Earnings Rise 20% at 99 Cents Only Stores

Americans’ love affair with bargain hunting was good for 99 Cents Only Stores as the deep discounter reported Tuesday that fourth-quarter profit climbed 20%.

The City of Commerce-based company said earnings rose to $19.7 million, or 28 cents a share, from $16.4 million, or 23 cents, a year earlier. Revenue jumped 22% to $210.7 million from $172.9 million.

Still, the company’s stock fell $2.89, or 11%, to $24 in New York Stock Exchange trading on concerns about the short-term costs of its plan to expand into Texas. On Tuesday, 99 Cents Only Stores said it bought a distribution center in the Houston area to service 15 new outlets in the region, the first of which is scheduled to open in June.

“We are on the cusp of growing from a small regional retailer to a national retailer,” said Eric Schiffer, president of the retail chain, which has 6,500 employees and 153 stores in California, Arizona and Nevada.

“There are always challenges associated with that, but we can meet them,” said Schiffer, adding that the retailer could eventually open 150 stores in Texas.

Several Wall Street analysts said investors were nervous about 99 Cents Only Stores’ expansion costs and questioned how quickly the company would get the new distribution center running. Yet most were bullish on the retailer’s Texas prospects.

“In the short run, the expansion lessens the rate of profits for the first part of 2003, but long-term investors will shift from that worry to look at the long-term possibilities,” said Mark R. Miller, an analyst with William Blair & Co. in Chicago, who has rated the stock as “outperform.”

The 99 Cents Only chain, like other deep-discount retailers, has benefited from the economic slump and Americans’ insatiable appetite for bargains.

The closeout industry is built on buying unwanted or discontinued merchandise from manufacturers and retailers for a fraction of the original price and then selling the items -- everything from socks to cotton swabs and chocolate bars -- to retail customers. Ohio-based Big Lots Inc. is the nation’s largest closeout seller, with 1,375 stores.

99 Cents Only Stores recently expanded into Northern California, with six stores in the Sacramento area.

The first Bay Area outlet is slated to open this year, Schiffer said. The chain also continues to expand locally, opening a Venice store in January.

The company recently diversified its product lines, offering fresh milk and gourmet food in some stores.

“Some people need a bargain, but everybody loves a bargain,” said Bob Buchanan, an analyst with A.G. Edwards & Sons who has followed the company since it went public in 1996.

Schiffer said 99 Cents Only Stores continued to do well in upscale areas, including Woodland Hills, Encino and West L.A.

For 2002, 99 Cents Only net income rose 22% to $59 million, or 83 cents a share, from $48.4 million, or 69 cents, in 2001. Sales rose 27% to $664 million.