99¢ Only Stores® (NYSE:NDN) (the “Company”) announces its
financial results for the second quarter ended September 25,
2010.
Highlights for the second quarter of fiscal 2011 versus the
second quarter of fiscal 2010:
- Retail sales for the Company’s
consolidated operations increased by 2.7% to $323.2 million and
same-store sales increased 0.6%
- Consolidated gross margin increased by
90 basis points to 40.8% of sales
- Shrinkage decreased by 100 basis points
to 2.4%
- Product cost increased by 10 basis
points to 56.7%
- Consolidated operating expenses
decreased by 70 basis points to 32.5% of sales
- Retail operating costs decreased 40
basis points to 23.8%
- Distribution and transportation costs
decreased 10 basis points to 5.0%
- Corporate G&A costs decreased 20
basis points to 3.3%
- Other operating expenses were flat at
0.4%
- Consolidated net income increased by
$3.3 million to $12.9 million, or $0.18 per diluted share, versus
$9.6 million in the prior year, or $0.14 per diluted share
Eric Schiffer, CEO of 99¢ Only Stores®, stated, “We are pleased
with our earnings for the second quarter of fiscal 2011. Our
long-term operational improvement initiatives have continued to
exceed our expectations, resulting in earnings per share of $0.18
for the quarter. Continued improvement in all areas of our cost
structure, led by lower shrinkage and lower retail costs, has
enabled us to achieve a pre-tax profit margin of 6.2% for the
quarter versus 4.6% for same quarter last year. We are also pleased
to have achieved a 28% increase in EPS for the quarter.”
CONSOLIDATED RESULTS
As previously announced, net consolidated sales for the second
quarter of fiscal 2011 were $333.6 million, a 2.7% increase
compared to net sales of $324.7 million for the second quarter of
fiscal 2010. Retail sales for the Company’s consolidated operations
including Texas increased by 2.7% to $323.2 million and same-store
sales increased 0.6%.
Consolidated gross profit for the fiscal 2011 second quarter was
$136.1 million, compared to $129.6 million for the second quarter
of the prior fiscal year. The Company's consolidated gross profit
margin was 40.8% for the fiscal 2011 second quarter versus 39.9%
for the second quarter of the prior fiscal year. This improvement
primarily reflects a decrease of 100 basis points in shrinkage. The
reduction in shrinkage is primarily due to a decline in the rate of
shrink observed during store physical inventory counts taken during
the first half of fiscal 2011.
Operating expenses were $108.3 million, or 32.5% of consolidated
sales, for the fiscal 2011 second quarter versus $107.7 million, or
33.2% of sales, for the second quarter of the prior fiscal year.
Corporate G&A costs decreased by $0.5 million for the quarter
compared to the same quarter last 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. This is a key objective
in the Company’s long-term profit improvement plan.
A primary driver of this improvement is lower payroll-related
expenses as a result of improvement in labor productivity and
improved cost control methods. Additionally, the Company’s
distribution and transportation costs improved due to labor
efficiencies, enhanced processing methods, improved trailer space
utilization and automated truck routing, partially offset by
increases in fuel costs. Corporate G&A expenses were reduced
due to improvements in cost controls resulting in overall lower
absolute costs.
Consolidated operating income for the second quarter of fiscal
2011 was $20.7 million, compared to $15.0 million for the second
quarter of fiscal 2010. Operating income as a percentage of sales
increased 160 basis points to 6.2% for the second quarter of fiscal
2011 versus 4.6% for the comparable period last year.
Net income for the second quarter of fiscal 2011 increased to
$12.9 million, or $0.18 per diluted share, compared to net income
of $9.6 million, or $0.14 per diluted share, for the second 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 second 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 92% of its retail sales revenue. The analysis for
Texas operations provided in Table 1 for the second 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.
Second Quarter Management Analysis of
Non-Texas Operations
Highlights for the second quarter of fiscal 2011 versus the
second quarter of fiscal 2010:
- Retail sales for the Company’s
non-Texas retail operations, comprising 92% of consolidated retail
sales, increased by 3.0% to $296.3 million and same-store sales
increased 0.9%
- Non-Texas gross margin increased 80
basis points to 41.1% of sales
- Product cost increased 10 basis points
to 56.6%
- Shrinkage decreased 80 basis points to
2.4%
- Non-Texas operating expenses decreased
100 basis points to 32.2% of sales
- Retail operating costs decreased 50
basis points
- Distribution and transportation costs
decreased 10 basis points
- Corporate G&A costs decreased 30
basis points
- Other operating expenses decreased 10
basis points
- Non-Texas operating income increased to
$21.3 million, or 7.0% of sales, from $14.9 million, or 5.0% of
sales
For the Company’s non-Texas operations compared to consolidated
results, non-Texas gross margin was 30 basis points better at 41.1%
and operating expenses were 30 basis points lower at 32.2%,
resulting in an operating income contribution from non-Texas
operations of 7.0% versus consolidated operating income of
6.2%.
