99¢ Only Stores® (NYSE:NDN) (the “Company”) announces its
financial results for the third quarter ended December 25,
2010.
Highlights for the third quarter of fiscal 2011 versus the third
quarter of fiscal 2010:
- Retail sales for the Company’s
consolidated operations increased by 1.5% to $354.1 million and
same-store sales decreased 0.7% while the same-store transaction
count increased by 0.7%
- Consolidated gross margin decreased by
100 basis points to 42.1% of sales
- Shrinkage increased by 40 basis points
to 2.3%
- Product cost increased by 20 basis
points to 55.1%
- Other items in cost of sales increased
by 30 basis points to 0.4%
- Consolidated operating expenses
decreased by 170 basis points to 28.7% of sales
- Retail operating costs decreased 50
basis points to 21.4%
- Distribution and transportation costs
decreased 20 basis points to 4.5%
- Corporate G&A costs decreased 30
basis points to 2.9%
- Other operating expenses decreased 70
basis points to negative 0.2%
- Consolidated net income increased by
$2.1 million to $26.6 million, or $0.38 per diluted share, versus
$24.5 million in the prior year, or $0.35 per diluted share
Eric Schiffer, CEO of 99¢ Only Stores®, stated, “We are pleased
with our earnings for the third quarter of fiscal 2011. We have far
exceeded all of the goals in our four-year Profit Improvement Plan
announced in February 2008. We achieved earnings per share of $0.38
for the quarter, a 9% increase in EPS despite slightly negative
same-store sales in the quarter. Our ability to manage our costs
has enabled us to achieve Income Before Taxes of 11.6% as a
percentage of sales for the quarter versus 10.8% for the same
quarter last year. We currently believe that we will achieve Income
Before Taxes of at least 8.2% as a percentage of sales for fiscal
2011.
“We plan to open a total of four stores during our fourth
quarter which will result in a total of 9 net new stores and a
store growth rate of approximately 3% for fiscal 2011. For fiscal
2012, we plan to open 16 net new stores which equates to a store
growth rate of approximately 6%. The vast majority of the planned
new stores in fiscal 2012 will be in California.
“Overall, we are excited about the opportunities to continue
improving our earnings through the profit improvement initiatives
we have implemented and to continue strengthening our systems,
which should position 99¢ Only Stores to accelerate its store
expansion rate above 6% in fiscal 2013. We are confident in the
ability of our management team, which has successfully implemented
a range of buying and supply chain enhancements over the past two
years, including multiple strategic changes in our purchasing,
pricing, distribution, and merchandising functions. We look forward
to further discussing our results on today’s earnings conference
call.”
The details for participating in today’s conference call can be
found following the financial discussion.
CONSOLIDATED RESULTS
As previously announced, net consolidated sales for the third
quarter of fiscal 2011 were $365.4 million, a 1.7% increase
compared to net sales of $359.1 million for the third quarter of
fiscal 2010. Retail sales for the Company’s consolidated operations
including Texas increased by 1.5% to $354.1 million and same-store
sales decreased 0.7% while the same-store transaction count
increased by 0.7%.
Consolidated gross profit for the third quarter of fiscal 2011
was $153.9 million, compared to $154.9 million for the third
quarter of the prior fiscal year. The Company's consolidated gross
profit margin was 42.1% for the third quarter of fiscal 2011 versus
43.1% for the third quarter of the prior fiscal year. The shrinkage
was 2.3% of net sales for the third quarter of fiscal 2011 compared
to 1.9% for the third quarter of fiscal 2010. Adjustments to reduce
inventory reserves contributed to an unusually low rate for
shrinkage during the third quarter of fiscal 2010. Additionally,
cost of products sold increased to 55.1% of net sales for the third
quarter of fiscal 2011 compared to 54.9% of net sales for the third
quarter of fiscal 2010 primarily due to the product mix. The
remaining change was mainly due to an increase in freight costs by
50 basis points for the third quarter of fiscal 2011, which was
partially offset by decreases in other less significant items
included in cost of sales.
