Family Dollar Stores (FDO) missed on its fiscal third-quarter 2014 earnings report for the third consecutive quarter this morning, sending FDO stock lower.

However, this time, Family Dollar couldn’t blame its failures on a bad winter.

Instead, FDO blamed it on a bad economy.

Problems Festering in Family Dollar

Wait a minute. Isn’t a bad economy supposed to help dollar stores like FDO, as struggling consumers eschew the more expensive stores while seeking out discounts?

Not according to Family Dollar CEO Howard Levine, who said, “Our results continue to reflect the economic challenges facing our core customer and an intense competitive environment. Although our sales results remain below our expectations, we are encouraged by the improving trends.”

Improving trends?

Family Dollar’s comparable store sales were down 1.8%, and Levine said he expected that figure to be flat in the quarter ahead. Earnings of 71 cents per share of FDO stock were even worse than the previous quarter’s 80 cents, and well down from $1.05 per share a year ago. The 85 cents in adjusted earnings also fell plenty shy of the Street’s expectations for 89 cents.

Perhaps Mr. Levine was referring to the 3.3% increase in revenue to $2.66 billion, which was slightly higher than the $2.62 billion Street estimate for the third quarter.

That was about the only good news for FDO stock holders this morning.

It might not be long before Mr. Levine, the son of Family Dollar founder Leon Levine, is booted by frustrated shareholders.

As I recently discussed, since taking a 9.4% stake in FDO one month ago, Carl Icahn has been pressuring the board of directors to sell the company — which owns and operates 8,100 stores across 46 states — and to add his own people to the board.

FDO stock was down about 2% at Thursday’s opening, continuing a recent slump that has seen shares fall from an intraday high of $70.30 on June 9 (following the Icahn announcement) to yesterday’s closing price of $64.38.

Perhaps the Street is seeing another poor earnings report as further fodder for the company to be taken over, as has been rumored, either by rival discounter Dollar General (DG), or by another store chain or hedge fund, such as Paulson & Co., which has a 5.7% stake in FDO.

Three months ago, Howard Levine promised major changes for FDO stores over the remainder of 2014, including…

• Lowering prices on almost 1,000 basic store items to become more competitive
• A reduction in corporate overhead and a realignment of organizational functions
• Closing some 370 underperforming stores and cutting jobs over the rest of the year
• Reducing its projected new store openings in 2015 from 525 to between 350 and 400. FDO had opened 244 new stores during the first half of fiscal 2014, and closed 22

Clearly, whatever changes have already been initiated have not helped to stem the decline in the business, or as can be seen in the accompanying chart, FDO stock.

What to Do About FDO Stock?

With Family Dollar struggling right now, and FDO stock about to breach the 200-day moving average, the best course of action for conservative investors right now might be to remain on the sidelines.

The stock was at $60 before the Icahn announcement, and could very well retest that level if there are no major announcements forthcoming. The annual dividend yield is still below 2%, and will not protect investors very much from further declines.

However, for those who are bolder, buying longer-term call options might be a less expensive way to play the current uncertainty. The Oct $65 strike finished at $3.50 yesterday, and should be cheaper in coming days. Should a takeover occur, or a new CEO be named, it is likely that FDO stock could quickly catapult to $65 or higher. Just keep in mind that at this point, any talk of takeover or CEO ouster is purely speculative and the only reality right now is a poorly performing company in a competitive market, along with a declining FDO stock price.

After three strikeouts, it might be time to put Family Dollar shares on the bench for a while.

As of this writing, Ethan Roberts does not own shares of any of the companies mentioned in this article