Strong Earnings and Weak Labor Market Conditions: 99 Cents Only Stores and Other Retailers

Strategic Insights -

A recent stock market update highlights strong earnings results from 99 Cents Only Stores, with revenue increasing 13% to $329.2 million and same-store sales up 6.2%. The company's earnings were $7 million, or $0.10/share, a significant improvement from a loss of $4.4 million, or $0.06/share, in the same quarter last year. The strong results were attributed to product margin improvements and cost-cutting efforts. The Zacks consensus had called for sales of $317 million and EPS of $0.05, making the earnings upside a pleasant surprise.

This positive news is tempered by the weak labor market conditions, as reported by the Beige Book. Labor market conditions continued to be weak across the country, with wages generally remaining flat or falling. This trend is expected to continue for some time, impacting retail sales and consumer spending. However, for now, core inflation is not expected to be a problem, and the main concern remains rising oil prices, which will make headline inflation a bit more problematic.

Key Takeaways:

  • 99 Cents Only Stores reported strong earnings results for its fiscal fourth quarter, with revenue increasing 13% to $329.2 million and same-store sales up 6.2%.
  • The company's earnings were $7 million, or $0.10/share, a significant improvement from a loss of $4.4 million, or $0.06/share, in the same quarter last year.
  • The strong results were attributed to product margin improvements and cost-cutting efforts.
  • Other retailers, such as Big Lots and Family Dollar, are also expected to benefit from the trend of consumers looking to become more frugal and trading down to lower-cost alternatives.
  • Labor market conditions continued to be weak, with wages generally remaining flat or falling.
  • Core inflation is not expected to be a problem for now, but rising oil prices may make headline inflation more problematic.
  • The company's operations outside of Texas were even better, with a significant improvement in gross margin and operating margin.
  • The company's goal is to increase its gross margin to 40.5% and its operating margin to at least 5% by fiscal year 2012.

Statistics:

  • 99 Cents Only Stores' revenue increased 13% to $329.2 million.
  • Same-store sales increased 6.2%.
  • Gross margin rose 210 bps to 39.9%.
  • Selling, general and administrative expenses (excluding depreciation) as a percentage of sales fell 360 bps.
  • Operating margin increased 630 bps to 3.0%.
  • The company's operations outside of Texas were even better, with a significant improvement in gross margin and operating margin.
  • The company's goal is to increase its gross margin to 40.5% and its operating margin to at least 5% by fiscal year 2012.

Sources:

  • Zacks.com, "99 Cents Only Stores (NDN) reported strong results for its fiscal fourth quarter."
  • Beige Book, "Labor market conditions continued to be weak across the country, with wages generally remaining flat or falling."