99 CENTS ONLY STORES(R) REPORTS EARNINGS PER SHARE OF $0.07 FOR THE THIRD
QUARTER ENDED SEPTEMBER 30, 2004.
99 CENTS ONLY STORES ANNOUNCES EXECUTIVE MANAGEMENT CHANGES
CITY OF COMMERCE, CA -- October 20, 2004 -- 99 Cents Only Stores(R)
(NYSE:NDN) reports net income of $4.7 million for the quarter ended September
30, 2004 compared to $12.1 million for the third quarter of 2003. Earnings per
share were $0.07 for the third quarter of 2004, compared to earnings per share
of $0.17 for the third quarter of 2003. Earnings per share for the nine months
ended September 30, 2004 were $0.23 compared to $0.57 in 2003.
As announced in a separate release today, 99 Cents Only Stores' Founder,
Chairman and Chief Executive Officer, Dave Gold will be ending his tenure as
Chief Executive Officer effective January 1, 2005 but will remain active in the
position of Chairman. Dave Gold said, "I look forward to continuing to work with
the Company as Chairman. I am pleased to announce that Eric Schiffer, our
President, will become Chief Executive Officer and Chairman of the Executive
Committee of the Board and that Jeff Gold, our Senior Vice President of Real
Estate and Information Technology Systems, will become our President and Chief
Operating Officer effective January 1, 2005.
Eric Schiffer, President of the Company said, "In a separate release today,
we announced we are pleased to report that we have hired an experienced supply
chain executive to fill our newly created position of Executive Vice President
of Supply Chain and Merchandising.
We continue to address our operational issues, mentioned in previous
releases, surrounding inventory shrinkage and distribution. We are taking steps
to ensure that the management and systems infrastructure are in place to help
re-establish desirable earnings growth in the future.
Our primary focus through 2005 is improving results of operations and
enhancing management and systems infrastructure to support greater growth in
future years. We plan to slow down our 2005 store openings which will help allow
us to concentrate on our primary focus."
Third quarter retail sales for 99 Cents Only Stores were $229.1 million, up
14.2% from sales of $200.6 million for the third quarter of 2003. Sales
increases in the food and beverage categories accounted for two thirds of the
retail sales dollar growth. Third quarter 2004 total sales including wholesale
sales were $239.0 million, up 13.0% over third quarter 2003.
Same-store-sales for 99 Cents Only Stores increased 0.5% for the third
quarter of 2004. The number of comparable store sales transactions accounted for
the increase in the third quarter 2004 same-store-sales.
Total sales for the nine months ended September 30, 2004 were $706.3
million, up 14.8% over last year. Total retail sales for the first nine months
of 2004 were $674.8 million, up 16.3% over 2003. Same-store-sales for the nine
months ending September 30, 2004 were down 0.6%.
Total gross margin for the third quarter of 2004 was 38.1% versus 39.2% for
the third quarter of 2003. Retail gross margin for the quarter was 38.9% versus
40.2% in 2003. The retail gross margin decline was primarily due to the
increased volume of grocery sales compared to the overall growth of retail
sales. The grocery related categories have a lower gross margin than the Company
as a whole.
Retail gross margin was 38.9% for the first nine months, versus 41.1% for
2003. Total gross margin for the first nine months was 38.0% versus 39.9% for
2003.
Operating expenses for the third quarter were 35.4% of sales versus 30.6%
last year. The Company provided an additional $4.0 million, which equates to 167
basis points of total sales for the period, for the increase in workers'
compensation reserve. This addition to the workers' compensation reserve
reflects the Company's interim independent actuarial report.
-1-
Other factors impacting operating expense increases in the third quarter of
2004 over last year include approximately 60 basis points for rent, 87 basis
points for depreciation, 30 basis points for labor and benefit costs, and 40
basis points for transportation costs. Professional fees were up 45 basis points
including for Sarbanes Oxley compliance work. The remaining 51 basis points is
primarily due to decreased leverage on labor and other costs from comparably
lower sales in the Texas stores.
Operating expenses for the first nine months of 2004 were 34.5% of sales
versus 29.5% in the same period of 2003 and were impacted 73 basis points for
workers compensation expense, 72 basis points for depreciation, 64 basis points
for rent, 85 basis points for litigation loss provision, 46 basis points for
other legal and professional costs including for Sarbanes Oxley compliance work,
71 basis points for labor and benefit costs and 44 basis points for
transportation costs. The remaining 45 basis points is primarily due to
decreased leverage on labor and other costs from comparably lower sales in the
Texas stores.
Bargain Wholesale sales for the third quarter were $9.9 million compared to
$11.0 million for 2003. Bargain Wholesale sales represent 4.1% of third quarter
total sales. Wholesale sales for the first nine months of 2004 were $31.5
million versus $34.7 million for 2003.
