Shares of retailer Family Dollar Stores Inc. (NYSE:FDO) have been taking a hit in early trading as the company slashed its full-year earnings outlook amid tumbling market conditions.The retailer was able to post better-than-expected earnings numbers but this was not enough to reassure investors who pushed the stock down over 1%.

Family Dollar Stores announced that its second quarter profit had dropped 30% to $63.3 million, down from $90.5 million reported in the same period a year ago when the company benefited from an extra week of holiday sales. The retailer posted quarterly earnings of 45 cents a share, slightly higher the 42 cents a share that analysts expected.

The company posted a drop of 6% in its second-quarter revenue to $1.83 billion, down from $1.95 billion a year earlier. Analysts forecast revenue of $1.84 billion in the quarter, according to Thomson Financial. The drop in revenue came as the retailer had to face a difficult consumer environment brought by the U.S. housing market slowdown, high gas prices and credit crisis.

Staples Inc. (NASDAQ: SPLS), a supplier of office products and a fierce competitor of both OfficeMax (NYSE: OMX) and Office Depot (NYSE: ODP), reported earnings for the fourth quarter yesterday. Excluding an extra calendar week, Staples saw its net sales rise by 8% to $5.3 billion and its diluted earnings per share rise by 15% to $0.47. For the full year, again excluding the extra week, net sales increased 9%; adjusted diluted earnings per share rose by 15%, coming in at $1.42. The full-year results included various adjustments related to tax issues, litigation, and stock compensation.

The numbers are okay, I suppose, but they don't necessarily make me want to jump into the stock. For one thing, same-store sales for North America declined 3% for the year (they did rise a modest 2% in Europe, however). For another, the stock is only yielding about 1.5% right now -- I'd wait for a bigger yield before thinking about Staples. Yes, it's true that the company increased its annual dividend by 14%, but I'll tell you something about that -- I am not a fan of annual dividends. I'd rather get my payout spread throughout the year.

Staples is a major brand in office supplies, and I do shop there. But nothing about this earnings report makes me want to check the retailer out any further, at least at this time. I'll have to see a few more quarters to see how the company handles the current economic malaise; for now, there are better ideas out there for one's investment dollars.

Shares of department store retailer Sears Holdings Corp. (NASDAQ: SHLD) have moved higher this morning, despite the fact that the company posted a 47.5% decline in fourth-quarter profit, hurt by increased markdowns and weak sales of its products.

The retailer announced that its quarterly profit dropped to $426 million, or $3.17 a share on declining margins as sales at its Kmart and Sears stores slipped due to the weak U.S. economy and increased competition. These numbers are down from $811 million, or $5.27 per share reported in the same period a year ago.

Included in the company's earnings numbers was a one-time gain related to the sale of some assets. Excluding that, Sears earnings numbers would have come at $3.04 per share. Analyst estimates (which typically exclude one time items) was for $3.10 per share in the quarter.

After home improvement retailer Lowe's Cos. (NYSE: LOW) posted a 33.4% decline in its fourth-quarter profit yesterday, it was its main competitor Home Depot Inc. (NYSE: HD)'s turn to step up to the plate and impress Wall Street. As Trey Thoelcke discussed, the world's largest home improvement store chain managed to top estimates only once in the past six quarters, and current earnings numbers were not too encouraging either.

Home Depot reported that its quarterly profit slipped more than 27% to $671 million as the slumping U.S. housing market brought the first annual decline for the company's sales. The retailer posted earnings of 40 cents a share, falling short of analyst estimates for a profit of 43 cents a share.

Looking at revenue, Home Depot saw an increase of 1.5% to $17.66 billion, up from $17.4 billion a year earlier, as the largest U.S. home-improvement retailer benefited from an extra week during the quarter. Excluding that, sales would have dropped 4.7%. Analysts forecast revenues of $18 billion for the quarter, according to Thomson Financial.

This afternoon after the market closed, retailer Abercrombie & Fitch (NYSE: ANF) posted its second quarter numbers, and the teen retailer came in above analyst estimates for the quarter.

Shares of the company have moved 1.4% higher in after hours trading as a result of the company showing earnings of 88 cents per share, a penny above the 87 cents a share that Wall Street was expecting. Total net income in the quarter was $83.1 million, up from $65.7 million during the same period last year.

Amazon.com (NASDAQ: AMZN), the global internet on-line retailer, reported amazing results once again. Some highlights include:

• Free cash flow for the quarter was $700 million, up from $375 million last year, or up 86%
• Return on invested capital (ROIC) jumped from 23% to 39%, with the on-line retailer forecasting it to jump triple digits
• Revenue growth was 35%, with operating profit growth up 149%

What is also interesting, from a company that is reaching its high-growth phase perspective, is that Amazon's shares outstanding for the past year are down 2%. WOW! Typically, the opposite is true and shares outstanding goes up to reward employees with stock options.

Another interesting point is Amazon's forecast for triple digit ROIC, which is a very similar path Dell Inc (NASDAQ: DELL) followed in the late 1990s. During this period as Dell's ROIC ramped, the stock went through the roof for a good three or four years.

I'd stay with Amazon as it enters its hyper growth phase.

Hot Topic Inc. (NASDAQ: HOTT) reported better than expected same store sales last night, down only 4% versus a consensus decline of 6.7%.

The company, which sells alternative music and pop culture apparel and merchandise to teens, has cut back on promotional activity with inventories becoming more lean, a positive for future quarter performance. Further, its new story formats continue to do well and trends at Torrid remain solid.

We blogged earlier in the week that Hot Topic may be setting the foundation for a meaningful turnaround later this year and going into 2008. The stock is way off from its $30 high and is now at $11. SAC Capital has accumulated 5.1% of Hot Topic stock, or 2.3 million shares, up from the 245K shares it had disclosed at the end of the first quarter.

Hot Topic, with movies like the Transformers and a new generation of video game consoles and games coming to market, will have ample supply of trendy new products to sell and support a nice turnaround. The stock is up 49 cents in trading today.

Kroger-(NYSE-KR) volatility suggested low Risk prior to WSJ "Private-Equity eyeing". KR closed at $29.11. The Wall Street Journal said "People familiar with the matter say a number of firms across the Street have been eyeing KR." KR has a market cap of $20 billion with long term debt of $6 billion. KR reported total 2007 revenue of $66 billion. KR over all option implied volatility of 21 is below its 26-week average of 23 according to Track Data, suggesting decreasing price risk.

Volatility Index S&P 500 Options-VIX closed at 13.23.

Daily Option Update is provided by Stock Options Specialist Paul Foster of theflyonthewall.com.