Dollar General Earnings Show Changes in Paycheck-to-Paycheck Spend

As a pulse check on the paycheck-to-paycheck consumer, Dollar General’s most recent Q1 earnings showed that one of the economy’s most closely watched demographic groups is still undergoing changes.

By posting better-than-expected revenue, the 19,000-store chain showed more consumer visits compared to 2023, but a lower average spend as pricing pressures took their toll on consumer wallets.

“She [the Dollar General shopper] does indicate that inflation has slowed down but she keeps pointing out that the inflation of the past couple of years is still there,” CEO Todd Vasos told the company’s earnings call on Thursday (May 30). “It hasn’t gone away and it’s in our base.”

By the numbers, Dollar General reported Q1 revenue of $9.91 billion, slightly exceeding the Wall Street analysts’ estimate of $9.89 billion. Compared to the same period last year, net sales increased by 6.1% from $9.3 billion, and same-store sales grew by 2.4%.

However, operating profit declined by 26.3% to $546.1 million. The decline, as CFO Kelly Dilts detailed on the call, was caused by inventory shrinkage and lower revenue due to downward price pressure on consumable items.

The company credited its better-than-expected results to strong customer traffic and market share gains. Vasos highlighted the company’s strategic focus and improved execution as key factors behind the quarter’s performance.

Vasos, who said the company undertakes consumer research each quarter, devoted time during the Q&A session of the earnings call to detail what he saw as a “cautious” consumer.

Vasos reiterated the company’s early prediction that the promotional pricing environment would intensify in 2024, akin to pre-pandemic levels of 2019. This trend was evident in the first quarter and is expected to continue throughout the year.

He pointed to the retailer’s strategy that balances everyday low pricing with targeted promotional activities. He said robust category management and close partnerships with major consumer goods companies help mitigate margin risks associated with promotional pricing, but he didn’t expect it to affect confidence that the balance of the year would continue in its guidance of about 2% same store growth.

While Vasos described consumer behavior as “value-driven” particularly among lower-income shoppers, trade-down behavior was noted among middle and upper-middle-income groups. Data indicates that Dollar General is retaining core customers while attracting new ones across all demographics.

Essential spending, he said, remains a priority for consumers, balanced between spending on consumables and non-consumables was observed, especially during events like Easter. Consumers are deliberate with discretionary spending, he said, indicating ongoing adjustments in income allocation.

Addressing the shrinkage issue, as it did during its Q4 earnings call in March, the company will continue to pull self-checkout from its stores.

“Shrink continues to be the most significant headwind in our business,” Vasos said “and we are deploying an end-to-end approach to shrink reduction across the organization, including efforts in our supply chain, merchandising and within our stores.”

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