Dollar General stock plummets as dollar stores get hit by the cautious consumer

Shares Dollar General nosedived as the budget retailer reported disappointing first quarter results. It follows the likes of Dollar Tree, which recently cut its outlook. Yahoo Finance's Josh Schafer breaks down what the discount retailers are telling us about the U.S. consumer.

Video transcript

- In the past, discounters like Dollar General and Dollar Tree have thrived during tough economic times. But this time is different. Yahoo Finance's Josh Schafer has the story. What's going on here exactly, Josh?

JOSH SCHAFER: Yeah, Pras, so you're seeing Dollar General under significant pressure today after reporting earnings. And the key thing here that we saw was so Dollar General had initially forecasted for earnings per share growth, adjusted earnings per share growth this year. They're now forecasting for as much as an 8% decline this year.

And a large part of that is what they're seeing in terms of their margins and in terms of the cost to acquire these goods, right? So if you're thinking about a store like Dollar General, even a store like Dollar Tree, they're selling a lot of low cost goods, right? They don't want us to pay more than $1 as much as they can, right? They want to keep people in there. And so they're sort of taking on that cost, and it's hurting their margins.

And a big thing we're seeing, too, when we talk about these two dollars stores is consumable goods. Consumable goods are traditionally lower margin for the store itself. And consumable goods, those household items, people are going to the dollar stores for those. But that's becoming a larger part of their business, which, in turn, means that they make less money and make less of a profit. So you're seeing both those stocks off significantly in [INAUDIBLE] earnings there.

PRAS SUBRAMANIAN: Yeah, not bussing there, Josh. Not bussing at all. Josh Schafer, thanks so much.