Even dollar stores are suffering as consumers become more cautious

Signs of an increasingly cautious consumer and a looming recession are not helping US dollar chain stores.

While dollar stores previously thrived in times of economic uncertainty due to their low prices, this time they have different.

On Thursday, Dollar General (DG) lowered its full-year sales and earnings guidance, with earnings per share now expected to fall as much as 8% year over year.

“The macroeconomic environment is more challenging than the Company previously anticipated, which the Company believes is having a significant impact on spending levels and customer behavior,” Dollar General said in its press release.

A week earlier, Dollar Tree (DLTR) lowered its earnings guidance, saying its company was “not immune to the external pressures affecting the retail industry as a whole.”

Shares in both dollar stores have now fallen by double digits over the past week.

The dollar business forecast cuts come as retail earnings have painted a mixed picture for consumers. BJ’s (BJ) informed investors that comparable sales for the current quarter were lower than comparables. Target warned of a downturn in consumer discretionary. But Walmart (WMT) said it’s a healthy business as some consumers benefit from trading with lower prices.

“In the retail industry, I think it’s pretty much always a stock-picking market,” Anthony Chukumba, chief executive officer of Loop Capital Markets, recently told Yahoo Finance Live. “You just have to roll up your sleeves and do the work. Because while the rising tide raises and lowers all boats, a lot has to do with company-specific situations, strategies and management teams.”

According to Chukumba, dollar stores are under pressure as consumers switch from necessities to consumables that have lower margins. Both deals missed Wall Street’s adjusted earnings forecast for the previous quarter and forecast weaker-than-expected full-year results.

At Dollar Tree, product cost increases, increased theft, and higher distribution costs result in margin compression and thus reduced profits.

The discounter is also seeing a price increase from last year, when it raised its standard price of goods from $1 to $1.25. Management believes this has made it difficult to compare same-store sales to last year, when prices for their products were cheaper.

“There are just a couple of elements that we feel we still need to work on in terms of the product offering as we look at introducing new price points and being able to get a little more margin where previously was not possible.” to some of the lower price levels,” Jeff Davis, Dollar Tree’s CFO, said at the company’s earnings announcement last week.

Meanwhile, buyers at Dollar General are showing a clear trend toward cheaper goods, according to Dollar General CEO Jeffery Owen.

“We see that she’s buying fewer items per cart,” Owen said, referring to the consumer. “We’re seeing her really taking advantage of that dollar price, and we’re really excited that we’re still offering that.” And then we also see that she buys just before the payday on the first of the month.”

During Thursday’s earnings announcement, Dollar General also said it plans to open 60 fewer stores this year than originally planned, a sign of the times Retailers according to Citi retail analyst Paul Lejuez.

“[The store revisions] are the latest signs that discretionary retail concepts are coming under pressure,” Lejuez wrote in a note to clients on Thursday.

Josh is a reporter for Yahoo Finance.

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