Bright and early on Wednesday morning, UBS issued a downgrade on discount retailer Target (NYSE: TGT). The brokerage cut TGT to Neutral from Buy, but kept its price target of $52. UBS attributed the downgrade to valuation and concerns surrounding a change in consumer spending and the impact of said spending on the company's recovery. This downgrade comes after the retailer hired a research firm to look into its reputation -- I guess they should have checked on their reputation with brokerages.

Shares of the retailer are lower this morning thanks to the news, but there is reason to believe the retailer could enjoy a prosperous holiday shopping season. Hear me out, Target offers quality products at a reasonable price, making the retailer a good spot to find great deals. What's more, Target is constantly offering sales and coupons, making the deals even sweeter. These discounts are exactly what people will look for when trying to fill out Santa's list.

The third quarter was a record quarter for discount retailer Family Dollar (NYSE: FDO). The company reported this morning that net income for the third quarter increased 34.8%, coming in at 62 cents per diluted share.

A year ago, FDO earned 46 cents per diluted share. Net income increased 35.5% to $87.7 million, up from $64.7 million a year ago. Not only were the results better than those from a year ago, but the retailer also topped the consensus estimate of 59 cents per share. Looking ahead, FDO expects to earn between 39 and 43 cents per share in the fourth quarter, compared to expectations of 39 cents per share.

Is it a surprise that this retailer had such a strong quarter? Yes and no. Yes, in term of what the experts on Wall Street believed we would see. No, because FDO is a discount retailer and we are in the midst of one heck of an economic downturn.

Discount retailer Dollar Tree Inc. (NASDAQ: DLTR) surprised the Street this morning with a stronger-than-expected third-quarter profit. The cut-rate retailer raked in earnings of $43.1 million, or 47 cents per share, an improvement of 23.7% over the same period last year. Analysts were expecting a more modest per-share profit of 44 cents. Revenue for the quarter rose by roughly 12% to $1.11 billion, with same-store sales increasing 6.2%.

As long as consumers maintain a death grip on their discretionary spending, Dollar Tree seems poised to benefit. Shoppers appear to be migrating away from mid-market retailers and toward discount chains, such as DLTR and Family Dollar (NYSE: FDO). President and CEO Bob Sasser stated, "We will continue to focus on the customer, and serving their needs in a very difficult economic environment."

Going forward, Dollar Tree expects that its focus on the ailing consumer will support solid earnings growth. The company once again raised its fiscal-year earnings forecast; it now expects an annual profit of $2.45 to $2.53 per share.

Big Lots (NYSE: BIG), the nation's largest close-out retailer, posted tremendous and record-setting gains for 3Q 2007. Net income for the quarter totaled $14.3 million or $0.14 per diluted share, a staggering improvement over net income of $1.7 million in 3Q 2006. Big Lots struggled throughout 2006 while putting together a supply chain management system that is now beginning to pay off in big contributions to the bottom line. Big Lots posted this huge rise in net income despite the fact that net sales for 3Q dipped almost 2%.

3Q 2007 operating income grew 10X operating income from 3Q 2006, to $22.7 million from $2.3 million. CEO Steve Fishman credits the vast improvement in operating profit to a much more efficient product distribution system and higher gross margin dollars per square foot.