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Food stamp cuts, lower food prices weigh on dollar stores

A customer exits a Dollar General store in Colona, Illinois.
Daniel Acker | Bloomberg | Getty Images
A customer exits a Dollar General store in Colona, Illinois.

Discount retailers Dollar Tree and Dollar General reported lower-than-expected quarterly sales, hurt by lower food prices, growing competition and the impact on their low-income customer base from a reduction of food stamp coverage by several U.S. states.

Shares of Dollar Tree, the biggest U.S. discount chain operator, fell 5.5 percent in premarket trading on Thursday, while those of Dollar General were down 7.4 percent.

Some states changed in April the criteria for the Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamp program, making thousands of households ineligible for benefits.

"Retail food deflation and a reduction in both SNAP participation rates and benefit levels, coupled with unseasonably mild spring weather, proved to be stronger-than-expected headwinds to our business," Dollar General Chief Executive Todd Vasos said in a statement.

Retail giant Wal-Mart Stores' move to double down on competition by reducing prices on key items such as food was also expected to hurt sales at dollar stores in the quarter.

Dollar Tree also cut its full-year sales forecast to $20.69 billion-$20.87 billion from $20.79 billion-$21.08 billion.

The company's net sales rose 66 percent to $5 billion in the second quarter ended July 30, helped by its acquisition of larger rival Family Dollar last year, but missed the average analyst estimate of $5.09 billion, according to Thomson Reuters I/B/E/S.

Dollar Tree reported a net income of $170.2 million, or 72 cents per share, in the second quarter ended July 30, compared with a net loss of $98 million, or 46 cents per share, a year earlier.

Dollar General's net sales rose 5.8 percent to $5.39 billion, but missed the average analyst estimate of $5.5 billion, according to Thomson Reuters I/B/E/S.

The company's net income rose to $306.52 million, or $1.08 per share, in the second quarter ended July 29, from $282.35 million, or 95 cents per share, a year earlier.

Up to Wednesday's close of $91.79, Dollar General's shares had risen 28 percent this year, while Dollar Tree's shares had risen 23 percent.

Discount retailer reported lower-than-expected quarterly sales, hurt by lower food prices, growing competition and the impact on its low-income customer base from a reduction of food stamp coverage by several U.S. states.

The company's shares fell 6 percent in premarket trading on Thursday. (Get the latest quote here.)

Some states changed in April the criteria for the Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamp program, making thousands of households ineligible for benefits.

"Retail food deflation and a reduction in both SNAP participation rates and benefit levels, coupled with unseasonably mild spring weather, proved to be stronger-than-expected headwinds to our business," Chief Executive Todd Vasos said in a statement.

Retail giant Wal-Mart Stores' move to double down on competition by reducing prices on key items such as food was also expected to hurt sales at Dollar General and rival Dollar Tree Inc in the quarter.

Dollar General's net income rose to $306.52 million, or $1.08 per share, in the second quarter ended July 29, from $282.35 million, or 95 cents per share, a year earlier.

Net sales rose 5.8 percent to $5.39 billion, but missed the average analyst estimate of $5.5 billion, according to Thomson Reuters I/B/E/S.

Up to Wednesday's close of $91.79, Dollar General's shares had risen 28 percent this year.

CNBC contributed to this report.