Shares of popular discount retailer Dollar General plummeted nearly 20% in morning trading following a disappointing earnings report.

The company’s core customers are tightening their purse strings in the face of a worse-than-expected macroeconomic environment. Dollar General was forced to reduce its full-year outlook due to these challenges.

Missed estimates on top and bottom lines

Dollar General failed to meet estimates on both the top and bottom lines, further exacerbating investor concerns.

According to a survey of analysts by Refinitiv, the company reported earnings per share of $2.34, slightly lower than the expected $2.38. Its revenue for the first fiscal quarter reached $9.34bn, falling short of the anticipated $9.46bn.

Slowdown in spending and disappointing same-store sales

The retailer’s reported net income for the three months ending 5 May was $514.4m, or $2.34 per share, compared to $552.7m, or $2.41 per share, in the same period last year.

Although revenue saw a modest increase to $9.3bn, up nearly 7% from the previous year’s $8.8bn, the growth in same-store sales fell short of expectations. While same-store sales rose by 1.6%, analysts had predicted a more substantial 3.8% jump.

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The growth was driven by strength in consumables but offset by slowdowns in seasonal, home and apparel categories, which typically yield higher margins.

Dollar general revises fiscal 2023 outlook

In response to the challenging macroeconomic environment and its impact on consumer spending, Dollar General has revised its full-year outlook for fiscal 2023.

The company now expects net sales to grow between 3.5% and 5%, a decrease from the previous range of 5.5% to 6% growth. Dollar General predicts that same-store sales will increase approximately 1% to 2%, compared to the earlier forecast of 3% to 3.5% growth.

The company also adjusted its earnings per share guidance, anticipating a flat to 8% decrease from the prior year instead of the previously projected 4% to 6% increase.

Dollar general reduces store openings

Dollar General, known for its rapid expansion, is scaling back its plans for new store openings.

The company initially announced intentions to open 1,050 new stores in fiscal year 2023, including 150 new Popshelf stores, targeting customers with higher incomes. However, it has now revised its plans and expects to open only 90 new Popshelf stores, bringing the total planned new stores for the fiscal year to 990.

Dollar General stated that this reduction is a prudent response to the current environment, with the expectation that better real estate opportunities will emerge as other retailers adapt to the situation.

Increasing challenges and safety concerns

Apart from financial setbacks, Dollar General is facing mounting pressure to address working conditions for its employees.

Federal regulators, activists and staff have been advocating for improvements, resulting in over $21m in fines from the Occupational Safety and Health Administration for various safety hazards. These hazards include blocked fire exits, obstructed electrical outlets and excessive clutter.

During its annual meeting, shareholders approved a resolution calling for an independent audit into worker safety. The company’s response to this resolution and its commitment to conducting the audit remains unclear.