https://nighthawkrottweilers.com/

Business

Dollar General customers turn to food banks, CEO says




Editor’s note: A version of this story appeared in CNN Business’ Nightcap newsletter. To get it in your inbox, sign up for free, here.


New York
CNN

Dollar General’s stock has just had one of its worst days on Wall Street. And that spells trouble for Main Street.

The discount retailer’s shares fell 20% on Thursday after the company cut its earnings forecast for the year. Dollar General now expects sales to rise between 1% and 2% (down from a previous forecast of about. 3%) and expects earnings to fall 8% year on year.

That news is a giant red flag for the broader US economy.

Simply put: We already knew U.S. consumers were hurting because other retailers’ results — including Macy’s, Costco and Target — showed consumers pulling back on discretionary items. But Dollar General’s worse-than-expected results point to a more troubling reality for the nation’s consumer-dependent economy. When high- and middle-income customers feel strained, they tend to change their spending — buying chicken instead of beef, for example, or getting their home goods from Walmart instead of West Elm.

When Dollar General’s core customers feel strained, they pull back completely.

“Unfortunately, our customers are saying they have to rely more on food banks, savings, credit cards,” CEO Jeff Owen said on a call with analysts Thursday.

The company says its “core customer” earns less than $40,000 a year. Owen also said he believes customers were caught off guard by reduced tax refunds and reduced SNAP benefits, “exacerbating the inflationary pressures they were already experiencing.”

Dollar General’s results mirror those of rival Dollar Tree, which also fell short of investors’ expectations last week and cut its profit outlook for the year.

Economists have not yet declared a US recession — That designation must come from a panel of eight bureaucrats you’ve never heard of at the National Bureau of Economic Research, and they will only weigh in after the downturn has already begun. That has left economists and commentators playing a recession guessing game for the past year and a half, analyzing every earnings report and unemployment data point to try to predict when the downturn will hit, how long it will last and how bad it will hurt.

Through it all, two powerful forces have defied predictions that the economy was about to stumble: Consumer spending (by far the biggest engine of the US economy) and the strongest labor market in half a century.

Consumers drove the economy through the worst of the pandemic and through a painful recovery year characterized by a double shock of high inflation and high interest rates.

They can only do so much.

People are now packing on credit card debt and turning their attention to necessities.

“The carefree shopping spree has been replaced by more focused engagements where people set budgets and are less willing to deviate from them,” Neil Saunders, a retail analyst at GlobalData, said in a note to clients last month.

Dollar General’s poor earnings also underscore the extreme difference in how inflation is felt among high-income versus low-income customers. In April, retail sales in the US rose year-on-year, but the gain was mainly driven by spending on cars, restaurants, concert tickets and travel. While that’s good for the economy, it tends to mask the struggle of poorer people who are just trying to make ends meet.

The labor market, meanwhile, is resilient even after 10 consecutive interest rate hikes. Although monthly job gains slow and layoffs increase, it is not clear whether they will return to a pre-pandemic normal or whether they will continue to slide and usher in a recession. (Economists will get an update on the jobs front Friday, when the U.S. releases its closely watched monthly jobs report for May.)

Do you like evening drinks? Sign up and you’ll get all of this, plus some other fun stuff we liked on the internet, in your inbox every night. (OK, most nights — we believe in a four-day work week here.)



Source link

Back to top button