Why Family Dollar Shares Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of discount retailer Family Dollar Stores (NYSE: FDO  ) sank 13% today, after its quarterly profit and outlook missed Wall Street expectations.

So what: Family Dollar's first-quarter revenue rose a solid 12.7%, but a big miss on the bottom line -- EPS of $0.69 versus the consensus of $0.75 -- coupled with downbeat guidance for the full year, reinforces concerns over its profit growth going forward. While the company's new emphasis on everyday items like cigarettes and soda has certainly helped  traffic, the lower margin on those products is weighing heavily on earnings.

Now what: Management now sees full-year EPS of $3.95-$4.20, down from its prior view of $4.10-$4.40, and below the consensus of $4.24. According to Chairman and CEO Howard Levine:

While the near-term economic environment remains difficult to predict, I continue to be excited about the long-term opportunity for our business. I remain confident that our efforts will deliver stronger results as we progress through fiscal 2013 and beyond.

When you couple the short-term headwinds facing the company with its still-hefty debt load, however, Family Dollar isn't exactly a prudent pick at this point.

Interested in more info on Family Dollar? Add it to your watchlist.