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Mar 11, 2023

Dollar General cutting pack on Popshelf format amid tough Q1 results

Dollar General reported a tough quarter as its core low-to-middle-income

Dollar General reported a tough quarter as its core low-to-middle-income customers, under pressure from higher prices, cut back on non-essential spending on discretionary goods. The discounter also slashed its full-year outlook.

"The macroeconomic environment is more challenging than the company had previously anticipated, which the company believes is having a significant impact on customers," the retailer said in its earnings release.

Dollar General is also feeling the pressure from bigger rivals, such as Walmart, whose low prices are helping it gain market share in grocery.

"We continue to see signs of increasing financial strain on our customers as they seek affordable options," CEO Jeffery Owen said on the company's earnings call.

[Read more: Dollar General to expand beauty set in select stores]

Dollar General is cutting back on the expansion of its Popshelf format, which is focused mostly on discretionary items, reducing the number of expected new store openings in fiscal 2023 to 990, down from its previous estimate of 1,050. In line with its previous forecast, the company still anticipates 2,000 remodels, and 120 store relocations.

During the quarter, the retailer opened 212 new stores, remodeled 582 stores, and relocated 22 stores.

Dollar General's net income totaled $514.4 million, or $2.34 per share, for the quarter ended May 5, compared with $552.7 million, or $2.41 per share, in the year-ago quarter. Analysts had expected earnings per share of $2.38.

Revenue rose 6.7% to $9.34 billion, missing estimates of $9.47 billion. Same-store sales rose 1.6%, less than expected. Strength in consumables was offset by slowdowns in seasonal, home and apparel categories.

"We are controlling what we can control and have made significant progress improving our execution on multiple fronts, including on our supply chain recovery efforts and enhancements to the customer experience with our previously announced investment in incremental labor hours," stated Owen in the earnings release.

The company slashed its guidance for fiscal 2023. It now expects net sales to rise between 3.5% and 5%, down from its previous range of 5.5% to 6%. Analysts had expected full year sales to grow 5.7%.

[Read more: Dollar General announces promotions, new appointment]

Same-store sales are expected to increase about 1% to 2%, compared to a previous range of 3% to 3.5%. Analysts had been expecting same-store sales to grow 3.4%.

Earnings per share are expected to be in the range of flat to down 8% from the prior year, compared to a previous guidance of up 4% to 6%. Analysts had been expecting earnings per share to be up 4.3%

As of March 3, 2023, the company operated 19,147 Dollar General, DG Market, DGX and Popshelf stores across the United States and Mi Súper Dollar General stores in Mexico.

This story originally appeared on Chain Store Age.