Dollar General 'not winning at this moment' over sales, shrink: Analyst
Discount retailer Dollar General (DG) is seeing its shares dive this morning as the chain cuts its full-year forecast and warns on the lasting impact of inventory shrink, or retail theft. Telsey Advisory Group Analyst Joe Feldman joins Yahoo Finance Live to discuss the consumer environment for Dollar General and its discount retail peers Dollar Tree (DLTR) and Five Below (FIVE).
"I think the surprise for me is on the top line," Feldman says, comparing Dollar General to its discount and dollar store competitors. "So even though some of those others have taken down their guidance for the full year, it was really more because of the increase in shrinkage related to the profitability pressure. It wasn't because of sales. That's a bit more concerning here with Dollar Tree, that the sales are a bit tougher."
Feldman also comments on back-to-school drivers boosting discount retailers.
Video Transcript
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BRAD SMITH: Dollar General shares are plunging this morning after slashing sales forecasts and taking a hit from a decline in store traffic. The discount retailer became the latest to warn about inventory shrink as well. Joining other companies like Five Hello and Dollar Tree who also voiced concerns.
Joe Feldman, who is the Telsey Advisory Group analyst joins us now. Joe, good to have you here with us this morning. As you think about what we've heard over the course of this retail earnings season and ultimately what Dollar General has come out and communicated, should there be any surprise here from your perspective?
JOE FELDMAN: I think the surprise here for me is really on the top line that we knew about inventory shrink running higher for retail, broadly speaking. We knew that that's been a pressure on the gross margin. We've known that markdowns have been ticking a little bit higher. So we've seen that profit pressure from a lot of others. But a lot of it is discount peers and dollar store peers like Dollar Tree, a Five Hello, you know, Walmart, and Ollie's, and others have all done pretty good on the top line.
Their sales forecasts also held in fairly decent for the back half of the year. So even though some of those others have taken down their guidance for the full-year, it was really more because of the increased shrinkage on related to the profitability pressure. It wasn't because of sales.
That's a bit more concerning here with Dollar Tree, that the sales here are a little bit tougher. And we have a lot of questions for them at the 10:00 o'clock call that's about to come up. What is going on with the trend with the consumer? We know the consumer is under pressure. But you would think this is the time for Dollar General to shine and really to capture some market share with that lower income consumer. And it just seems like they're not winning at this moment.
SEANA SMITH: Joe, why do you think that is? Why do you think they're not seeing better results given the macro environment?
JOE FELDMAN: So one of the big things we've seen over the past year is Family Dollar, which is part of the Dollar Tree Corporation, Family Dollar has lowered prices quite a bit. They are a lot more competitive with where Dollar General prices are. We've seen I think some execution issues at Dollar General as well in terms of the inventory and the flow of the inventory.
Also, you've seen other competition like Aldi and Lidl, deep discount grocery, you know, where consumers can go and fulfill some of their grocery needs at pretty much the same or even better prices sometimes than Dollar General.
So I think there is some incremental competition out there that is weighing on the results of Dollar.
BRAD SMITH: For Five Hello as well, as we've been kind of looking through their results this morning, all the other retailers seem to be citing some type of back to school trend that they're being able to benefit from at least with the pull forward in some of that demand and expecting it to run all the way through September. Is that not the same case at Five Hello?
JOE FELDMAN: You know, I think it actually is at Five Below, I know their guidance for the third quarter right now is for same store sales to be flat to 2%, which is kind of in line with what the Street was thinking. They actually said back to school is off to a relatively decent start. They called out backpacks, especially clear backpacks, which is a new trend right now among school kids and being mandated by some school systems. But that trend has actually been OK. So I think they've done all right.
And what's interesting, again, in comparison to, say, Dollar General, traffic or transactions at Five Hello were up 4 and 1/2 percent in last quarter versus down at Dollar General. And so that's where you see that difference, where I think Five Hello, Dollar Tree, some of the others are actually getting the traffic in the stores.
I know there's been a little bit more pricing pressure. There's been moderation of inflation. And I think that's starting to come through as well why the ticket prices are coming down a little. But the traffic's been pretty good. And so we like what we heard out of Five Hello.
