Dollar Stores Flash Warning Signs on Consumer Spending

Dollar General reported slowing sales in the recently ended quarter and said its inventory of unsold goods is piling up. The Goodlettsville, Tenn., company said it plans to burn through profit in the second half of the year to reduce inventory and improve performance at its stores. Like other retailers, Dollar General also said it expects store theft to keep rising.

“Our core customers continue to tell us they feel financially constrained,” Chief Executive Jeff Owen said. “Her savings are gone, and so certainly she is still living with the inflationary pressures.”

The chain has been trying to avoid passing along higher prices to its customers and has even reduced prices in some areas, Owen said.

Sales in May held strong, he said, before deteriorating through the summer as shoppers focused on necessities. Heading into the holiday season and the second half of the year, Owen said Dollar General plans to whittle down its inventory through markdowns. The company also plans to invest more in its workers.

Shares of Dollar General closed Thursday down 12% at $138.50, its lowest close in years. The stock has been cut nearly in half so far this year.

The readout comes as government data indicate that household spending rose more than economists expected in July. Americans spent more on groceries, dining out, services such as housing and more as price pressures remained modest.

Other discount retailers have issued dour outlooks for the remainder of the year as higher prices and rising interest rates weigh on consumers’ appetite for discretionary spending. Retailers, especially those that cater to middle- and lower-income customers, have also cited reductions in government food-assistance benefits and lower tax refunds as sources of pressure.

Both Dollar General and rival

have said their customers are pulling back on discretionary purchases while spending more on food and essentials, which are less profitable. The companies are also grappling with higher labor costs.

Five Below, a value retailer catering to teens and tweens, earlier this week also cut its full-year profit outlook, citing challenges with shrink, an industry term that refers to goods lost to damages and theft. Executives, though, said demand is holding up as more shoppers hunt for deals.

“Value is really in vogue again,” Chief Executive Joel Anderson said.

Conn’s, which sells homegoods and offers its own financing, said banks are tightening their lending standards, which is pushing more subprime customers to borrow directly from the chain. Delinquencies have remained stable, Chief Financial Officer George Bchara said.

“The further you go down that credit spectrum, the more stress we see with that consumer,” CEO Norm Miller said.

There are some bright spots for other discount retailers. Off-price apparel retailer Ross Stores earlier this month issued an upbeat outlook for the rest of the year and said customers are still spending on clothes, but looking for value.

“The customer, with moderating inflation, is feeling a little bit more room to spend money,” Chief Executive Barbara Rentler said. “But again, our customer is moderate- to low-income customers, so she still faces inflation in front of her.”

Ollie’s Bargain Outlet, which offers steep discounts on products that it buys from overstocked stores or others that are going out of business, raised its full-year sales and profit outlook on Thursday. The company is benefiting as other retailers look to reduce their inventories amid the pullback in spending.

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