Dollar General stock tanks 32% after outlook cut spurred by 'cash-strapped' customer

Dollar General ( DG ) stock tumbled 32% on Thursday after the discount retailer cut its outlook, pointing to a financially pressured customer. Thursday's drop in Dollar General was its biggest on record.

Dollar General said it expects fiscal 2024 same-store sales growth in the range of approximately 1.0%-1.6%, compared to its previous expectation in the range of 2.0%-2.7%.

"It appears to us very strongly that ... this lower-end consumer continues to be very much financially strapped, especially as it relates to her ability to feed her families and support her families," CEO Todd Vasos told analysts during the company's earnings call on Thursday morning.

Vasos said the last week of each of the calendar months in the quarter was "the weakest by far," with customers leaning into a mix of the 2,000 items still priced at $1 or below. Shoppers opted for more consumable goods and less seasonal, home, and apparel items during the quarter.

"All those points would indicate that this is a cash-strapped consumer, even more than we saw in Q1," he added.

Shares of rival Dollar Tree ( DLTR ), which is set to report quarterly results next week, also fell 10% in sympathy.

Dollar General has been undergoing a "Back to Basics" improvement plan helmed by Vasos, who returned to Dollar General last year.

However, Wall Street has become impatient with the dollar store model as retail giants like Walmart ( WMT ) increase their market share with consumers across different income ranges.

On Thursday, CFRA Research senior equity analyst Arun Sundaram cut his rating on Dollar General to Hold from Buy. Sundaram wrote, "Dollar store operators have somewhat lost their appeal for value and convenience as other retailers like Walmart expand their omni-channel offerings and have more levers to keep prices low."

The analyst expects Dollar General will need to spend more on store remodels, price reductions, inventory markdowns, and wage increases, potentially squeezing margins.

Dollar General said quarterly gross profit as a percentage of net sales fell to 30% compared to 31.1% during the same period last year due in part to increased markdowns, increased inventory damages, a greater proportion of sales coming from the consumables category, and increased shrink.

The company posted adjusted earnings per share of $1.70 versus expectations of $1.79, alongside revenue of $10.21 billion, below Wall Street's consensus expectations for $10.36 billion.

Dollar General stock is down more than 40% this year.

@ines_ferre .