Sales up, profits down -- that has been the story in the deep-discounting sector. A month ago, Dollar Tree (NASDAQ:DLTR) announced that earnings fell 10% while sales increased 9%. A week later, industry leader Dollar General (NYSE:DG) reported a 9% drop in net income, despite a double-digit jump in sales. This morning, Family Dollar (NYSE:FDO) fell in line with its peers, reporting a 10.8% decline in quarterly earnings to $0.33 a share; sales rose 10.8% to $1.38 billion.

In each case, the bottom line has fallen prey to a shift in the sales mix. Low-income consumers have been tossing low-margin consumables in the basket and leaving discretionary, higher-margin items on the shelves. At Dollar General, for example, sales of food and milk were up 16.2%, but home product sales fell 2.1%. Family Dollar reported strong sales of food and household chemicals, but -- just like last quarter -- items such as apparel and decorative home products came in below targets.

Weakness in the decorative home furnishings category is nothing new. Just ask Pier 1 Imports (NYSE:PIR) or Tuesday Morning (NASDAQ:TUES). The drop in earnings, though, cannot entirely be written off to an unfavorable sales mix. Family Dollar released an advertising circular at the beginning of November, which helped drive a 5.2% increase in same-store sales that month. Unfortunately, many of those shoppers came in to pick up sharply marked-down merchandise. The combined effect shrank gross margins 130 basis points to 33.4% -- steep, but in line with 120-point drops at both Dollar Tree and Dollar General.

Family Dollar has outlined a four-pronged plan of attack to generate higher sales and earnings: operational improvements in urban markets, the addition of supplemental "treasure hunt" merchandise, the installation of coolers, and a continued, ambitious expansion plan. Adding refrigerated coolers is a particularly promising, albeit overdue, innovation that should help attract one-stop shoppers who prefer to purchase milk and eggs from the same store where they buy their bread. The company anticipates that about 500 stores will have coolers by August, still nowhere near Dollar General's 7,000.

Going forward, Family Dollar is banking on these initiatives to generate substantial same-store sales improvements, with this quarter's 2.5% gain expected to possibly double to 5% by the end of the fiscal year. Even with that increase, though, earnings are expected only to match last year's $1.53. By comparison, Dollar General is forecasting earnings growth in the mid-teens. If further margin contraction continues to lead earnings south, however, neither may be worthy of your dollars.

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Fool contributor Nathan Slaughter owns no shares in any of the companies mentioned.