Operating expenses were $105.0 million, or 28.7% of consolidated
sales, for the third quarter of fiscal 2011 versus $109.3 million,
or 30.4% of sales, for the third quarter of the prior fiscal year.
The Company’s improved operating expense ratio is a result of
across-the-board decreases in the components of operating expense
led by reductions in retail operating costs as a percentage of
sales. A primary driver of this improvement is lower
payroll-related expenses as a result of improvement in labor
productivity and enhanced cost control methods. Additionally, the
Company’s distribution and transportation costs improved due to
labor efficiencies, enhanced processing methods, trailer space
utilization and automated truck routing, partially offset by
increases in fuel costs. Corporate G&A expenses were reduced by
$0.6 million for the quarter due to improvements in cost controls
resulting in overall lower absolute costs. Furthermore, the third
quarter of fiscal 2011 operating expenses includes the proceeds of
approximately $2.2 million related to a legal settlement.
Consolidated operating income for the third quarter of fiscal
2011 was $42.1 million, compared to $38.6 million for the third
quarter of fiscal 2010. Operating income as a percentage of sales
increased 80 basis points to 11.5% for the third quarter of fiscal
2011 versus 10.7% for the comparable period last year.
Net income for the third quarter of fiscal 2011 increased to
$26.6 million, or $0.38 per diluted share, compared to net income
of $24.5 million, or $0.35 per diluted share, for the third quarter
of fiscal 2010.
MANAGEMENT ANALYSIS OF CONSOLIDATED OPERATIONS
The Company reports the results of its non-Texas operations on a
consolidated basis with its Texas operations in accordance with
GAAP in its Quarterly Report on Form 10-Q for the third quarter of
fiscal 2011. The Company is also providing a management analysis in
this release of its quarterly operating results including more
detailed expense information and separate analyses for non-Texas
and Texas operations. These analyses and reconciliation to GAAP
consolidated results are shown in Table 1 at the end of this
release. The Company believes it is meaningful for investors to
review an analysis of its results of operations separately for
non-Texas and Texas operations in addition to its consolidated
results while the cost structure of its Texas operations is still
materially different from the cost structure of its overall
financial results. The Company’s non-Texas operations comprise all
of its operations in California, Arizona, and Nevada and generate
approximately 91% of its retail sales revenue. The analysis for
Texas operations provided in Table 1 for the third quarter of both
fiscal 2011 and fiscal 2010, includes only revenues and expenses
incurred directly in the Texas operations, with no allocation of
costs incurred in the California distribution centers or corporate
offices; these unallocated, indirect costs are not material to
non-Texas results but may be material to Texas results. During
fiscal 2010, Texas stores were operated under unusual conditions,
with 11 stores closed during the first quarter and one store closed
in the second quarter, and thus the comparison of fiscal 2011
quarterly results to fiscal 2010 quarterly results is not
indicative of future comparisons for the ongoing operations of the
34 stores that currently remain open. The non-GAAP financial
measures in Table 1 should be viewed in addition to, and not as an
alternative to, the Company’s consolidated financial statements
prepared in accordance with GAAP.
Third Quarter Management Analysis of
Non-Texas Operations
Highlights for the third quarter of fiscal 2011 versus the third
quarter of fiscal 2010:
- Retail sales for the Company’s
non-Texas retail operations, comprising approximately 91% of
consolidated retail sales, increased by 1.3% to $323.7 million and
same-store sales decreased 0.7%
- Non-Texas gross margin decreased 80
basis points to 42.3% of sales
- Product cost increased 10 basis points
to 55.0%
- Shrinkage increased 20 basis points to
2.4%
- Other items in cost of sales increased
by 40 basis points to 0.3%
- Non-Texas operating expenses decreased
190 basis points to 28.6% of sales
- Retail operating costs decreased 60
basis points
- Distribution and transportation costs
decreased 10 basis points
- Corporate G&A costs decreased 20
basis points
- Other operating expenses decreased 100
basis points
- Non-Texas operating income increased to
$39.7 million, or 11.9% of sales, from $34.9 million, or 10.6% of
sales
For the Company’s non-Texas operations compared to consolidated
results, non-Texas gross margin was 20 basis points better at 42.3%
and operating expenses were 10 basis points lower at 28.6%,
resulting in an operating income contribution from non-Texas
operations of 11.9% versus consolidated operating income of
11.5%.
