Dollar General posts surprise drop in comparable sales

Discount retailer Dollar General Corp reported a surprise drop in third-quarter comparable sales, largely due to lower grocery prices and reduced food stamp coverage in several U.S. states.

The company's shares were down 5 percent at $73.50 in premarket trading on Thursday.

By the end of 2016, as many as 22 states would have changed the criteria for the Supplemental Nutrition Assistance Program (SNAP), formerly called the food stamp program - a move that is likely to result in about 1 million Americans losing benefits.

States implementing SNAP changes this year include Florida, Georgia, Alabama and Tennessee, which have some of the highest concentration of Dollar General stores.

Sales at Dollar General stores open at least 13 months fell 0.1 percent in the quarter ended Oct. 28, compared with the 0.8 percent growth expected by analysts polled by research firm Consensus Metrix.

Dollar General has been cutting prices to fight aggressive competition from Wal-Mart Stores Inc and others amid falling grocery prices.

This reduced Dollar General's net income in the third quarter to $235.3 million, or 84 cents per share, from $253.3 million, or 86 cents per share, a year earlier.

Profit in the latest quarter included a charge of about 5 cents per share for store relocation costs and disaster-related expenses.

Analysts on average were expecting a profit of 93 cents per share, according to Thomson Reuters I/B/E/S.

Net sales rose 5 percent to $5.32 billion, beating the average analyst estimate of $5.37 billion.

(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Saumyadeb Chakrabarty)