What happened 

Shares of Dollar General (DG -2.24%) fell by as much as 8.4% in trading on Thursday after the discount retailer reported its fiscal second-quarter financial results. The stock had bounced off that low by midday, but was still down by 4% as of 1 p.m. EDT. 

So what

For the quarter, which ended July 30, sales declined 0.4% to $8.7 billion while same-store sales fell by 4.7%. Sales were up 14.1% on a same-store basis versus two years ago, reflecting that some of the period's decline can be chalked up to a reversal of pandemic-related gains. Net income was down 19.1% to $637.0 million, or $2.69 per share. 

Person shopping in a retail store.

Image source: Getty Images.

Analysts were expecting $8.6 billion in revenue and $2.57 per share in earnings, so these results were a little better than expected. The guidance management offered Thursday wasn't as strong as the market had been hoping for, though, and that's what investors appear to be focusing on. 

Management said they expect net sales to grow by 0.5% to 1.5% in fiscal 2021, compared to the previous guidance range of 1% to negative 1%. Diluted earnings per share are expected to be in the range of $9.60 to $10.20. The current average analyst estimate is for $10.22 per share. 

Now what

Investors are concerned that sales are actually in a downturn at Dollar General, with consumers doing more of their shopping on e-commerce sites and at more upscale locations, while at the same time, costs like freight are rising for retailers. It's not yet clear exactly what the company's longer-term trajectory is, but if its growth has stalled, the stock's price-to-forward-earnings ratio of 22 at the high end of guidance looks like an expensive valuation. Given the company's apparent trajectory, this is a discount I'll sit out today.