A large number of Dollar General’s customers are SNAP recipients, so perhaps it should not have been a surprise that that cuts to SNAP benefits would have a negative effect on the company’s sales. The complaint for this class action alleges that the company should have known this, and that its statements expecting no changes in growth were violations of the Securities Exchange Act of 1934.
The class for this action is all persons and entities who acquired the publicly-traded common stock of Dollar General between March 10, 2016 and November 30, 2016, and were damaged thereby.
Dollar General operates stores where 75% of products are sold for less than five dollars. It identifies its core customers as “low and fixed income households” who are “first to be affected by negative or uncertain economic conditions such as unemployment and fluctuating food, energy and medical costs.”
According to the complaint, these persons create 66% of Dollar General’s sales. They live “paycheck to paycheck” and often rely on the government’s Supplemental Nutrition Assistance Program, or SNAP, formerly known as food stamps. Nearly a third of Dollar General’s customers are SNAP recipients, but the complaint claims they do not buy only SNAP-eligible food; they use their own funds for other items.
After the 2008-2009 financial crisis, Congress passed the American Recovery and Reinvestment Act (ARRA) to help struggling families. This increased the amount of benefits SNAP provided, and it suspended the rule that able-bodied adults without dependents could only received SNAP benefits for three months out of thirty-six unless they worked twenty hours per week.
The complaint says that this led to Dollar General’s growth increasing from 2% to 7% per quarter and its total net sales increasing by 66%. However, the SNAP expansion was temporary. The increase in amount expired, reducing benefits by a total of $5 billion, and twenty-two states announced that limits on adults without dependents would be reinstated on January 1, 2016.
Dollar General, the complaint claims, has touted its “data driven statistical approach to operations” that relies on analytics and a science. Yet on the first day of the class period, it claimed that it would maintain same-store sales growth of 2% to 4%, and in fiscal 2016, it would generate 3% same-store sales growth. It claimed it was taking “merchandising initiatives” to replace the loss in SNAP-recipient spending.
In reality, the complaint says, the company had not undertaken any new initiatives and SNAP curtailment had immediate negative results for its stores. The complaint alleges that the company performed certain manipulations to boost its sales numbers.
Still, on August 25, 2016, the company was forced to announce to only 0.9% same-store sales growth for its second quarter of 2016, which it admitted was related to the changes in SNAP benefits. This caused a fall in the company’s stock price of 18%. In November, for the third quarter, the company announced a decrease in growth, causing another 5% decline.