollar value sector right now.
"For both Dollar General and Dollar Tree, we would remain sidelined as we expect a negative earnings revision cycle to continue amidst macro and competitive headwinds," Parikh wrote in a note.
—
Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
