- Dollar General cut its profit estimate for 2023 on Thursday.
- It’s never a good sign for the economy when even a budget store is forced to lower projections.
- Macy’s also reduced its forecast, citing spending trends that started weakening in mid-March.
There are new signs the American consumer is pulling back on spending right now, reaffirming fears of an economic downturn widely expected to end in recession.
The first of two jarring pieces of evidence comes in the form of first-quarter earnings from Dollar General. The discount retailer turned in a dismal report that included a cut to full-year sales and profit forecasts.
“Our customer is even under more pressure as we have progressed into 2023. And quite honestly, it’s some of the most pressure we’ve seen in quite some time,” CEO Jeffery Owen told analysts on an earnings call.
CFO Kelly Dilts added: “We do expect this customer to remain under pressure for the foreseeable future.”
Perhaps most troubling about Dollar General’s update is that it’s the type of budget store that people typically turn to when finances are tight. The fact that they’re not immune to a broader pullback in consumer spending is a big red flag for the US economy.
Speaking of which, a bit further up the affluence scale, Macy’s turned in an earnings stinker of its own. The department-store giant offered disappointing second-quarter projections and — like Dollar General — slashed full-year projections.
One of the most notable takeaways from the company’s earnings call was that it’s seen a demand decline as shoppers have pivoted their spending habits to be more conservative. It also gave a not-so-promising outlook for how long the slowdown will last.
“The US consumer, particularly at Macy’s, pulled back more than we anticipated as they reallocated spend to food, essentials and services,” Jeff Gennette, the chairman and CEO of Macy’s, said to analysts on Thursday. “We have planned our business for the remainder of the year, assuming mid-March through April macro headwinds continue and potentially worsen.”
These disappointing developments for Dollar General and Macy’s are indicative of a broader economic contraction many feared would come as the Federal Reserve has repeatedly hiked interest rates in the name of smothering inflation. Having burned through post-COVID cash stockpiles, shoppers are taking their frustrations out on certain retailers by spending less.
The consumer slowdown has been frequently cited as a major trigger point for a looming recession, as well as something that will erode stock-market returns as profit growth struggles. Forecasters across Wall Street have warned for months of the prospect of both scenarios materializing.
The most prevalent narrative — one put forth by market legends like Paul Tudor Jones, institutions like Evercore, and former high-ranking officials like Larry Summers — is that the US will dip into recession sometime in the second half of 2023, or by early 2024 at the latest.
Narratives aside, there are still retailers thriving in the tighter environment. Walmart actually raised its forward guidance during its earnings report last month, while Target turned in a better-than-expected quarter and maintained its profit forecast. Both are benefiting from still-thriving demand for household essentials and groceries.
Still, even Walmart and Target were upfront on their earnings calls about how concerned a weakening consumer makes them. The American economy can’t thrive without confident shoppers, and further warnings beyond those issued by Dollar General and Macy’s will be cause for even more concern.