Eric Schiffer, President of the Company said, "A high priority for the
fourth quarter of 2004 through 2005 is to continue to work to improve the
performance of our Texas stores. While Texas stores to date, overall, have not
achieved sales close to those of the Company's California stores, we believe
over the long term, as word of mouth grows, the performance will improve. As
recently announced, we hired a Texas-based senior merchandise buyer for the
Texas operation to help source perishables and other products locally and to
enhance our merchandising and marketing efforts. We have also leased a portion
of the excess capacity in our Texas warehouse, which will help to offset fixed
overhead.
We are beginning to implement the receiving module of our High Jump
inventory management system in our California distribution centers this month.
This module is expected to be fully operational by the end of 2004. Other High
Jump modules to be implemented include picking, shipping, pallet movement and
replenishment. We believe the full implementation of the High Jump warehouse
management system in our California distribution centers, scheduled for
completion by late 2005, should help warehouse operations, reduce store
out-of-stocks and improve the timeliness of store deliveries.
The consulting firm hired to work with management to review and document
our inventory management processes and controls has identified operational and
process issues in our distribution centers and we will soon start the process of
evaluating the inventory handling procedures at our retail stores. The hiring of
an Executive Vice President of Supply Chain together with the implementation of
the High Jump system in the California distribution centers should help address
many of the operational and process issues.
We believe the gross margin decline resulting from the increased
concentration in the food and beverage categories could be partially offset over
time by opportunities in other product categories, improvements in our execution
and initiatives to reduce inventory shrink. We expect that our import program
for the upcoming Christmas holiday season will provide a better selection of new
items, which should help increase sales of these products.
The Company plans to open a total of three stores in the fourth quarter,
two in California and one in Arizona. We are pushing back the opening of several
locations, mainly in Texas, to the first quarter of 2005 that were previously
scheduled to open in the fourth quarter of 2004. In 2005, the Company plans to
open at least 25 stores, primarily in its core markets, focusing on California
and Arizona. These
-2-
reductions to the store openings scheduled during these periods should help
allow us to concentrate on our primary focus which is to improve results of
operations and enhance management and systems infrastructure to support greater
growth in future years.
We look forward to discussing our results of operations in greater detail
on our third quarter 2004 earnings conference call scheduled for today at 8:00
a.m. Pacific Time."
To participate in the Company's earnings call, please phone the operator 9
minutes before the call is scheduled to begin. The call-in number will be
1.206.315.1857 after calling in please hold for an operator to assist you with
the call. A digital playback of the conference call will be available for seven
days after the conference call. The call-in number for the replay will be
1.206.902.3250 and the PIN code is 45779 followed by #. A copy of the company's
release announcing its earnings and any other financial and statistical
information about the periods to be presented in the conference call will be
available at the section of the Company's website titled "Investor Relations" at
www.99only.com.
99 Cents Only Stores(R), the nation's oldest existing one-price retailer,
operates 217 retail stores, in California, Texas, Arizona and Nevada and a
wholesale division called Bargain Wholesale. The Company's 218th store is
scheduled to open in Tucson, Arizona tomorrow October 21st at 4160 Ina Road at
Old Father Road. 99 Cents Only Stores(R) emphasizes name-brand consumables,
priced at an excellent value, in attractively merchandised stores.
This press release contains forward-looking statements, as referenced in
the Private Securities Litigation Reform Act of 1995 (the "Act").
Forward-looking statements are inherently unreliable and actual results may
differ. Factors which could cause actual results to differ materially from these
forward-looking statements include, changes in the competitive market place,
general economic conditions, factors affecting the retail industry in general,
the timing of new store openings, the ability of the Company to identify and
obtain leases for new stores, the ability of the Company to acquire inventory at
favorable costs and other factors discussed in the Company's filings with the
Securities and Exchange Commission. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
Note to Editors: 99 Cents Only Stores(R) news releases and information available
on the World Wide Web at htpp://www.99only.com
CONTACT: 99 Cents Only Stores(R), City of Commerce, California, Andy Farina,
CFO, 323/881-9933
-3-
99 CENTS ONLY STORES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Amounts in thousands except per share amounts)
Three Months Ended September 30 Nine Months Ended September 30
2004 2003 2004 2003
---- ---- ---- ----
Net sales:
99 Cents Only Stores $ 229,064 95.9% $ 200,567 94.8% $ 674,807 95.5% $ 580,331 94.4%
Bargain Wholesale 9,881 4.1% 10,969 5.2% 31,454 4.5% 34,660 5.6%
--------- -------- --------- -------- --------- -------- --------- --------
