The results are in.

As expected, discount retailer Dollar General (NYSE:DG) issued its earnings report bright and early this morning. As not expected, the company reported lower profits and a larger decline in profitability than Wall Street had advised investors to expect. Also unexpected was a disappointing forecast for the future. Here's how it went.

Sales came in at $2.15 billion, a 9% increase compared to last year's results. Unfortunately, the bulk of the increase came from sales of low-margin consumable goods (read "food"), rather than the higher-margin home furnishings and clothing that Dollar General would have preferred to sell. As a result, per-share diluted profits dove 25% to $0.15, worse than the $0.17 that Wall Street had expected.

Combined with the company's forecast of $0.18 to $0.22 in profits per share for next quarter, the earnings news led a JPMorgan Chase (NYSE:JPM) analyst to label the company "a value trap at this juncture." That's an oxymoron, if you ask me. A value trap is a stock that looks cheap but hides a flawed business model. The bad business means the stock will always look cheap, never appreciating to a price that would make it look expensive -- and its shareholders rich.

But a "value trap at this juncture?" To this Fool, that sounds like a plain and simple bargain, because at the next "juncture," the business could well revive, along with the stock price. So let's take a Foolish long-term look at what held Dollar General back in Q1, and what might send it hurtling upward if things change.

Reading through the earnings report, it seems that the best catalysts for growth lay in the company's explanation that an "increase in the company's shrink rate" contributed to lower profits -- meaning that shoplifting was on the rise. And "increased fuel costs" bulked up transportation expenses. These sound like eminently fixable problems. Employees can be alerted to the shoplifting trend and work to reverse it. As for fuel costs rising -- well, oil is a cyclical commodity. It goes up in price until it gets too expensive, and people stop using so much of it, at which point it comes down in price. When that happens, Dollar General's cost of doing business will come down as well.

My more immediate concern, as expressed in yesterday's Foolish Forecast, is with free cash flow. Last year, it was negative at $9.9 million; in Q1 2006, it got considerably worse, as negative operating cash flow combined with increased capital expenditures to balloon the cash outflow to $93.2 million. Part of the reason: As I predicted, the diminished sales of high-margin household and apparel goods caused inventories to outpace sales 12% to 9%, tying up valuable cash in the process. If Dollar General is to unlock its value for shareholders, the company really needs to return its lean-inventory ways of quarters past.

JPMorgan Chase is a Motley Fool Income Investor recommendation. If you like stocks that pay you back for investing, Income Investor is for you. Try it out free for 30 days.

Fool contributor Rich Smith does not own shares of any company named above.