Dollar General Corporation (DG) shares took a nosedive in premarket trading on Thursday following a disappointing second-quarter earnings report and a downward revision to its fiscal year 2024 outlook. The retail giant missed analyst expectations on both earnings and revenue.
The company reported earnings per share of $1.70, falling short of the consensus estimate of $1.78. Quarterly sales of $10.21 billion, representing a 4.2% year-over-year increase, also missed the Street’s view of $10.368 billion. While Dollar General reported a modest 0.5% increase in same-store sales, driven by an uptick in customer traffic, this gain was partially offset by a decrease in average transaction amount. The company’s operating profit took a significant hit, declining by 20.6% to $550.0 million.
“Despite advancing several of our operational goals and driving positive traffic growth, we are not satisfied with our financial results, including topline results below our expectations for the quarter,” stated Todd Vasos, Dollar General’s chief executive officer.
The second quarter saw a decline in gross margin from 31.1% to 30.0%, representing a 112 basis point year-over-year decrease. This drop in the gross profit rate was primarily attributed to increased markdowns, higher inventory damages, a larger share of sales from the consumables category, and rising shrinkage.
Despite the drop in profitability, Dollar General generated $1.7 billion in year-to-date cash flows from operations.
“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,” Vasos added.
As of August 2, total merchandise inventories at cost stood at $7 billion, down from $7.5 billion as of August 4, 2023, representing an 11.0% decrease on a per-store basis.
“With the evolving retail and consumer landscape in mind, we are taking decisive action to further enhance our value and convenience offering, as well as the in-store experience for our associates and customers,” the company said.
Dollar General exited the quarter with cash and equivalents worth $1.22 billion. As of quarter-end, the company’s long-term obligations totaled $6.24 billion.
The company declared a quarterly cash dividend of 59 cents per share on August 28, payable on or before October 22, to shareholders of record on October 8.
Looking ahead, Dollar General has revised its fiscal year 2024 outlook, lowering its EPS forecast from a range of $6.80 to $7.55 to a new range of $5.50 to $6.20, compared to the $7.12 estimate. The company also reduced its revenue forecast from a range of $41.01 billion to $41.28 billion to a revised range of $40.51 billion to $40.74 billion, against the $41.02 billion estimate. Dollar General continues to expect 2,435 real estate projects, including 730 new store openings, 1,620 remodels, and 85 store relocations in FY24.
DG shares were down by 25.1% to $92.80 at last check in premarket trading on Thursday.
