Dollar General Earnings Don’t Impress Skittish Investors

Dollar General Corp. (NYSE: DG) reported better-than-expected earnings, revenue and same-store sales on Wednesday afternoon and raised its full-year earnings guidance. However, shares of the discount retailer plummeted more than 7 percent on Thursday morning as investors get increasingly picky about retail performance.

Dollar General reported earnings per share, excluding items, of $1.10 on revenue of $5.83 billion in the second quarter. Both numbers modestly topped consensus analyst estimates of $1.09 and $5.80 billion, respectively.

In addition, Dollar General’s 2.6 percent same-store sales growth came in well ahead of analyst predictions of 1.6 percent growth.

Dollar General even raised the low end of its full-year earnings guidance. The company now expects EPS of $4.35 to $4.50, up from a previous range of $4.25 to $4.50.

Despite all the positive headline numbers, investors seem to be zeroing in on Dollar General’s declining gross margins. Gross margin fell 47 basis points in Q2 to 30.7 percent as the company cut prices in response to rising competition.

Edward Jones analyst Brian Yarbrough says investors are particularly skittish whenever they see any indication (AMZN) is creating a price war among discount retailers.

“The fear around this right now is that Amazon buying Whole Foods is going to lower prices, which will cause Walmart and Kroger to lower, which is going to cause impact on Dollar General,” Yarbrough says, according to Reuters.

“In this environment, people sell first and ask questions later,” he says.

The market had a similarly negative initial reaction to a Q2 earnings beat from Wal-Mart Stores (WMT) earlier this month. Walmart topped earnings and revenue expectations and raised its full-year EPS guidance. However, much like Dollar General, Walmart’s beats were only modest, and investors weren’t impressed. WMT stock initially declined 3 percent following the report.

With the Standard and Poors 500 index up another 10 percent to new all-time highs in 2017, investor expectations seem to be rising along with the market. Earlier this month, Wells Fargo & Co. (WFC) reported…

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