Non-Texas operating income contribution for the second quarter
of fiscal 2011 was $21.3 million, an operating margin of 7.0% of
sales, compared to operating income of $14.9 million and an
operating margin of 5.0% of sales for non-Texas for the same
quarter of fiscal 2010, an improvement of 200 basis points.
Second Quarter Management Analysis of
Texas Operations
For the Company’s Texas operations, the second quarter fiscal
2011 operating loss was $0.6 million, compared to operating income
of $0.1 million for the second quarter of fiscal 2010. The decrease
in Texas operating results for the current quarter versus last
year’s quarter was primarily due to the absence of an insurance
reimbursement and a non-recurring increase in depreciation expenses
further described below. Texas continues to deliver a positive cash
contribution.
Texas operating results for the second quarter of fiscal 2010
included an insurance reimbursement of $0.6 million for hurricane
losses incurred in prior periods. Texas depreciation and
amortization expense for the second quarter of fiscal 2011 also
included a $0.4 million charge to catch up depreciation of a store
that was reopened and other owned closed stores that is not
indicative of future depreciation expense. In addition, the 280
basis point decrease in shrinkage was primarily due to an unusually
high level of shrinkage of 5.0% of sales for the second quarter of
fiscal 2010, and shrinkage in Texas has attained a level
approximately in line with overall operations going forward.
CASH AND LIQUIDITY
As of the end of the second quarter of fiscal 2011, the Company
held $192.4 million in cash and short and long-term marketable
securities, and had no debt. The inventories at the end of the
second quarter of fiscal 2011 were $197.0 million versus $169.5 at
the end of second quarter of fiscal 2010. The increase in the
inventories was primarily due to increases in store stock levels,
earlier arrival of seasonal holiday merchandise and seven more
stores.
OUTLOOK
Eric Schiffer, CEO, stated, “Overall, we are excited about our
opportunities to continue to improve our earnings over the next two
years as we implement the second half of our long term profit
improvement plan. In addition to improving our profitability, this
plan is also focused on strengthening our systems which will
position 99¢ Only Stores to accelerate its expansion rate. We are
confident in the ability of our management team which has
successfully implemented a range of buying and supply chain
enhancements over the last two years including multiple strategic
changes in our purchasing, pricing, distribution, and merchandising
functions.”
“Several of our profit improvement initiatives, now and for the
next two years, will have a positive strategic impact on our store
operations and systems including store ordering, allocations, and
category management. While this level of change can create short
term volatility in our sales, we are confident that despite the
potential sales volatility, our management team can continue to
deliver earnings improvements.”
“Going forward, we are targeting positive same-store sales,
although with potentially more volatility from quarter to quarter
due to some of our profit improvement initiatives. Importantly, we
are pleased to report we now believe we will achieve approximately
8% for Income Before Taxes as a percentage of sales for the full
fiscal year 2011. We look forward to further discussing our results
on today’s earnings release conference call.”
CONFERENCE CALL DETAILS
The Company’s conference call to discuss its fiscal 2011 second
quarter and the other matters described in this release is
scheduled for today, Wednesday, November 3, 2010 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’ second 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, November 17, 2010, by dialing (800)
642-1687 from the United States, or (706) 645-9291 from
international locations, and entering confirmation code
20701219.
