Dollar General shares slump as weak demand, stiff competition prompts forecast cut

By Anuja Bharat Mistry and Aishwarya Venugopal

(Reuters) -Dollar General's shares slumped 24% on Thursday after slashing its annual sales and profit forecast as the discount retailer battles intense competition in the face of weakening demand for non-essential items.

The discount store operator along with its peer Dollar Tree have been losing budget-conscious shoppers to Walmart, Target and even China's PDD Holdings's e-commerce platform Temu that offer low-priced home goods, apparel and seasonal items.

"(Dollar General's results) show the challenge of maintaining market share with Walmart winning in a slower growth environment," Evercore ISI analyst Michael Montani said.

Earlier this month, both Target and Walmart raised their full-year profit forecast, benefiting from price cuts.

"Despite advancing several of our operational goals and driving positive traffic growth, we are not satisfied with our financial results, including top-line results," CEO Todd Vasos said, while attributing softer sales to its customer base feeling "financially constrained".

Dollar General now expects fiscal 2024 same-store sales to rise 1% to 1.6%, down from the prior forecast of 2% to 2.7%, and annual earnings per share to be $5.50 to $6.20, compared with the previous forecast of $6.80 to $7.55.

The company added it was taking actions to provide more value to its customers and improving the in-store experience.

"Dollar store operators are clearly struggling in the current macroeconomic environment ... To regain foot traffic, Dollar General will likely need to cut prices and increase promotions," Arun Sundaram, an analyst with CFRA Research said.

Dollar General's margins continued to be pressured by still-high labor costs, as well as increased markdowns, inventory damages and retail shrink, which includes losses from theft or damage.

The company posted net sales of $10.21 billion for the quarter ended Aug. 2, compared with analysts' average estimate of $10.37 billion, according to LSEG data.

It also reported a profit of $1.70 per share for the quarter, compared with analysts' estimate of $1.79 per share.

Shares of the company opened at its lowest since June 2018 at $92.20, while those of its main rival Dollar Tree were down about 7%.

(Reporting by Anuja Bharat Mistry in Bengaluru; Editing by Vijay Kishore)