The potential for rising expenses was also a concern for investors as it will complicate efforts by Family Dollar and other chains to offer low prices to the hardest-hit consumers.
Company executives said diesel fuel costs would likely be flat to up going forward, instead of down, and cited higher prices for merchandise made in China due to rising wages there and the yuan's appreciation against the dollar.
Shares of rivals Dollar General Corp and Dollar Tree Inc both shed about 3 percent.
Family Dollar, which prices most of its merchandise at $10 or less, forecast fourth-quarter earnings of 46 to 51 cents a share. Analysts were expecting 53 cents, according to Thomson Reuters I/B/E/S.
The company also said it might see slower growth in same-store sales -- a key measure for retailers -- in the current quarter from the previous period.
Low-priced dollar stores had been among the best performers during the recession, adding more food and other staples to attract cash-strapped consumers.
But the prospect of rising costs and the move of some better-off consumers to trade up to more expensive chains could be a one-two punch to the sector, analysts said.
We think it is more difficult for a dollar store chain to pass on price increases to consumers, Morningstar analyst Zoe Tan said, noting that the chains' main message to consumers is low prices.
SMALLER SALES INCREASES?
Other discounters, including Walmart, have noted that while some consumers picked up spending a bit earlier this year, their core customer has still suffered from the weak economy and is buying mostly necessities.
Walmart has also cut prices on thousands of items, especially food and other staples, to attract customers who had moved to stores like Family Dollar to find even lower prices.
The environment remains challenging for consumers, and customers continue to buy close to need, Family Dollar Chief Executive Officer Howard Levine said in a statement.
JPMorgan analyst Charles Grom cut his fourth-quarter earnings estimate on Family Dollar to 51 cents a share from 58 cents and his 2011 estimate to $2.90 from $3.05.
We think it's best to take a more conservative approach to (the fourth quarter) and (fiscal year 2011) on the heels of what appears to be a more cautious consumer amid a jobless economic recovery, Grom said in a research note.
But Grom said that comparisons ease in July and August, so there is a chance the company could beat that forecast, and suggested investors use any weakness in the stock to accumulate shares of Family Dollar.
Family Dollar's disappointing forecast came even as the company posted higher-than-expected earnings for its third quarter, which ended on May 29.
Profit rose to $104.4 million, or 77 cents a share, from $87.7 million, or 62 cents a share, a year earlier.
Analysts on average forecast 76 cents a share, according to Thomson Reuters I/B/E/S.
Family Dollar said June same-store sales were up an estimated 5.5 percent and forecast an increase of 5 to 7 percent for the quarter.
In the third quarter, same-stores sales rose 7 percent, and total sales rose 8.4 percent to $2 billion.
Family Dollar shares were down $3.23 or 8.2 percent at $36.21 on the New York Stock Exchange in early afternoon.
(Additional reporting by Viraj Nair in Bangalore; Editing by Michele Gershberg, Lisa Von Ahn and Matthew Lewis)