Dollar General ($DG.US) has recently adjusted its full-year earnings outlook following a notable decline in sales performance, highlighting concerns among financial analysts. On Thursday, the discount retail giant reported its fiscal second-quarter results, which fell short of Wall Street’s expectations.
The revised earnings per share (EPS) forecast is now anticipated to range between $5.50 and $6.20 for the fiscal year 2024. This marks a significant drop from prior estimates, which forecasted a range of $6.80 to $7.55. Additionally, sales growth has been downgraded to an expected increase of 4.7% to 5.3%, down from previous guidance of 6% to 6.7%.
According to consensus estimates on Capital IQ, the anticipated GAAP EPS stands at $7.12, with projected revenue of $41.02 billion. The company’s projections for same-store sales—an important metric in retail—are now set at a modest growth of approximately 1% to 1.6% for the current fiscal year.
This is a notable decrease from earlier forecasts of 2% to 2.7%. Analysts were hoping for a more optimistic growth forecast of 2.5%. Following this announcement, the stock experienced a significant decline of 24% in premarket trading, reflecting the market's reaction to the disappointing news. The lowered outlook is indicative of ongoing challenges faced by Dollar General, including softer sales trends and the impact on gross margins that are anticipated to persist throughout the remainder of the fiscal year.
CEO Todd Vasos addressed these issues in a statement, noting, "While we believe the softer sales trends are partially attributable to a core customer who feels financially constrained, we know the importance of controlling what we can control." In detail, Dollar General reported a 20% year-over-year decline in net income for the three-month period ending August 2, which fell to $1.70 per share, missing analysts' expectations of $1.79.
Sales rose by 4.2%, reaching $10.21 billion, although this also fell short of the $10.37 billion estimate set by analysts. The figures for same-store sales reflected only a modest increase of 0.5% during the quarter, underwhelming compared to the anticipated rise of 2.1%. This stagnation was partially a result of increased foot traffic being offset by a decrease in the average transaction value.
While the consumables category saw growth in same-store sales, declines were noted in other areas, such as home, seasonal, and apparel products. "We made important progress on our Back to Basics plan in the second quarter," CEO Vasos emphasized. "However, despite advancing several of our operational goals and driving positive traffic growth, we are not satisfied with our financial results, including top line results below our expectations for the quarter." The company also indicated that its gross profit margin percentage slipped by 112 basis points year over year to 30%.
This decline is primarily attributed to increased markdowns and inventory damages, as well as other contributing factors. Furthermore, selling, general, and administrative expenses increased to $2.51 billion from $2.35 billion in the same quarter of the previous year. As of the latest market data, Dollar General shares are priced at $94.11, reflecting a change of -29.73, which translates to a percent change of -24.01, indicating the market's bearish sentiment towards the retailer's recent performance and outlook..