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Shares fall on Dollar General's forecast

The Associated Press

Shares of a number of dollar stores sank Tuesday after Dollar General Corp. lowered its full-year financial forecast due to slower sales growth and a lower gross profit rate.

Dollar General reported earlier in the day that its fiscal first-quarter profit increased 3 percent as more customers visited its stores and shoppers spent more per transaction. But it said that financial pressures, including a payroll tax increase, are still weighing on consumers. It also said that its gross profit, a measure of how much of each dollar of revenue a retailer gets to keep, declined in the quarter because of increased markdowns and a higher mix of lower-margin consumables.

The Goodlettsville, Tenn., company now expects to earn between $3.15 and $3.22 per share on an adjusted basis for the year, with its revenue up 10 percent to 11 percent. It previously predicted adjusted earnings of $3.15 to $3.30 per share and a revenue increase of 10 percent to 12 percent. The revised guidance implies revenue of $17.62 billion to $17.79 billion, based on its revenue last year of $16.02 billion.

Analysts were expecting higher full-year earnings of $3.28 per share on revenue of $17.7 billion, according to FactSet.

Dollar General's shares fell more than 8 percent in afternoon trading, dropping $4.42 to $49.13.

Investors worried that the news may not bode well for other competitors who rely on a similar base of customers. Dollar General is typically considered the industry leader with its base of 10,662 stores across 40 states.

In afternoon trading, Family Dollar Stores Inc.'s shares sank $1.57, or 2.6 percent, to $59.97. Big Lots Inc.'s shares fell 51 cents, or 1.5 percent, to $32.76. Fred's Inc.'s shares fell 20 cents to $15.85. Dollar Tree Inc.'s shares fell 73 cents, or 1.5 percent, to $48.44.

Dollar and discount stores saw their popularity soar during the recession as consumers tried to cut back on spending and a number have expanded their offerings to include more food and necessities. Dollar General said these must-haves continued to sell well during its most recent quarter while seasonal products and home items didn't sell as well, given the financial crunch that many consumers are facing.