Dollar General Corp. (NASDAQ: DG) cut its full-year profit and sales forecasts on Tuesday and warned that proposed tariffs on Chinese imports could begin to have a greater impact on its business and customers, sending its shares down nearly 9%.
The Company topped profit estimates for the third quarter when excluding a 5-cent per share impact from hurricanes Florence and Michael, but said the fallout would reduce its holiday-quarter profit by 4 cents. Dollar General has a large number of stores in the eastern and southern coastal areas damaged by the storms, but did not say how many stores were affected.
One of America’s biggest discount chains, the Company warned that if Washington followed through on threats to raise tariffs to 25%, it was likely to hurt more. The Company directly imports about 5% to 6% of its merchandise, a substantial amount of which still comes from China, and said that many vendors also have supply deals in the country, making the entire supply chain vulnerable to higher tariffs.
Dollar General said it is working with vendors to reduce costs and considering other options to ease the blow from tariffs, including shifting manufacturing to other countries or stocking substitute products that are not subject to tariffs.
Like several other retailers, Dollar General also flagged higher freight costs, as a shortage of truck drivers, new driver regulations and higher fuel prices made moving freight much costlier.
The Company cut its full-year profit forecast to USD 5.85 to USD 6.05 per share from the prior forecast of USD 5.95 to USD 6.15 per share, falling well below analysts’ average estimate of USD 6.11.
Investors were also worried about the Company’s flat store traffic in the third quarter and pressures on its gross margins, which fell 39 basis points to 29.5%, primarily due to the direct and indirect effect of tariffs and higher freight costs.
The disappointing forecast and gross margin pressure overshadowed better-than-expected quarterly same-store sales, which rose 2.8% for the quarter ended Nov. 2, topping the 2.43% increase forecast by analysts.
Net income rose to USD 334.14 Million, or USD 1.26 per share, from USD 252.53 Million, or 93 cents per share, a year earlier. Net sales rose 8.7% to USD 6.42 Billion, beating analysts’ estimate of USD 6.38 Billion.