Steve messaged me about this right about the same time I was reading about it. I think what we saw here was more a function of a stock that had gotten ahead of itself and poorly managed expectations than any kind of clarion call of impending trouble either in the dollar store industry or for consumer spending. Generally, I think retail has mostly seen its best gains, but consumer spending will still rise gradually and at an increasing rate over the next year. However, most of these stocks have already anticipated that.
Family Dollar (FDO), for example, had risen from $29 a share to $49 a share between a year ago and yesterday. Not too shabby. Of course, Family Dollar actually benefits relative to other retailers in a bad economy. However, even they will feel the pinch as many states and local governments reduce social services. Also, even with the unemployment benefits extension, the maximum length of an individual remains 99 weeks, which means that a huge proportion of those laid off in this recession have seen their unemployment benefits expire. When these people have literally nothing to spend, even Family Dollar will suffer.
What will be interesting is if the luxury stores such as Nordstrom's (JWN) and Tiffany (TIF) put some distance between themselves and the dollar stores as well as the discounters. If that happens, and I suspect that it might, I'm not exactly sure what it will mean.