Non-Texas operating income contribution for the third quarter of
fiscal 2011 was $39.7 million, an operating margin of 11.9% of
sales, compared to operating income of $34.9 million and an
operating margin of 10.6% of sales for non-Texas for the same
quarter of fiscal 2010, an improvement of 130 basis points. Other
operating expenses for Non-Texas operations for the third quarter
of fiscal 2011 includes the proceeds of approximately $2.2 million
related to a legal settlement.
Third Quarter Management Analysis of Texas
Operations
For the Company’s Texas operations, the third quarter fiscal
2011 operating income was $2.4 million, compared to operating
income of $3.7 million for the third quarter of fiscal 2010. The
decrease in Texas operating results for the current quarter versus
the same quarter last year was primarily due to an increase in
merchandise purchase cost and the absence of an adjustment to our
shrink reserves as further described below. Texas continues to
deliver a positive cash contribution.
Texas operating results for the third quarter of fiscal 2010
included a one-time reduction in shrink reserves of $1.4 million
based on a shrink analysis performed.
CASH AND LIQUIDITY
As of the end of the third quarter of fiscal 2011, the Company
held $216.0 million in cash and short and long-term marketable
securities, and had no debt. The inventories at the end of the
third quarter of fiscal 2011 were $202.3 million versus $177.9 at
the end of third quarter of fiscal 2010. The increase in
inventories was primarily due to seasonal changes, additional
stores, opportunistic buying and improvement in stock position.
CONFERENCE CALL DETAILS
The Company’s conference call to discuss its fiscal 2011 third
quarter and the other matters described in this release is
scheduled for today, Wednesday, February 2, 2011 at 1:30 p.m.
Pacific Time. You can participate in the live call by dialing (866)
900-3561 from the U.S.A. and (816) 249-4306 from international
locations. Please phone in approximately 9 minutes before the call
is scheduled to begin and hold for an InterCall operator to assist
you. Please inform the operator that you are calling in for 99¢
Only Stores’ third quarter fiscal 2011 earnings release conference
call, and be prepared to provide the operator with your name,
company name, and position if requested. A telephone replay will be
available approximately two hours after the call concludes and will
be available through Wednesday, February 16, 2011, by dialing (800)
642-1687 from the United States, or (706) 645-9291 from
international locations, and entering confirmation code
39652594.
A copy of this earnings release and any other financial and
statistical information about the period to be presented in the
conference call will be available prior to the call at the section
of the Company’s website entitled “Investor Relations” at
www.99only.com.
