(Reuters) -Discount retailer Dollar General slashed its annual sales and profit forecast on Thursday, as budget-conscious customers cut back spending on its higher-margin goods to prioritize essential purchases, sending its shares down over 20%.
The retailer, like its peer Dollar Tree, faces weak demand for home goods, electronics, toys and apparel, while competing with Walmart, Target and Chinese e-commerce platform Temu, which are also offering lower-priced products.
"Despite advancing several of our operational goals and driving positive traffic growth, we are not satisfied with our financial results, including top-line results," CEO Todd Vasos said, while attributing softer sales to its customer base feeling financially constrained.
The company said it was taking "decisive action" to provide more value to its customers, while also improving its in-store experience.
The company now expects fiscal 2024 same-store sales to be up 1% to 1.6%, compared with the prior forecast of 2% to 2.7% rise.
It also expects annual earnings per share in the range of $5.50 to $6.20, compared with the prior forecast of $6.80 to $7.55 per share.
In contrast, both Target and Walmart raised their full-year profit forecast, benefiting from price cuts to attract increasingly price-sensitive consumers.
Despite supply chain costs coming down from its peaks, Dollar General's margins continued to be pressured by still-high labor costs, as well as increased markdowns, inventory damages and retail shrink, in which includes losses from theft or damage.
The company's quarterly gross margin was 30%, down from 31.1% a year ago.
Dollar General posted net sales of $10.21 billion for the quarter ended Aug. 2, compared with analysts' average estimate of $10.37 billion, according to LSEG data.
It also reported a profit of $1.70 per share for the quarter, compared with analysts' estimate of $1.79 per share.
Shares of the company were trading at $94.60 in premarket trading and were on track to open at its lowest since June 2018, while those of its main rival Dollar Tree were down about 6%.
(Reporting by Anuja Bharat Mistry in Bengaluru; Editing by Vijay Kishore)