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Dollar General shares cratering down 30% after the company reported disappointing earnings and slashing full-year guidance. The company CEO saying its core consumer is cash strapped. Joining us now, we've got Piper Sandler managing director Peter Keith. Peter, great to speak with you, and we just got your note on this, but I I'm taking a look at the stock here. It's down over 40% in the past five years. It's down over 40% in the past year. To what extent is today's earnings print from Dollar General a new story for the company or a continuation of the same downward trend?

Well, I think it's a bit of a new story. Um, and just to give you some background, I mean, the stock had been underperforming for the last 18 months or so, it really kind of they sort of blamed 2023 on more in internal execution issues. They had a former CEO that come back last October to kind of save the day. And so here we are now, you know, kind of like, you know, I know, nine, 10 months after the CEO has come back and had this turnaround plan and and all of a sudden the fundamentals step back again. And so it feels like kind of a new change in that this has really becomes now a bit more of a structural issue potentially for Dollar General and really maybe for the dollar store channel as a whole. Certainly the Dollar Tree and it's it's Family Dollar concept also seem to be having very challenged results.

I'm a Peter. Um, you know, given given the customer base here, Walmart seems to be fairing okay. What are the differences there? Are the differences in leadership, uh, execution?

Yeah, look, I think, you know, if we say what's the issue at Dollar General, I I I think, you know, Walmart is one of the key problems. I think Walmart has giant vacuum cleaner sucking up a lot of market share. You know, one thing that Walmart's done exceptionally well is build out a very compelling digital strategy. Uh, it combines, you know, it's it's brick and mortar retail stores with its own online website. And I think that's very appealing and convenient to a lot of middle and upper income customers. So when we're in this little bit tighter consumer spending environment where normally Dollar General would be picking up market shares, seeing what they call trade in or or trade down, you know, new customers coming into Dollar General. That's not happening. There those customers are are going to Walmart because they like the digital capabilities. And frankly, the Dollar General, the dollar store model isn't very digital. Uh, they they don't have a robust e-commerce offering. Uh, so it just doesn't have that same digital convenience that a Walmart does.

So what do they need to do moving forward? Is it about execution like you've mentioned, Peter, or is it about something that's a little bit more fundamental to the consumer that they're catering to?

Well, you know, certainly so you're sort of there's two dynamics. You're not getting the trade down and then their lower income customer cohort, uh, which is about 60% of business, then they're more pressured. So some of it will be, you know, if the economy picks up, maybe jobs get a little bit better, inflation is rained in, that lower income customer cohort will be better and and we'll have more money to spend. But ultimately, when we we think about, uh, Dollar General and and the dollar store space, we do think you they need to build out a more robust, uh, digital playbook. Uh, that if they want to, you know, get younger customers, they want to get more middle-income customers, there's certain basic things around digital shopping and e-commerce that are just demanded these days. And and frankly, this is an area where Dollar General does not have they said actually on their call today, you know, this might be an area where they're not picking up share, so stay tuned. They'll have more more to say about that at a later date.

Peter, I want to switch gears to another name you cover Best Buy. I'm curious to get your read on that report, Peter. Investors obviously liked what they heard.

Yeah, I can't opine too much on that one. We haven't published our summary note, but um, you know, just to give you some factual information, there were some concerns, uh, on the same store sales going in. I would argue that the same store sales that came in it's still negative, but a little bit better than expected. And then the company said that August, uh, was actually running flattish. So kind of Best Buy has been in a negative sales environment because of very weak demand for frankly about two and a half years, and you're starting to see the same store sales uh, move towards this flattish, uh, more stable trend.

Where are you getting clarity, Peter, on the health of the consumer because we we've danced around this idea, but I can kind of pick any different retailer and tell a different story about the health of the consumer, and I think it's really interesting in your Dollar General note, the story that you paint about the lower income consumer, they're struggling to pay with rent and utilities, and so they're not able to afford the expenditures that they typically had at Dollar General. But that's a very different story than what we've heard from some of the other retailers catering to other income groups. Where do you get clarity on the broader thesis about the economic situation for consumers?

Yeah. You know, it's it's a great question. I'm kind of laughing because it we're we're pretty we're about 85 90% through earning season at this point. We're almost done. And and yes, it there's got a lot of different feedback from from companies on the economy's terrible or the economy's fine, the consumer's fine. You know, go back to the Walmart announcement. They had very robust 4% same for sales growth. They said, we've seen no change in the consumer. But you have a lot of other companies in Dollar General today saying, we think our core customer has gotten worse. I I think you're definitely seeing this bifurcation where, you know, lower income customers because of the inflationary backdrop the last couple of years have become more squeezed. Um, uh, and so their their spending is more pressured when you think about middle upper income customers, um, there's a little bit more of a buffer as it relates to those inflationary pressures. Stock market's been good, home prices have been good. So people that own those types of assets feel a little bit better off. So I think those customers that those companies that cater to middle and upper income are are doing better than uh, than those that cater to lower income. And then certainly, you know, there's just customers that are ideally positioned today. Ollie's is another company I follow. They're out today. They are seeing trade down. They have close out pricing, uh, so they have great value. Other companies have maybe some type of innovation or great value offering that that's resonating with consumers. So it's very mixed right now. I agree. It's concerning. I think the bifurcation that I mentioned is the biggest dynamic that we can point to.