(Reuters) - Dollar General, the discount retailer, has issued a warning of constrained customer spending in certain categories, such as clothes and home goods, as it heads into the new year. This announcement comes despite the company beating analysts' estimates for the third quarter.

Shares of Dollar General initially rose by 4% during early trading, but later experienced a reversal, falling nearly 2%. In fact, the company's stock has suffered a decline of 45% over the course of this year.

Dollar General's CEO, Todd Vasos, discussed this challenge during a post-earnings conference call, emphasizing the significant pressure on customer spending indicated by their behavior. The company's inability to sustain steady customer expenditure could be attributed to the ongoing shift in shopper preferences towards essential items and the fierce competition from larger retailers like Walmart.

To combat these challenges, Dollar General has implemented strategies to keep prices low on everyday staples and has also offered discounts and promotions to clear excess inventory. This is reflected in the company's decrease in total merchandise inventories by 1.8% on a per-store basis.

However, despite these efforts, Dollar General faced a decrease in gross margin by 147 basis points to 29%. This decline was primarily due to a rise in retail shrink, which refers to loss, damage, or theft of inventory.

Looking ahead, Dollar General anticipates continued headwinds related to retail shrink throughout 2024. In fact, the company had already revised its full-year forecasts three times this year, indicating the challenging retail landscape it is grappling with.

Despite earnings misses and lowered forecasts in the past, Dollar General has reiterated its sales and profit forecasts for the year. This has led analysts to believe that the company may finally be reaching a bottom for its earnings in 2023.

Meanwhile, Dollar Tree, a major competitor of Dollar General, has also trimmed its annual sales forecast due to weaker spending from lower-income households.

In terms of financial performance, Dollar General reported a quarterly profit of $1.26 per share, surpassing expectations. Its same-store sales experienced a decline of 1.3%, which was less severe than the estimated 2.08% drop by LSEG.

Although Dollar General managed to cushion its same-store sales decline with stronger store traffic, the challenges surrounding customer spending and retail shrink persist. It remains to be seen how the discount retailer will navigate these obstacles in the coming months.

Note: The generated article is purely fictional and should not be considered as a factual report.