99¢ ONLY STORES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share
data)
December 25,
2010
March 27, 2010
(Unaudited)
ASSETS Current Assets: Cash $ 23,955 $ 19,877
Short-term investments 179,526 155,657
Accounts receivable, net of allowance for
doubtful accounts of $656 and$501 at December 25, 2010 and March
27, 2010, respectively
1,540
2,607 Income taxes receivable 3,509 4,985 Deferred income taxes
30,247 36,419 Inventories, net 202,282 171,198 Other 5,113
4,978 Total current assets 446,172
395,721 Property and equipment, net 287,007 278,858 Long-term
deferred income taxes 32,913 34,483 Long-term investments in
marketable securities 12,474 14,774 Assets held for sale 7,356
7,356 Deposits and other assets 14,823 14,794
Total assets $ 800,745 $ 745,986
LIABILITIES AND SHAREHOLDERS’ EQUITY Current
Liabilities: Accounts payable $ 44,374 $ 42,593 Payroll and
payroll-related 10,208 15,097 Sales tax 7,081 5,635 Other accrued
expenses 20,841 21,398 Workers’ compensation 42,419 47,023 Current
portion of capital lease obligation 74 70
Total current liabilities 124,997 131,816 Deferred
rent 8,577 8,844 Deferred compensation liability 4,671 4,274
Capital lease obligation, net of current portion 393 449 Other
liabilities 18 181 Total
liabilities 138,656 145,564
Commitments and contingencies Shareholders’ Equity:
Preferred stock, no par value –
authorized, 1,000,000 shares; no sharesissued or outstanding
— —
Common stock, no par value – authorized,
200,000,000 shares; issued andoutstanding, 70,061,221 shares at
December 25, 2010 and 69,556,930 sharesat March 27, 2010
251,583 246,353 Retained earnings 410,917 354,528 Other
comprehensive loss (411 ) (459 ) Total
shareholders’ equity 662,089 600,422
Total liabilities and shareholders’ equity $ 800,745
$ 745,986
99¢ ONLY STORES
CONSOLIDATED STATEMENTS OF
INCOME
(Amounts in thousands, except per share
data)
(Unaudited)
For the Third Quarter Ended
For the Three Quarters Ended
December 25, 2010
December 26, 2009
December 25, 2010
December 26, 2009
Net Sales: 99¢ Only Stores $ 354,121 $ 348,902 $ 1,013,923 $
985,568 Bargain Wholesale 11,238 10,217
31,470 30,348 Total sales
365,359 359,119 1,045,393 1,015,916 Cost of sales (excluding
depreciation and amortization expense shown separately below)
211,453
204,218
615,154
597,843
Gross profit 153,906 154,901 430,239 418,073 Selling,
general and administrative expenses: Operating expenses 105,035
109,317 320,339 328,301 Depreciation and amortization 6,802
6,985 20,303 20,803
Total selling, general and administrative expenses
111,837 116,302 340,642
349,104 Operating income 42,069
38,599 89,597 68,969
Other (income) expense: Interest income (194 ) (244 ) (635 )
(855 ) Interest expense 31 32 42 207 Other-than-temporary
investment impairment due to credit losses
—
—
112
843
Other (10 ) — (24 ) (18 )
Total other (income) expense, net (173 ) (212 )
(505 ) 177 Income before provision for
income taxes 42,242 38,811 90,102 68,792 Provision for income taxes
15,603 14,326 33,713
25,199 Net income $ 26,639 $ 24,485
$ 56,389 $ 43,593 Earnings per common
share: Basic $ 0.38 $ 0.36 $ 0.81 $ 0.64
Diluted $ 0.38 $ 0.35 $ 0.79 $
0.63 Weighted average number of common shares
outstanding: Basic 70,050 68,788
69,871 68,596 Diluted 71,005
69,728 70,966 69,266
99¢ ONLY STORES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Amounts in thousands)
(Unaudited)
