Dollar General struggles as customers cut back on discretionary spending

Low-income shoppers are pulling back on spending, resulting in disappointing sales at Dollar General, which on Thursday lowered its sales and profit forecast for the year.

"We believe the softer sales trends are partially attributable to a core customer who feels financially constrained," Todd Vasos, Dollar General's chief executive officer stated. The company is continuing with a turnaround plan it embarked upon after he returned to Dollar General from retirement last year, the CEO added.

While multiple economic trends are positive, "this good news has not yet reached the wallets of Dollar General customers who remain very constrained and cautious," said retail analyst Neil Saunders. "They are buying less at Dollar General and are cutting back on more discretionary categories like seasonal and home products. This depletes sales but it also dilutes profitability as many of the harder-hit categories have higher margins," said Saunders, managing director of GlobalData.

The discount retailer now anticipates same-store sales to rise 1% to 1.6% this fiscal year, revised lower from its previous forecast of a 2% to 2.7% increase.

Dollar General may also be losing ground to other stores, including Walmart and Target.

Walmart earlier this month reported strong quarterly sales in drawing Americans grappling with increasing shelter and food costs. Likewise, deals in the grocery aisle helped Target reverse a year-long sales slide earlier this month.   

The earnings release comes after Dollar General agreed to pay $12 million and improve safety at its 20,000 stores nationwide to settle claims it put workers in danger with practices including blocking emergency exits.

In June, Dollar General rival Dollar Tree said it plans to close almost 1,000 stores over the next several years.