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)
September 25,
2010
March 27,
2010
(Unaudited)
ASSETS Current Assets: Cash $ 13,892 $ 19,877
Short-term investments 166,597 155,657 Accounts receivable, net of
allowance for doubtful accounts of $554 and $501 at September 25,
2010 and March 27, 2010, respectively
2,317
2,607 Income taxes receivable 11,722 4,985 Deferred income taxes
36,419 36,419 Inventories, net 197,030 171,198 Other 5,581
4,978 Total current assets 433,558
395,721 Property and equipment, net 280,717 278,858 Long-term
deferred income taxes 33,632 34,483 Long-term investments in
marketable securities 11,924 14,774 Assets held for sale 7,356
7,356 Deposits and other assets 14,501 14,794
Total assets $ 781,688 $ 745,986
LIABILITIES AND SHAREHOLDERS’ EQUITY Current
Liabilities: Accounts payable $ 47,873 $ 42,593 Payroll and
payroll-related 12,073 15,097 Sales tax 5,011 5,635 Other accrued
expenses 23,971 21,398 Workers’ compensation 44,888 47,023 Current
portion of capital lease obligation 73 70
Total current liabilities 133,889 131,816 Deferred
rent 8,836 8,844 Deferred compensation liability 4,295 4,274
Capital lease obligation, net of current portion 412 449 Other
liabilities 73 181 Total
liabilities 147,505 145,564
Commitments and contingencies Shareholders’ Equity: Preferred
stock, no par value – authorized, 1,000,000 shares; no shares
issued or outstanding — — Common stock, no par value – authorized,
200,000,000 shares; issued and outstanding, 69,899,313 shares at
September 25, 2010 and 69,556,930 shares at March 27, 2010 250,314
246,353 Retained earnings 384,278 354,528 Other comprehensive loss
(409 ) (459 ) Total shareholders’ equity
634,183 600,422 Total
liabilities and shareholders’ equity $ 781,688 $ 745,986
99¢ ONLY STORES
CONSOLIDATED STATEMENTS OF
INCOME
(Amounts in thousands, except per share
data)
(Unaudited)
For the Second Quarter Ended For the First Half
Ended
September 25,
2010
September 26,
2009
September 25,
2010
September 26,
2009
Net Sales: 99¢ Only Stores $ 323,248 $ 314,821 $ 659,802 $ 636,666
Bargain Wholesale 10,311 9,866
20,232 20,131 Total sales 333,559
324,687 680,034 656,797 Cost of sales (excluding
depreciation and amortization expense shown separately below)
197,488
195,094
403,701
393,625
Gross profit 136,071 129,593 276,333 263,172 Selling,
general and administrative expenses: Operating expenses 108,254
107,734 215,304 218,984 Depreciation and amortization 7,109
6,875 13,501 13,818
Total selling, general and administrative expenses
115,363 114,609 228,805
232,802 Operating income 20,708
14,984 47,528 30,370
Other (income) expense: Interest income (207 ) (248 ) (441 )
(611 ) Interest expense 10 39 11 175 Other-than-temporary
investment impairment due to credit losses
112
275
112
843
Other (5 ) (16 ) (14 ) (18 )
Total other (income) expense, net (90 ) 50
(332 ) 389 Income before provision for
income taxes 20,798 14,934 47,860 29,981 Provision for income taxes
7,862 5,334 18,110
10,873 Net income $ 12,936 $ 9,600 $
29,750 $ 19,108 Earnings per common share:
Basic $ 0.19 $ 0.14 $ 0.43 $ 0.28
Diluted $ 0.18 $ 0.14 $ 0.42 $ 0.28
Weighted average number of common shares outstanding:
Basic 69,882 68,686 69,768
68,596 Diluted 70,972
69,483 70,574 69,180
99¢ ONLY STORES
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Amounts in thousands)
(Unaudited)
First Half Ended
September 25,
2010
September 26,
2009
Cash flows from operating activities: Net income $ 29,750 $ 19,108
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 13,501 13,818
Loss (gain) on disposal of fixed assets 131 (389 ) Long-lived asset
impairment — 431
Investments impairment
112 842 Excess tax benefit from share-based payment arrangements
(696 ) (614 ) Deferred income taxes 32 914 Stock-based compensation
expense 1,502 4,124 Changes in assets and liabilities associated
with operating activities: Accounts receivable 290 109 Inventories
(25,882 ) (16,999 ) Deposits and other assets (182 ) (1,363 )
Accounts payable 5,287 4,262 Accrued expenses 407 3,431 Accrued
workers’ compensation (2,135 ) (90 ) Income taxes (6,737 ) (6,442 )
Deferred rent (8 ) (953 ) Other long-term liabilities (108 )
