Why Dollar General Stock Was Sliding Today

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What happened

Shares of Dollar General (NYSE: DG) were slipping today after the discount retailer turned in a solid third-quarter earnings report but slashed its full-year guidance. As a result, the stock was down 6.1% as of 11:55 a.m. EST.

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So what

Dollar General delivered solid results on the top line, with comparable sales increasing 2.8%. That drove overall revenue growth of 8.7% to $6.42 billion as the company continued to aggressively open new stores, adding 906 over the last year to bring its total store count to 15,227.

Top-line revenue beat estimates at $6.38 billion, but traffic was flat in the quarter as the company benefited from an increase in average transaction cost.

Gross margin fell 39 basis points in the period to 29.5% due to a greater proportion of sales coming from the lower-margin consumables category, and operating profit increased 5.9% to $442.1 million. However, earnings per share surged due to a lower tax from the tax reform law, increasing from $0.93 to $1.26, which matched estimates. Excluding the impact of hurricanes and disaster-related expenses, earnings per share was $1.31.

CEO Todd Vasos said, "Despite the challenges created by these weather events in the quarter, we achieved strong top-line growth and remained focused on expense control. Both consumables and non-consumables categories drove our financial performance this quarter, and we achieved our highest two-year same-store-sales stack in 11 quarters."

Now what

Although expectations were met in the third quarter, management warned that hurricane effects would impact fourth-quarter results as well, and lowered its EPS guidance by $0.04 for the current quarter. For the full year, it now sees EPS of $5.85-$6.05, down from a previous forecast of $5.95-$6.15.

Management also said that its strong store expansion would continue into next year with an expected 975 new store openings in 2019. Given that continued expansion and the otherwise solid performance except for the hurricane impact, today's sell-off seems like a mistake.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.