Deep-value discounter 99 Cents Only Stores (NYSE: NDN) posted good results for its first quarter of fiscal 2011. The chain continued to attract more business with its lower-priced products, including name-brand food, as careful-spending consumers continued to find their way to the dollar stores.
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99 Cents Only Stores' Results
Same-store sales increased 2.7 percent, while total consolidated revenues rose 4.3 percent. Revenue was $346.5 million, compared to $332.4 million in last year's same quarter. Net income increased to $16.8 million, or 24 cents per share, versus $9.5 million, or 14 cents a share, in the Q1 a year ago.
The consolidated figures include the Texas operations, a market the company had previously announced it would like to exit. The non-Texas operations, which comprise 91.8 percent of the company's revenue, are the California, Nevada and Arizona stores. Of the company's 276 stores, 206 are in California. More than half of the company's sales come from name-brand food sales. This includes dairy, frozen foods, deli, produce, even gourmet and organic.
Food Sales, Cost Cutting And Margins
Margins were flat for the quarter. There was some increase in product costs, which was offset by retail operations cost cuts. Lower payroll and distribution costs, part of broad-based cost controls, helped lower overall operations costs. The tighter cost structure bodes well for the company as the economy continues to move slowly into economic recovery. 99 Cents Only Stores plans to open 5 percent more stores this year.
Dollar Stores Revel
Dollar stores are reveling in the current retail dollar-stretching environment. A recent article on Family Dollar (NYSE: FDO) and Dollar Tree (Nasdaq: DLTR) stocks noted that both stocks had hit 52-week highs on August 2. Family Dollar was near an all-time high and was cited as the best-performing retail stock this year in the S&P 500. The stock has a major investor in Nelson Peltz, who has a 7 percent stake. Don't forget the success of Dollar General (NYSE: DG), either, as Raymond James analyst Dan Wewer pointed out that Dollar General's operating results are superior even to Family Dollar's.
Will Dollar Store Success Continue?
That's the question investors have been asking themselves throughout the brutal recession. As we have indicated in our past articles on the dollar stores, it's been a stated management goal to gain customers that will stick with them beyond the recession. Pete Najarian, the Fast Money trader, recently commented that so far this appears to be working. Dollar Stores may eventually perform more like discounters such a Big Lots (NYSE: BIG), with a less automatic deep cyclicality. Going forward, the thesis will be further confirmed or denied when the economic recovery becomes more solid.
99 Cents Only Stores Stock
The company has accelerated its results in the last year. Earnings per share (EPS) for fiscal 2010 were 88 cents, compared to 13 cents in 2009 and 5 cents in 2008. Estimates for this year are at around $1.01. So the momentum for fiscal 2011 is there, even though the company cited that its next quarter, which ends in September, should traditionally be a little slower. We're still of a mind that 99 Cents Only Stores is participating in a positive long-range demographic shift that will see permanent operational gains even in an economic recovery. Its stock, therefore, will be worth having, but at a lower price than at its current valuation. (For related reading, see Profiting From A Consumerless Recovery.)
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