Dollar General (DG) just missed first-quarter earnings expectations on Tuesday as an increase in lower-margin consumables weighed on gross profit.
However, it backed its full-year outlook and said sales trends are improving.
The Franklin, Tenn.-based discount retailer, which competes with Family Dollar (FDO), Dollar Tree (DLTR) and Five Below (FIVE) reported net income of $222 million, or 72 cents a share, compared with a year-earlier profit of $220 million, or 67 cents.
Earnings per share missed average analyst estimates in a Thomson Reuters poll by a penny.
Revenue for the three-month period grew 6.8% to $4.52 billion from $4.23 billion in 2013, beating the Street’s view of $4.56 billion. While Dollar General said unfavorable weather and increased competition impacted sales during “much of the quarter,” it said sales trends have been gaining momentum.
"Even as these factors weighed on our sales results, we saw trends improve as we moved through the quarter,” Dollar General CEO Rick Dreiling said in a statement.
Same-store sales, a key growth metric, were up 1.5%.
However, Dollar General said sales of consumables, such as tobacco products and perishables, significantly outpaced non-consumable categories. Consumables have significantly lower margins, which weighed on gross profit during the quarter.
The retailer nevertheless backed its fiscal 2014 outlook of $3.45 to $3.55 a share, in line with the consensus view of $3.51, on same-store sales growth of 3% to 4%.
Its shares were up just 0.68% to $54.67 in early trade.