(401 ) Net cash provided by operating activities
15,264 19,788 Cash flows from
investing activities: Purchases of property and equipment (15,547 )
(18,815 ) Proceeds from sale of fixed assets 57 428 Purchases of
investments (40,222 ) (13,168 ) Sales of investments 32,038
14,382 Net cash used in investing
activities (23,674 ) (17,173 ) Cash flows from
financing activities: Repurchases of common stock related to
issuance of performance stock units (735 ) (1,091 ) Payments of
capital lease obligation (34 ) (33 ) Proceeds from exercise of
stock options 2,498 2,790 Excess tax benefit from share-based
payment arrangements 696 614 Net
cash provided by financing activities 2,425
2,280 Net (decrease) increase in cash (5,985 ) 4,895
Cash and cash equivalents - beginning of period 19,877
21,930 Cash and cash equivalents - end
of period $ 13,892 $ 26,825
99¢ ONLY STORES Second
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
Q2 Q2 Q2 Q2 Q2 Q2 ($
millions) (6)
FY2011 %
Sales FY2010 % Sales
FY2011 % Sales
FY2010 % Sales
FY2011 % Sales
FY2010 % Sales Revenues Retail $
296.3 97.1 % $ 287.8 97.1 % $ 26.9 95.0 % $ 27.0 95.5 % $ 323.2
96.9 % $ 314.8 97.0 % Bargain Wholesale $ 8.9 2.9 % $ 8.6
2.9 % $ 1.4 5.0 % $ 1.3 4.5 % $ 10.3
3.1 % $ 9.9 3.0 % Total
$ 305.3 100.0 %
$ 296.4 100.0 % $ 28.3
100.0 % $ 28.3 100.0 %
$ 333.6 100.0 % $ 324.7
100.0 % Cost of Goods Sold Purchase
Cost $ 172.7 56.6 % $ 167.5 56.5 % $ 16.3 57.5 % $ 16.2 57.2 % $
189.0 56.7 % $ 183.7 56.6 % Shrinkage (1) $ 7.2 2.4 % $ 9.6 3.2 % $
0.6 2.2 % $ 1.4 5.0 % $ 7.9 2.4 % $ 11.0 3.4 % Other (4)
($0.1 ) (0.0 %) ($0.1 ) (0.0 %) $ 0.7 2.6 % $ 0.5
1.8 % $ 0.7 0.2 % $ 0.4 0.1 % Total Cost of Goods
Sold $ 179.8 58.9 % $ 177.0 59.7 % $ 17.6 62.4 % $ 18.1 63.9 % $
197.5 59.2 % $ 195.1 60.1 %
Gross Margin $
125.4 41.1 % $ 119.4 40.3
% $ 10.7 37.6 % $
10.2 36.1 % $ 136.1 40.8
% $ 129.6 39.9 %
Selling, General and Administrative Expenses Retail
Operating (4) $ 71.4 23.4 % $ 71.0 23.9 % $ 8.0 28.2 % $ 7.5 26.5 %
$ 79.3 23.8 % $ 78.5 24.2 % Distribution and Transportation $ 14.8
4.8 % $ 14.7 4.9 % $ 1.9 6.7 % $ 1.9 6.5 % $ 16.7 5.0 % $ 16.5 5.1
% Corporate G&A $ 10.8 3.5 % $ 11.2 3.8 % $ 0.2 0.6 % $ 0.3 1.0
% $ 11.0 3.3 % $ 11.5 3.5 % Other (incl. Stock-comp) (2) $ 1.2
0.4 % $ 1.4 0.5 % $ 0.0 0.1 % ($0.2 )
(0.6 %) $ 1.2 0.4 % $ 1.3 0.4 % Operating Expenses $ 98.2
32.2 % $ 98.3 33.2 % $ 10.1 35.6 % $ 9.5 33.4 % $ 108.3 32.5 % $
107.7 33.2 % Depreciation & Amortization (5) $ 5.9 1.9 %
$ 6.2 2.1 % $ 1.2 4.1 % $ 0.7 2.3 % $ 7.1
2.1 % $ 6.9 2.1 % Total Operating Expenses
$
104.1 34.1 % $ 104.5 35.3
% $ 11.2 39.7 % $
10.1 35.7 % $ 115.4 34.6
% $ 114.6 35.3 %
Operating income (loss) $ 21.3 7.0
% $ 14.9 5.0 % ($0.6
) (2.1 %) $ 0.1 0.4
% $ 20.7 6.2 % $
15.0 4.6 % Other (Income) Expense (3)
($0.1 ) (0.0 %) $ 0.1 0.0 % Income before provision
for income taxes
$ 20.8 6.2 % $
14.9 4.6 % Provision for Income Taxes $
7.9 2.4 % $ 5.3 1.6 %
Net Income
$ 12.9 3.9 % $ 9.6
3.0 % EPS Basic
$ 0.19
$ 0.14 Diluted
$ 0.18 $
0.14 Shares Outstanding Basic 69,882 68,686 Diluted
70,972 69,483
(1) Shrinkage includes scrap,
shrink and excess and obsolete inventory. (2) Other SG&A
includes Stock-based compensation and SG&A for the Bargain
Wholesale division for Q2 Fiscal 2011 and 2010. (3) Other (Income)
Expense includes $0.1 million and $0.3 million investment
impairment charges related to credit loss in Q2 Fiscal 2011 and
2010, respectively. (4)
Prior year Q2 Fiscal 2010 for Texas
includes insurance reimbursement of $0.6 million of which $0.2
million included in Other Cost of Goods Sold and $0.4 million
included in Retail Operating Expenses.
(5) Depreciation Expenses for Texas Q2 Fiscal 2011 includes $0.4
million of catch up depreciation. (6) Dollar amounts and
percentages may not add up due to rounding.
Founded over 25 years ago, 99¢ Only Stores® operates 279 extreme
value retail stores with 207 in California, 34 in Texas, 26 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 the third quarter of fiscal 2011 and for all of fiscal
2011, new store openings, 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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