Investors hoping to see a strong quarter for Dollar General (NYSE:DG) were disappointed this morning after the discount chain reported below-expected revenue and earnings. The company generated $4.72 billion in revenue and earned $0.79 per share during the third quarter of its fiscal 2014, below analysts' estimates of $4.76 billion in revenue and $0.80 in earnings per share.

The earnings miss comes as Dollar General's stock price flirts with an all-time high. The stock is up 18% in the last year and investors may have expected it to go higher as back-to-school sales and an improving economy provided tailwinds during the retailer's third quarter. Instead, Dollar General provided little reason to cheer its latest quarterly report: a 2.8% jump in same-store sales, though an improvement over the second quarter's 2.1% same-store sales increase, prompted management to say full-year same-store sales growth might come in slightly below the previous estimate of 3% to 3.5%.

DG Chart

Dollar General data by YCharts

Behind the numbers
The quarter was not an awful one by any stretch, but it failed to meet rising expectations for retailers in an improving economy and amid falling gasoline prices. Strong demand for tobacco products, perishables, and snacks salvaged Dollar General's same-store sales growth, but also led to narrower margins. The company's gross profit was 30.1% for the quarter, down from 30.28% for the same quarter in 2013. This reflects the smaller margins on tobacco products and perishables.

The lack of strong positive momentum underscores Dollar General's need to acquire Family Dollar. Not closing the deal would cause Dollar General to miss out on an opportunity to vastly increase its footprint in a short amount of time, while also creating a stronger rival if Dollar Tree completes the acquisition instead.

That may be why Dollar General CEO Rick Dreiling reiterated this morning that his company remains committed to acquiring Family Dollar and will possibly boost its bid ahead of Family Dollar's annual meeting later this month. Closing on the deal would be a boon for shareholders of both companies and give Dollar General a strong base on which to compete with Wal-Mart.

Future guidance
Management's guidance reflects the soft quarter. For the full fiscal year 2014, management now expects revenue to increase just 8% and same-store sales to perhaps increase slightly less than 3% -- both at or below the lower end of previous guidance. However, earnings per share are still expected to come in between $3.45 and $3.55 for the full year.

Although the company will not provide fiscal 2015 guidance until it reports fourth-quarter results, management announced plans to open 730 new stores and remodel 875 stores next year. In doing so, it is breaking into markets in Maine, Rhode Island, and Oregon for the first time. This initiative will grow Dollar General's total square footage by 6% in 2015.

Dollar General's long-term profitability ultimately rests in its ability to exploit economies of scale to keep competitors at bay. It also depends on the continued funding of government assistance programs for the poor as well has higher wages and employment for lower-income citizens. It is not yet clear if these factors will provide a tailwind or headwind in the coming years, but investors should keep an eye on them.

Ted Cooper has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.