Investors came into June with some hope for what the summer could bring. With the debt ceiling resolution seemingly in place, market participants remain optimistic that the U.S. economy can avoid recession and continue moving at a moderate but reasonable pace. Major market benchmarks rose in response Nasdaq Composite It led with a gain of 1.3% in afternoon trade.
However, not everyone is convinced that consumers are in good financial shape. Indeed, shares of consumer-facing companies at both ends of the earnings spectrum faced challenges on Thursday. Dollar General (TG -19.51%) Helps those who want a discount A clear group (LCIT -16.24%) Aimed squarely at the luxury electric vehicle market. Both stocks fell sharply as investors tried to decide whether recent events would help or hurt their respective businesses.
Dollar stores are seeing economic headwinds
Shares of Dollar General fell 18% in midday trading Thursday. The dollar store retailer’s first-quarter financial report for the period ended May 5 was lower than investors expected amid a challenging macroeconomic environment that generally favors the lower end of the retail spectrum.
Dollar General’s numbers weren’t terrible, but they didn’t live up to the expectations of the company’s shareholders. Net revenue of $9.3 billion was up 7% year-over-year, but same-store sales were up just 1.6% from a year earlier.
Although average transaction amounts have increased over the same period in 2022, traffic levels have decreased. An increase in overhead costs offset gross margin gains from higher inventory markups, leading to a 1% drop in operating profit. Net income was down 7% to $514 million, and earnings were down 3% to $2.34 per share, even as the share count fell.
Investors were unhappy to see Dollar General pull back its guidance for the year. Citing tougher-than-expected macroeconomic conditions, Dollar General cut its sales growth expectations to 3.5% to 5%, down from 5.5% to 6%. Full-year returns could fall as much as 8%, and are unlikely to do much better than 2022. Also, the dollar store retailer has been cutting back on its capital expenditures and reducing store openings, and it expects not to pursue stock repurchases for the rest of the year.
For a while, Dollar General and its peers began pushing shoppers to buy higher-priced items with higher margins. However, now consumers are controlling their spending. That could prevent Dollar General from growing as quickly as the company had hoped until the economy improves.
Lucid raises capital
Meanwhile, shares of Lucid Group fell nearly 20% during the same period. The luxury EV maker has sought a secondary stock offering to raise cash, even as shares have struggled of late.
Lucid announced an open market sale of 173.5 million shares, part of a broader effort to raise about $3 billion in total. At the same time as the secondary offering, Lucid also persuaded its majority shareholder, Pastor III Investments, to buy 265.7 million shares for about $1.8 billion.
Doing the math, Ayar’s investment represents a price of roughly $6.77 per share, $1 per share less than Lucid stock closed Wednesday. Accordingly, Lucid’s stock price fell Thursday morning to reflect that new assessment, and the stock continued to fall amid broader fears for the EV company.
Lucid has repeatedly said it will need more capital to pursue its long-term growth strategy. However, capital costs are rising, and shareholders should prepare for further dilution until Lucid’s business opportunities appear more attractive.
Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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