238,945 100.0% 211,536 100.0% 706,261 100.0% 614,991 100.0%
Cost of sales 147,865 61.9% 128,659 60.8% 437,682 62.0% 369,913 60.1%
--------- -------- --------- -------- --------- -------- --------- --------
Gross Profit 91,080 38.1% 82,877 39.2% 268,579 38.0% 245,078 39.9%
Selling, general and
administrative expenses 75,356 31.5% 58,437 27.6% 219,462 31.1% 164,038 26.7%
Depreciation & amortization 9,203 3.9% 6,317 3.0% 24,524 3.4% 16,934 2.8%
--------- -------- --------- -------- --------- -------- --------- --------
Total operating expenses 84,559 35.4% 64,754 30.6% 243,986 34.5% 180,972 29.5%
--------- -------- --------- -------- --------- -------- --------- --------
Operating Income 6,521 2.7% 18,123 8.6% 24,593 3.5% 64,106 10.4%
Interest and other income
(expense), net 1,236 0.5% 1,609 0.7% 2,658 0.4% 3,635 0.6%
--------- -------- --------- -------- --------- -------- --------- --------
Income before income taxes 7,757 3.2% 19,732 9.3% 27,251 3.9% 67,741 11.0%
Provision for income taxes 3,041 1.2% 7,630 3.6% 10,669 1.5% 26,195 4.2%
--------- -------- --------- -------- --------- -------- --------- --------
Net income $ 4,716 2.0% $ 12,102 5.7% $ 16,582 2.4% $ 41,546 6.8%
========= ======== ========= ======== ========= ======== ========= ========
Basic earnings per share
Net income $ 0.07 $ 0.17 $ 0.23 $ 0.58
========= ========= ========= =========
Diluted earnings per share
Net income $ 0.07 $ 0.17 $ 0.23 $ 0.57
========= ========= ========= =========
Shares used in computation of net
income per share
Basic 69,500 71,929 71,001 71,513
Diluted 69,746 73,033 72,249 72,306
-4-
99 CENTS ONLY STORES
BALANCE SHEETS
(Unaudited)
(Amounts in thousands)
September 30, December 31, September 30,
2004 2003 2003
-------------- ------------- --------------
ASSETS:
Cash $ 8,294 $ 318 $ 2,054
Short-term investments 93,977 145,670 127,276
Receivables, net 2,420 2,245 2,569
Due from shareholder - - 2,179
Income tax receivable 4,972 841 11,744
Deferred income taxes 21,386 15,927 -
Inventories 143,919 107,409 106,248
Other current assets 5,130 2,717 3,905
-------------- ------------- --------------
Total current assets 280,098 275,127 255,975
Property and equipment, net 213,626 202,565 177,126
Long-term investments in marketable securities 53,655 52,789 50,341
Long term deferred income taxes 9,052 9,717 19,078
Other assets 7,752 13,040 13,050
-------------- ------------- --------------
Total assets $ 564,183 $ 553,238 $ 515,570
============== ============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current portion of capitalized lease $ 40 $ 40 $ 40
Accounts payable 44,286 27,903 16,811
Accrued expenses 19,788 12,963 11,424
Workers compensation 23,964 16,319 8,412
-------------- ------------- --------------
Total current liabilities 88,078 57,225 36,687
Deferred rent 2,640 2,460 2,400
Deferred compensation liability 2,540 2,114 1,780
Capitalized lease obligation 1,518 1,553 1,524
-------------- ------------- --------------
6,698 6,127 5,704
Shareholders' equity 469,407 489,886 473,179
-------------- ------------- --------------
Total liabilities and shareholders' equity $ 564,183 $ 553,238 $ 515,570
============== ============= ==============
-5-
99 CENTS ONLY STORES
STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in thousands)
Nine Months Ended
September 30,
2004 2003
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16,582 $ 41,546
Adjustment to reconcile net income to net cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . 24,524 16,815
Tax benefit from exercise of non-qualified
employee stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 10,608
Changes in assets and liabilities associated with operating activities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . (175) 183
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36,511) (23,071)
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,795) -
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,064) (2,361)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,383 (135)
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,824 1,228
Worker's compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . 7,645 687
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,131) (15,262)
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180 190
Due from shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . - (947)
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . 25,657 29,481
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment. . . . . . . . . . . . . . . . . . . . . (32,741) (66,381)
Net sales (purchases) of short-term and long-term investments. . . . . . . . 50,827 6,464
Investment in partnerships.. . . . . . . . . . . . . . . . . . . . . . . . . 1,523 129
Net cash (used in) provided by investing activities . . . . . . . . . . . . . . 19,609 (59,788)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease obligation . . . . . . . . . . . . . . . . . . . . (35) (32)
Repurchase of Company stock. . . . . . . . . . . . . . . . . . . . . . . . . (38,213) -
Proceeds from exercise of stock options. . . . . . . . . . . . . . . . . . . 958 24,408
Net cash (used in) provided by financing activities. . . . . . . . . . . . . . . (37,290) 24,376
NET (DECREASE) INCREASE IN CASH. . . . . . . . . . . . . . . . . . . . . . . . . 7,976 (5,931)
CASH, beginning of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . 318 7,985
CASH, end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,294 $ 2,054
NOTE TO EDITORS: 99 CENTS ONLY STORES(R) NEWS RELEASES AND INFORMATION AVAILABLE
ON THE WORLD WIDE WEB AT HTPP://WWW.99ONLY.COM CONTACT: 99 CENTS ONLY STORES(R),
CITY OF COMMERCE, CALIFORNIA, ANDY FARINA, CFO, 323/881-9933 --99 --
-6-