(Bloomberg) -- Dollar General Inc. narrowed its full-year guidance, underscoring the discounter’s challenges in attracting bargain-hunting shoppers who have seen their purchasing power eroded by higher prices.
The company now sees comparable sales in a range of 1.1% to 1.4%, down from the previous guidance for growth of 1% to 1.6%.
The shares dropped 1.2% at 9:32 a.m. Wednesday in New York trading. Dollar General shares are down about 42% year-to-date, versus a gain of 28% for the S&P 500 Index.
The results highlight ongoing difficulties at Dollar General, which brought back former Chief Executive Officer Todd Vasos last year and has focused on simplifying operations. It’s removing items and slowing new store openings while investing in labor hours and improving the supply chain.
“Our core customers continue to face significant financial pressure,” Vasos said on a call with analysts. “We see this pressure in the timing of their shopping during the month as well as in the mix of products they’re buying. We know that they need value.”
Dollar General is making progress in its turnaround efforts, he said, adding that customer satisfaction rates have improved as the retailer works to make its stores more clean and convenient. In-stock levels have improved, and employee turnover rates are low.
Years of price increases across the economy have squeezed Dollar General’s core base of lower-income consumers. Competition has been fierce, too, with companies like Walmart Inc. picking up market share while companies such as Aldi Inc. go all-in on deals.
Competitor Dollar Tree Inc. has faced similar challenges, marking an unusual moment for the dollar stores that typically perform well when consumers look to stretch their budgets. On Wednesday, Dollar Tree reported better-than-expected sales, adding that higher customer traffic helped drive up sales in the company’s third quarter.
Dollar Tree, which is looking for a new CEO and chief financial officer, is expanding its assortment while reviewing strategic options for the struggling Family Dollar chain.
Dollar General showed signs of progress during the latest quarter. Its comparable sales rose 1.3% for the period through early November, higher than what Wall Street analysts were expecting. Shoppers spent more per trip and traffic grew.
Demand for food and other frequently-purchased items also rose, and the retailer said it’s gaining share in these categories. Home, apparel and seasonal items weighed on sales. Adjusted earnings of 89 cents a share were also lower than expected.
Part of the change to its updated financial guidance was attributed to hurricane-related expenses of $32.7 million in the third quarter, and an estimated fourth-quarter negative impact of approximately $10 million, in each case related to the hurricanes that occurred in the third quarter. Discounts are expected to squeeze profit margins in the near term.
The company said Thursday that it will significantly increase real estate projects next year, including remodeling older stores. This will focus on lighter fixes for mature stores that aren’t old enough for full remodels.
It plans to open 730 new stores and remodel 1,620 others, focusing on lighter fixes for mature stores that aren’t old enough for full remodels.
(Updates share trading and adds commentary from analyst call)
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