Reaching the Limit

Lower-income consumers are having trouble stretching budgets

Summary: The lower-income consumer has been struggling for a long time, but Dollar General's earnings call suggests that this consumer may be starting to hit their limit. DG said that based on its surveys, its core customers: 1) are having trouble stretching budgets to the end of the month, 2) are sacrificing purchasing basic necessities, and 3) anticipate missing bill payments in the next 6 months. The economy is waiting for lower interest rates.

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Macro

Dollar General's core customers appear to be in very bad shape
"Our core customer who contributes approximately 60% of our overall sales comes predominantly from households earning less than $35,000 annually. Inflation has continued to negatively impact these households, with more than 60% claiming they have had to sacrifice on purchasing basic necessities due to the higher cost of those items." - Dollar General (DG 0.00%↑) CEO Todd Vasos

Budgets have been stretched to the max
"Same-store sales growth was strongest in June before turning negative in July. Notably, the 3 softest comp sales weeks of the quarter were the last week of each of the calendar months. This pattern suggests that our customers are less able to stretch their budgets through the end of the month." - - Dollar General (DG 0.00%↑) CEO Todd Vasos

Customers are feeling worse than they did 6 months ago
"The majority of them state that they feel worse off financially than they were 6 months ago as higher prices, softer employment levels, and increased borrowing costs have negatively impacted low-income consumer sentiment." - Dollar General (DG 0.00%↑) CEO Todd Vasos

Credit cards are reaching their limits
“More of our customers report that they are now resorting to using credit cards for basic household needs, and approximately 30% have at least one credit card that has reached its limit. And in our latest survey, 25% of our customers surveyed noted they anticipated missing a bill payment in the next 6 months." - - Dollar General (DG 0.00%↑) CEO Todd Vasos

Economic pressures are broadening beyond low-income consumers
"...economic pressure and uncertainty that was felt by lower-income shoppers starting two years ago has spread to other income bands and other demographic groups…And so, I think a big part of what we're seeing is that value-conscious customer is trading down into our stores.." - Burlington Stores (BURL 0.00%↑) CEO Michael O'Sullivan

"Our lower-income demographic was underperforming. And our higher income demographic was outperforming, which tells us...We were getting some trade down there from the higher income demographic…" - Five Below (FIVE 0.00%↑) Interim CEO Ken Bull

"Inflation and high interest rates continue to pressure spending, especially among our middle-income consumers. We are seeing the clearest evidence of this in the performance of our core apparel and footwear offering, which experienced broad softness in the quarter." - Kohl's (KSS 0.00%↑) CEO Tom Kingsbury

Even the ultra-high-end consumer is feeling value-conscious
"...I recently went to a restaurant where I spent €500, and the wine list was like €2,000 for a wine which is worth €200, €250 for the wine we buy for our company. And I know it costs €25. So at the end, they said, well, will I see you next week? And I said I am afraid you’ll never see me again. So we need balance here... There’s a new sensitivity... I went to a little hotel and I paid €4,900 where you would normally sleep for €1,700, and I said, I’d rather sleep in my car. I feel I’m being tricked. I’m being swindled." - Brunello Cucinelli ($BCUCF) Executive Chairman Brunello Cucinelli

Not everyone is negative
"We saw good growth across all income cohorts at the Rack and then at Nordstrom stores, our higher-income consumers or customers, we saw spending improve the most out of that in that manner" - Nordstrom (JWN 0.00%↑) CEO Cathy Smith

“The pressure on the lower-income customer hasn't gone away, but it feels to us like it may have moderated. And that low-income shopper is still very fragile, but as inflation has come down, I think their situation has improved somewhat." - Burlington Stores (BURL 0.00%↑) CEO Michael O'Sullivan

“​​…we are really pleased to be returning to positive total company comps and gross margin expansion as we're pulling back on promotions. And we've seen this broad-based across all of our income cohorts, our regions, our formats. In fact…our comp continued to improve through the quarter” - Foot Locker (FL 0.00%↑) CEO Mary Dillon

Growth is weak though
"Comparable sales increased 1.9% with positive comps in both banners." - Nordstrom (JWN 0.00%↑) CFO Cathy Smith

“Comps increased 2.6%, which was ahead of our expectations of flat to slightly positive” - Foot Locker (FL 0.00%↑) CEO Mary Dillon

"Second quarter net sales of $1.5 billion declined 2.1% compared to prior year…we experienced a more cautious consumer backdrop, and our store traffic was pressured throughout the quarter." - Bath & Body Works (BBW 0.00%↑) CFO Eva Boratto

"In Q2, we delivered revenue of $270 million at the high end of our guidance, up 3% year-over-year." - Box (BOX 0.00%↑) CEO Aaron Levie

Growth is slowing but prices are still going up
"We are seeing net sales growth of 2.5%, which is a change from our previous outlook of approximately 3%. Within that 2.5%, we're seeing about 50 basis points of volume/mix growth, and we're seeing about 2 points of pricing. Pricing has increased from our previous expectation, largely due to another round of pricing within our coffee portfolio due to ongoing green coffee cost increases." - The J. M. Smucker Company (SJM 0.00%↑) CFO Tucker Marshall

Everyone's waiting on rate cuts
"Yes, mortgage rates are still high, but eventually, we're going to see rate cuts... And simply put, life goes on, right? Household formations are going to continue, families are going to grow, and consumers are adjusting their expectations when they realize we're not likely to get back to a 2% or 3% mortgage anytime soon. It's only a matter of when demand strengthens, not a question of if." - Sherwin-Williams (SHW 0.00%↑) Senior VP of IR & Corp. Comms James Jaye

“We maintain our view that U.S. mortgage revenues will be dilutive to overall growth for nCino this fiscal year, but we expect interest rate cuts to be a catalyst for reaccelerated growth in this business starting in the fourth quarter and as we look into next year” - nCino (NCNO 0.00%↑) CFO Pierre Naude

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