Dollar General flags margin hit as consumers shift to essentials
By Anuja Bharat Mistry and Granth Vanaik
(Reuters) -Dollar General said on Thursday it expects its margins to come under pressure as shoppers choose less-profitable essential items over clothes, home decor and other such discretionary goods.
Shares of the company shed early gains following an upbeat sales forecast and were last down about 5%.
"Inflation continues to impact our customers as they make trade-offs in the aisle and we anticipate the related sales-mix headwind to gross margin will continue in 2024," Chief Financial Officer Kelly Dilts said on a post-earnings call.
Dilts also warned of higher promotional markdowns this year.
Discount stores such as Dollar General and rival Dollar Tree have struggled with rising costs related to supply chain and labor amid competition from Walmart and Chinese ecommerce platform Temu.
Dollar General's gross profit as a share of net sales dropped to 29.5% from 30.9% a year earlier.
It also forecast annual per-share profit between $6.80 and $7.55, compared with analysts' average estimate of $7.55, and warned of pressure from retail shrink where inventory is lost or damaged due to theft and breakage.
Dollar General said it was on track to open 800 stores and remodel 1,500 locations this year. It currently operates nearly 20,000 stores.
That contrasts with Dollar Tree's plans to shutter 970 of its Family Dollar stores after warning of weak annual sales and profit.
"Dollar Tree's challenges with Family Dollar were years in the making, while Dollar General has embarked on an aggressive effort to add more frozen, refrigerated and fresh produce to put it in a strong position to benefit from consumers' growing price sensitivity," eMarketer senior analyst Zak Stambor said.
Dollar General expects 2024 sales to increase between 6.0% and 6.7%, above estimate of 4.4% growth, according to LSEG data.
CEO Todd Vasos' focus on having more employees at stores, and expanding private-label brands have helped attract more shoppers.
The company's net sales of $9.86 billion beat estimates of $9.78 billion while profit of $1.83 per share also topped expectations.
(Reporting by Granth Vanaik and Anuja Bharat Mistry in Bengaluru; Editing by Sriraj Kalluvila)
