2nd-Quarter Profit Falls at 99 Cents Only Stores
99 Cents Only Stores said Tuesday that its second-quarter profit tumbled from a year ago, causing it to reconsider expansion plans.
99 Cents Only, where everything sells for under a buck, reported net income of $2.6 million, or 4 cents a share, for the quarter, compared with $14.8 million, or 21 cents a share, in the same quarter last year.
The per-share earnings were a penny below analysts’ expectations.
Second-quarter sales were $226.9 million, up 16.3% from the same period last year, driven primarily by grocery-related categories, the City of Commerce-based company said in a conference call with analysts and investors Tuesday.
Sales at stores open at least a year -- a key measure of a retailer’s performance -- dipped 2.5%, compared with a record 9.8% upswing in the year-ago period.
President Eric Schiffer said a shorter 2004 Easter selling season was partially to blame.
Ballooning costs are also hindering the chain, which has 210 stores in California, Texas, Arizona and Nevada. Operating expenses for the second quarter were 34.3% -- up from 28.9% -- partially because of workmen’s compensation accruals. Schiffer warned that this wouldn’t “magically turn around.” Labor and benefit costs increased, as did advertising costs for new stores.
Schiffer outlined remedies, which included adding more name-brand beauty products and sugar-free offerings and lowering prices on staples such as eggs. The company also has added electronics.
99 Cents Only is also being “careful, deliberate and diligent” about its expansion plans, Schiffer said. Although no inked leases will be broken, he said, “we’re looking at where it makes sense to slow down.”
Reed A. Anderson, an analyst with Friedman Billings Ramsey, lauded that decision.
“It’s a recognition that they need to put more infrastructure in place, and they’re going to give themselves the time to do that,” he said. “It’s a process of maturation.”
Shares of 99 Cents Only climbed 57 cents to close at $14.90 on the New York Stock Exchange.