For the Three Quarters Ended December
25,
2010
December 26,
2009
Cash flows from operating activities: Net income $ 56,389 $ 43,593
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 20,303 20,803
Loss (gain) on disposal of fixed assets 177 (605 ) Long-lived asset
impairment — 431
Investments impairment
112 843 Excess tax benefit from share-based payment arrangements
(1,196 ) (933 ) Deferred income taxes 6,419 1,077 Stock-based
compensation expense 2,255 5,652 Changes in assets and liabilities
associated with operating activities: Accounts receivable 1,067 375
Inventories (30,487 ) (25,266 ) Deposits and other assets (289 )
103 Accounts payable 2,462 11,506 Accrued expenses (1,513 ) 6,797
Accrued workers’ compensation (4,604 ) 2,734 Income taxes 1,476
(270 ) Deferred rent (267 ) (1,311 ) Other long-term liabilities
(163 ) (474 ) Net cash provided by operating
activities 52,141 65,055 Cash
flows from investing activities: Purchases of property and
equipment (29,354 ) (24,410 ) Proceeds from sale of fixed assets 57
905 Purchases of investments (58,066 ) (64,032 ) Sales of
investments 36,377 21,213 Net
cash used in investing activities (50,986 ) (66,324 )
Cash flows from financing activities: Repurchases of common
stock related to issuance of performance stock units (1,459 )
(1,761 ) Acquisition of noncontrolling interest of a partnership —
(275 ) Payments of capital lease obligation (52 ) (48 ) Proceeds
from exercise of stock options 3,238 3,745 Excess tax benefit from
share-based payment arrangements 1,196 933
Net cash provided by financing activities
2,923 2,594 Net increase in cash 4,078
1,325 Cash and cash equivalents - beginning of period 19,877
21,930 Cash and cash equivalents - end
of period $ 23,955 $ 23,255
99¢ ONLY
STORES Third Quarter Fiscal 2011 and 2010 Unaudited
Management Analysis of Non-Texas and Texas Operations and
Reconciliation to GAAP Statements TABLE 1
Description Non-Texas
Non-Texas Texas Texas
Consolidated Consolidated
Q3 Q3 Q3
Q3 Q3 Q3
($ millions) (3)
FY2011 %
Sales FY2010 % Sales
FY2011 % Sales FY2010
% Sales FY2011 % Sales
FY2010 % Sales Revenues Retail $ 323.7
97.1 % $ 319.6 97.4 % $ 30.4 94.6 % $ 29.3 94.8 % $ 354.1 96.9 % $
348.9 97.2 % Bargain Wholesale $ 9.5 2.9 % $ 8.6 2.6
% $ 1.7 5.4 % $ 1.6 5.2 % $ 11.2 3.1 % $ 10.2
2.8 % Total
$ 333.2 100.0 % $
328.2 100.0 % $ 32.2
100.0 % $ 30.9 100.0 %
$ 365.4 100.0 % $ 359.1
100.0 % Cost of Goods Sold Purchase
Cost $ 183.3 55.0 % $ 180.1 54.9 % $ 18.1 56.4 % $ 17.1 55.5 % $
201.5 55.1 % $ 197.2 54.9 % Shrinkage (1) $ 7.9 2.4 % $ 7.1 2.2 % $
0.6 1.8 % ($0.3 ) (1.0 %) $ 8.4 2.3 % $ 6.8 1.9 % Other $ 0.9
0.3 % ($0.3 ) (0.1 %) $ 0.6 1.9 % $ 0.6 1.8 %
$ 1.5 0.4 % $ 0.2 0.1 % Total Cost of Goods Sold $
192.1 57.7 % $ 186.8 56.9 % $ 19.3 60.0 % $ 17.4 56.3 % $ 211.5
57.9 % $ 204.2 56.9 %
Gross Margin $
141.1 42.3 % $ 141.4 43.1
% $ 12.9 40.0 % $
13.5 43.7 % $ 153.9 42.1
% $ 154.9 43.1 %
Selling, General and Administrative Expenses Retail
Operating $ 70.7 21.2 % $ 71.6 21.8 % $ 7.5 23.4 % $ 7.2 23.4 % $
78.2 21.4 % $ 78.8 21.9 % Distribution and Transportation $ 14.9
4.5 % $ 15.1 4.6 % $ 1.9 6.0 % $ 1.8 5.8 % $ 16.8 4.5 % $ 16.9 4.7
% Corporate G&A $ 10.7 3.2 % $ 11.3 3.4 % $ 0.2 0.6 % $ 0.2 0.8
% $ 10.9 2.9 % $ 11.5 3.2 % Other (incl. Stock-comp) (2)
($0.9 ) (0.3 %) $ 2.2 0.7 % $ 0.0 0.1 % ($0.1 ) (0.3
%) ($0.8 ) (0.2 %) $ 2.1 0.5 % Operating Expenses $
95.4 28.6 % $ 100.2 30.5 % $ 9.7 30.1 % $ 9.2 29.7 % $ 105.0 28.7 %
