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Even dollar stores are hurting as consumers get more cautious

Signs of an increasingly cautious consumer and looming recession aren't helping America's dollar store chains.

While dollar stores have previously thrived in times of economic uncertainty due to their low prices, this time around is different.

On Thursday, Dollar General (DG) lowered its full-year forecast for both sales and earnings, with earnings per share now projected to decline as much as 8% on the year.

"The macroeconomic environment is more challenging than the company had previously anticipated, which the company believes is having a significant impact on customers’ spending levels and behaviors," Dollar General said in its release.

A week earlier, Dollar Tree (DLTR) cut its profit guidance with management noting their business is "not immune the external pressures affecting all of retail."

Shares of both dollar stores have now fallen double-digits in the past week.

The dollar store guidance cuts come as retail earnings have painted a mixed picture of the consumer. BJ's (BJ) told investors comparable sales were tracking below comps in the current quarter. Target warned of a consumer discretionary slowdown. But Walmart (WMT) said it's business is healthy as it benefits from some consumers trading down.

"In the retail industry, I say it's pretty much always a stock picker's market," Loop Capital Markets Managing Director Anthony Chukumba recently told Yahoo Finance Live. "You just have to kind of roll up your sleeves and do the work. Because while the rising tide does lift and lower all boats, a lot of it has to do with company-specific situations and strategies and management teams."

Dollar stores are feeling pressure as consumers shift away from discretionary items to consumable goods, which are lower-margin, according to Chukumba. Both stores missed Wall Street's adjusted earnings per share guidance for the previous quarter and forecasted weaker-than-expected full-year results.

At Dollar Tree, product cost increases, higher theft, and higher distribution costs are leading to margin compression, and therefore lower profits.

The discount retailer is also cycling through a price increase from last year when it bumped up its standard $1 price for goods to $1.25. Management believes that's led to tough comparisons for same-store-sales from a year ago when prices for their products were cheaper.

"There's just a number of elements we believe that we still have to work to from a product offering basis as we look at the introduction of new price points and ability to capture a little more margin where previously, we weren't able to do so at some of the lower price points," Dollar Tree CFO Jeff Davis said on the company's earnings call last week.

Meanwhile, shoppers at Dollar General are showing a clear trend to lower-priced goods, per Dollar General CEO Jeffery Owen.

"We're seeing her buy fewer items per basket," Owen said, referring to the consumer. "We're seeing her really utilize that dollar price point, and we're very pleased that we still offer that. And then we're also seeing her buy closer to payday in the first of the month."

During Thursday's earnings call Dollar General also announced it plans to open 60 fewer stores this year than initially planned, a sign of the times for retailers per Citi retail analyst Paul Lejuez.

"[The store revisions] are the latest indication that discretionary focused retail concepts are facing pressure," Lejuez wrote in a note to clients on Thursday.

Josh is a reporter for Yahoo Finance.

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