Poor people get blamed a lot for a lot in America. Including for their own poorness, which always seems gratuitous, even in the rare cases where it’s true.
On Thursday, America’s multitudinous “poors” took part of the blame for exceedingly poor results from Dollar General, which missed estimates and delivered a God-awful full-year comps guide.
For 2024, same store sales will rise 1.6% at most, the company said. Previously, the lower-end of the range was +2%. Same store sales rose just 0.5% in Q2. The Street was looking for a gain four times that size. Dollar General also cut its profit outlook. In a best case, EPS will be $6.20 this year, ¢60 below the bottom-end of the previous range.
The market wasn’t amused. The stock cratered 26%, putting the shares on track for their worst day ever.
Although the lackluster comps and guide were the unequivocal pain points, it’s worth noting that the company missed on both the top and bottom lines for Q2, reporting sales of $10.21 billion (versus $10.37 billion expected) and EPS of $1.70 (versus $1.79 seen).
CEO Todd Vasos said Dollar General made “important progress” last quarter on its turnaround plan (dubbed “Back to Basics”), but conceded the results were unsatisfying, as he put it. Vasos cited “a core customer who feels financially constrained.” In other words, poor people are now poorer than usual. So poor, apparently, they can’t even buy as much as they used to at Dollar General.
This again underscores the notion that the spending impulse in America is being driven by higher-end consumers, who’re benefiting from asset price appreciation (equities, homes and so on) and tens of billions of monthly interest income from money market balances.
Two quick caveats. First, if you know anything about America’s publicly-traded dollar stores, you know they’re a bit of a soap opera. Relatedly, a guide down of the magnitude Dollar General delivered on Thursday can’t be attributed entirely to the operating environment, and indeed the company didn’t place all of the blame with customers or the macro.
Bottom line: If the high-end of your new guidance is below the low-end of the prior range, there’s plenty of blame to go around. Mistakes were made. And not just the mistake poor people make by being poor.
DG saw +ve comps only in consumables (i.e. necessities). Weakest comps were in last week of each month (i.e. customers ran out of money for necessities). DG’s core customer makes <$35K/yr (i.e. low-income, close to poverty level).
In past downcycles, dollar stores outperformed because some low-mid and mid-income shoppers traded down to where low-income shoppers were. I think broad retailers like WMT TGT have gotten better at value offerings. As DG has grown, possibly more stores are in run-down areas where there are only low-income shoppers. This downcycle is in the earliest innings, low-mid and mid-income remain employed hence are not yet driven to dollar stores. We’re merely in the stage where JWN’s full-price shoppers are considering Nordstrom private label apparel and whether they should check out the Rack stores.
I don’t understand the rationale for high-end department store private label clothes. It’s always boggled my mind that someone who previously bought high-end name brands would go for the store brand at their favorite high-end department store instead of just saying “Oh, well, tough times, I’m going to Banana Republic. I’ll come back to Burberry next cycle.” Especially considering some of / a lot of those private label store brands are made in China. Now that you mention it, a lot of Burberry is made in China these days, which is highly disappointing, but that’s another conversation.
Actually, both dollar store chains are mostly concentrated in rural areas where they are the only nearby choice. Yes, often poorer places, but, often as not, populated by nice white people = the MAGA base. Thanks to the elimination of poll taxes and reading tests, their vote counts as much as yours in November.
I caught the irony of your last sentence there derek. It’s a fine line you’re walking, but that was funny.
Agreed, it was funny.
Seems that the main problem at DG is that they don’t sell food, shelter or gas.
Without appearing argumentative, there are now DG Market stores where it does sell grocery. Not as common as the traditional DG stores.
Maybe now a lot of people can afford to shop in ordinary stores.
Let’s throw this afternoon’s results from ULTA and LULU. Perhaps the rot is not exclusively concentrated amongs the lowest dregs of society? I’ll join the “more information needed” camp.
But I’m scolding myself for wasting time parsing this data which matters little to overall short and medium-term stock index performance.
I’m inclined to treat those as idiosyncratic.
ULTA is losing share in prestige categories to higher-end Sephora stores; if anything, consistent with (those) consumers’ still-comfortable spending power.
LULU I don’t follow but didn’t everyone who bought a PTON bike also buy a trunkful of LULU leggings which look exactly the same today as they did one, two, three years ago?
Selling expired groceries at the same price as the regular grocery stores is not a good business model to say the least. The poors management should be referring to are poor management.
Part of the challenge is – how do rate cuts and ending QT help here?
“ Inflation has continued to negatively impact these households, with more than 60% claiming they have had to sacrifice on purchasing basic necessities, driven by increases in rent and healthcare”
They stay employed?