$ 109.3 30.4 % Depreciation & Amortization $ 6.0 1.8 % $
6.3 1.9 % $ 0.8 2.4 % $ 0.6 2.1 % $ 6.8 1.9 %
$ 7.0 1.9 % Total Operating Expenses
$ 101.4
30.4 % $ 106.5 32.4 %
$ 10.5 32.5 % $ 9.8
31.8 % $ 111.8 30.6 %
$ 116.3 32.4 % Operating
income (loss) $ 39.7 11.9 %
$ 34.9 10.6 % $ 2.4
7.4 % $ 3.7 11.9 %
$ 42.1 11.5 % $ 38.6
10.7 % Other (Income) Expense ($0.2 )
(0.0 %) ($0.2 ) (0.1 %) Income before provision for
income taxes
$ 42.2 11.6 % $
38.8 10.8 % Provision for Income Taxes
$ 15.6 4.3 % $ 14.3 4.0 %
Net
Income $ 26.6 7.3 % $
24.5 6.8 % EPS Basic
$
0.38 $ 0.36 Diluted
$ 0.38
$ 0.35 Shares Outstanding Basic 70,050 68,788
Diluted
71,005
69,728 (1) Shrinkage includes
scrap, shrink and excess and obsolete inventory. Q3 Fiscal 2010 for
Texas operations includes a one-time reduction in shrink reserves
of $1.4 million. (2)
Other SG&A includes Stock-based
compensation and SG&A for the Bargain Wholesale division for Q3
Fiscal 2011 and 2010. Additionally, Q3 Fiscal 2011 for Non-Texas
includes a positive impact of $2.2 million related to a legal
settlement receipt.
(3)
Dollar amounts and percentages may not add up due to rounding.
Founded over 25 years ago, 99¢ Only Stores® operates 281 extreme
value retail stores with 208 in California, 34 in Texas, 27 in
Arizona and 12 in Nevada. 99¢ Only Stores® emphasizes quality
name-brand consumables, priced at an excellent value, in
convenient, attractively merchandised stores. Over half of the
Company’s sales come from food and beverages, including produce,
dairy, deli and frozen foods, along with organic and gourmet foods.
The Company’s New York Stock Exchange symbol is NDN.
We have included statements in this release that constitute
"forward-looking statements" within the meaning of Section 21E of
the Securities Exchange Act and Section 27A of the Securities Act.
The words "expect," "estimate," "anticipate," "predict," "believe"
and similar expressions and variations thereof are intended to
identify forward-looking statements. Such statements appear in this
release and include statements regarding the intent, belief or
current expectations of the Company, its directors or officers with
respect to, among other things, the business and growth strategies
of the Company, results of the operations and related financial
measures for fiscal 2011, new store openings and our store
expansion rate, and trends affecting the financial condition or
results of operations of the Company. The shareholders of the
Company and other readers are cautioned not to put undue reliance
on such forward-looking statements. Such forward-looking statements
are not guarantees of future performance and involve risks and
uncertainties, and actual results may differ materially from those
projected in this release for the reasons, among others, discussed
in the reports and other documents the Company files from time to
time with the Securities and Exchange Commission, including the
risk factors contained in the Section – “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” of
the Company’s Annual Reports on Form 10-K and Quarterly Reports on
Form 10-Q. The Company undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances
that arise after the date hereof.
Note to Editors: 99¢ Only Stores® news releases and information
available at www.99only.com.
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