Why Dollar General Corp. Shares Slipped

By Markets Fool.com

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What:Shares ofDollar General Corp.(NYSE: DG) were sliding today after the discount retailer reported weaker-than-expected results in its second-quarter earnings report.

So what:The dollar-store chain said same-store sales ticked up 0.7% compared to the same period last year, driving an overall revenue increase of 5.8%, to $5.39 billion, but that was short of estimates at $5.49 billion. Customer traffic declined in the quarter, which can sometimes be a warning sign, but that was offset by a higher average transaction. Earnings per share, meanwhile, increased 14%, to $1.08, missing the analyst consensus by a penny.

CEO Todd Vasos said he was pleased with the earnings growth in the quarter but noted same-store sales growth fell short of expectations. Food deflation and a cut in food stamp benefits, as well as intensifying competition, weighed on performance.

Now what:Despite a disappointing quarter, Dollar General was still able to deliver 14% EPS growth in a tough retail environment. Vasos promised "action plans" for the second half of the year to drive same-store sales growth and control expenses.

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For the full year, management maintained its EPS growth guidance of 10%-15%, which has been buoyed by a consistent share buyback program. While today's stock dip is a disappointment for investors, dollar stores have shown themselves to be among the most resilient of retailers against the threat from e-commerce, and double-digit EPS growth is better than what many of Dollar General's peers are doing these days. I'd expect the stock to bounce back later in the year.

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.