Family Dollar (FDO) disclosed a weaker-than-expected 12% rise in fiscal third-quarter earnings on Thursday, sending its stock slumping.

The discount retailer also issued a cautious financial outlook for the current quarter and full year, further hurting investor sentiment.

Family Dollar said it earned $124.5 million, or $1.06 a share, last quarter, compared with a profit of $111.1 million, or 91 cents a share, a year earlier. Analysts had expected slightly stronger EPS of $1.07.

Revenue grew 9.6% to $2.36 billion, compared with the Street’s view of $2.37 billion. Same-store sales increased 5%. Gross margins slipped to 35.82% from 36.21%.

“I am especially pleased that we delivered these record results even as we launched multiple initiatives late in the quarter to increase our relevancy to the customer and drive greater store productivity, CEO Howard Levine said in a statement.

For the current quarter, Family Dollar projected EPS of 71 cents to 81 cents on same-store sales growth of 5% to 7%. The midpoint of the EPS range, 76 cents, would narrowly miss consensus calls from analysts for 77 cents.

Management anticipates the company generating full-year EPS of $3.60 to $3.70, the midpoint of which would trail the Street’s view of $3.67. Net sales are seen rising 9% to 10%, while same-store sales are expected to be up about 5%.

Wall Street punished Family Dollar for the EPS miss and outlook, sending its shares dropping 4.25% to $66.19 in recent action. The selloff eats into the shares’ 2012 rally, leaving them up about 14% on the year.

Other discount retailers like Dollar General (DG) and Dollar Tree (DLTR) also came under selling pressure Thursday morning.

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