What does it say about the health of the consumer when even dollar stores are now saying they need to focus on value?
We’ll give you a hint: Nothing good.
Dollar General’s stock fell nearly 30% early Thursday, after the discount retailer reported far poorer-than-expected results on both its top and bottom lines during its second quarter, blaming much of the softness on a customer “who feels financially constrained,” CEO Todd Vasos said.
So, the Goodlettsville, Tennessee-based discount retailer, which has more than 20,000 locations, is taking a page from fast-food chains, saying it, too, is going to double down on value.
A slowdown in once-robust food and beverage sales at Dollar General points to a consumer who is “very, very price sensitive at this point and looking for value anywhere she can find it,” Vasos told analysts Thursday, according to a transcript from financial-services site AlphaSense.
“That’s another reason why we’re stepping up that promotional activity to reengage even further that consumable side of the business,” he added.
Sixty percent of Dollar General’s overall sales come from households making less than $35,000 a year. A quarter of consumers surveyed recently by the chain reported they expect to miss a bill payment in the next six months.
“With all of that in mind, we are increasing our investment in markdown activity in an effort to support our customers, further drive customer traffic and improve sales,” Vasos said.
And while that sounds reassuring, any restaurant operator knows that cutting prices isn’t necessarily a fix-all.
Dollar General’s increased promotional activity has already “pressured both sales and gross margin,” a trend the retailer expects to continue for the rest of the year, he added.
It’s not just a Dollar General problem, either.
Chesapeake, Virginia-based Dollar Tree in its June first-quarter earnings report said it had begun a “review of strategic alternatives” for its Family Dollar discount banner, one that could include a sale or spinoff.
Grocery sales are continuing to perform well at Dollar Tree, with same-store sales in the category up 7.4%, on top of a 6.9% jump during the same period last year. Lowered SNAP benefits created a 280-basis point drag on Family Dollar’s same-store sales, the company said.
We can look at the results from these discount-focused retailers as a canary in the coal mine of sorts for what restaurants might expect in the quarters to come.
And, particularly in the case of Dollar General, which relies on the financial health of its lowest-income shoppers to thrive, that canary is not doing well at all.
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