Dollar General cuts annual profit view as costs surge

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FILE PHOTO: A price sign is displayed at a Dollar General store in Arvada

(Reuters) -Dollar General Corp cut its annual profit forecast on Thursday after it missed estimates for quarterly earnings, signaling rampant cost pressures were weighing on the discount store chain’s margins, sending its shares down 6% premarket.

Freight, labor and other supply chain-related costs have jumped for U.S. retailers, while excess inventory levels have also forced them to offer deep discounts to spur demand.

While margins have been pressured across the retail industry, Tennessee-based Dollar General said it was also seeing inefficiencies within its own supply chain.

Unexpected delays in acquiring additional warehouse space to store inventory resulted in higher-than-expected distribution and transportation costs, according to the company.

Dollar General, which in July named insider Jeff Owen its new chief executive, saw its gross margin fall by 27 basis points to 30.5% in the third quarter.

“It’s unusual for this well-run company to stumble on execution issues. The fact that it’s occurring during the CEO transition and seemed to come out of left field isn’t a great look,” Wells Fargo analyst Edward Kelly said.

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Rival Dollar Tree Inc last month cut its full-year profit forecast for the second time, citing planned price cuts and weak demand for discretionary goods, while discount store peer Big Lots Inc also posted downbeat quarterly results earlier on Thursday.

Dollar General now expects fiscal 2022 earnings per share to increase about 7% to 8%, compared with its prior outlook of a rise of about 12% to 14%.

The company reported a profit of $2.33 per share for the third quarter ended Oct. 28, missing analysts’ estimates of $2.54, according to Refinitiv IBES data.

The retailer, however, said its annual same-store sales would be toward the upper end of its previously expected range of 4.0% to 4.5%, after topping same-store sales estimates for the reported quarter.

(Reporting by Granth Vanaik and Deborah Sophia in Bengaluru; Editing by Sriraj Kalluvila and Shounak Dasgupta)