US consumer spending shows signs of weakness again, with the largest discount retailer Dollar General's performance plummeting, causing its stock price to hit the largest drop in history | Financial Report Insights

The largest discount retailer in the United States, Dollar General, released its second-quarter results before the market opened on Thursday, which fell short of expectations across the board and lowered its full-year guidance, citing "financial pressure" on its core customers. The poor performance led to Dollar General's stock plummeting by nearly 30% at the opening of the U.S. stock market on Thursday, marking the largest single-day drop in history, with the stock price falling to levels not seen since the end of 2017.

1) Key Financial Data:

Net Sales: $10.21 billion, a year-on-year increase of 4.2%, below the expected $10.37 billion;

Same-Store Sales Growth: Increased by 0.5% year-on-year, compared to a 0.1% decrease in the same period last year, falling short of the expected 2.07% growth;

Gross Margin: 30%, down from 31.1% in the same period last year, below the expected 30.3%;

Selling and Administrative Expenses as a Percentage of Revenue: 24.6%, up from 24% in the same period last year, with an expected 24.4%;

Operating Profit: $550 million, a 21% year-on-year decrease, below the expected $587.5 million;

Earnings Per Share: $1.70, down from $2.13 in the same period last year, below the expected $1.79.

2) Full-Year Guidance:

Earnings Per Share Guidance Range: Revised down from $6.80-$7.55 to $5.50-$6.20, below analysts' expectations of $7.11;

Same-Store Sales Growth Guidance Range: Revised down from 2%-2.7% to 1%-1.6%, below analysts' expectations of around 2.47%;

Expected Net Sales Growth Range: 4.7%-5.3%, previously expected to increase by 6%-6.7%;

Expected Effective Tax Rate: 23%, previously expected to be 22.5%-23.5%;

Expected Capital Expenditure: Unchanged at $1.3 billion to $1.4 billion, with analysts expecting $1.39 billion.

The company's CEO, Todd Vasos, acknowledged that consumers are facing pressure in the current environment of high inflation and high interest rates:

"While we believe that the softness in sales trends is partly attributable to the financial pressure on our core customers, we recognize that controlling what we can control is crucial. Given the evolving retail and consumer environment, we are taking decisive actions to further enhance our value and convenience, as well as improve the in-store experience for our employees and customers."

The poor performance caused Dollar General to plummet by 23.5% in pre-market trading on Thursday, falling to the midpoint of the $94 range, the lowest level since early 2018. The stock continued to decline after the market opened, with a midday drop of 29.67%, marking the largest single-day drop in the stock's history, bringing the stock price back to levels seen at the end of 2017.

Data shows that Dollar General has nearly 19,000 stores in the United States, spread across 48 states and 8,000 cities. Therefore, some analysts believe that Dollar General's performance is an indicator of the financial situation of middle and lower income consumers.

Financial media Zerohedge wrote that Dollar General's poor performance at least indicates that the downward trend in consumption is still ongoing and may worsen in the coming months. Therefore, the Fed's rate cut cycle may start as early as September 18th. Historically, the Fed rarely cuts rates during economic prosperity, and the article believes that "Bidenomics" policies have financially burdened a generation of consumers.

Dollar General's management pointed out that its core customers "feel financial pressure," and from the distribution of the company's stores, it seems that consumers in the entire United States, especially in the swing states, are more severely affected by the "Bidenomics" policies.