ALEXANDRIA, Va.—Dollar General cut its earnings forecast for the year, with the discount retailer expecting sales to be up 1%-2% instead of the 3% it had initially projected, and the company expects earnings to be down 8% year over year. CNN reports that this earnings dip could be a red flag for the broader U.S. economy.
Consumers are spending less on discretionary items, but when high- and middle-income need to trade down, they turn to cheaper food options and discount big-box chains, like Walmart. However, according to Dollar General CEO Jeff Owens, when its customers trade down, they have to pull back completely.
“Unfortunately, our customers are saying they’re having to rely more on food banks, savings, credit cards,” CEO Jeff Owen said on a call with analysts last week.
The CEO said Dollar General’s core customer brings in less than $40,000 a year, and that its customer was caught off guard by reduced tax refunds and reduced SNAP benefits, “which exacerbated the inflationary pressures they were already experiencing.”
Dollar Tree also slashed its profit outlook for the year.
The economy is not in a recession yet, but economists are attempting to predict when it will happen through earnings reports and unemployment data. However, strong consumer spending and a robust labor market have “defied predictions that the economy was about to stumble,” reports CNN. The economy made it through the pandemic, decades-high inflation rates and a steady drum beat of inflation rate hikes.
But now consumers are going into more credit card debt and cutting the fat out of their budget.
“The carefree shopping trip has been replaced by more focused missions where people set budgets and are less willing to deviate from them,” said Neil Saunders, a retail analyst at GlobalData, in a note to clients last month.
According to a recent Numerator report, 59% of consumers have a high level of concern regarding the economy, more than two-thirds (67%) of consumers feel as though the country is in an economic recession and 68% believe it will worsen in the next few months. Seventy-six percent of consumers say rising prices on essential goods and services is their main economic concern, followed by rising prices on gas and fuel (65%).
According to The Wall Street Journal, “A slowdown in business investment and a weak housing market, both influenced by interest rates, have contributed to a broader economic cooling this year.”