Texas Gains Coax 99 Cents Only To Settle

An odd thing happened to 99 Cents Only stores, its sales picked up in the recession and it waffled on its exit from the underperforming Texas market.

Now the waffle looks like a desire to remain in the Lone Star State.

In its latest Security and Exchange Commission filing, the company acknowledge that it has generated substantially lower per store sales in its Texas locations compared with those on the West Coast, but the annual average sales per Texas store have grown from approximately $2.2 million in calendar 2004 to approximately $2.7 million in fiscal 2009. Indeed, in some recent quarters, the company's same store sales growth in Texas has substantially exceeded that on the coast. Still, in September of last year, 99 Cents Only announced its decision to exit the Texas market. Then, in February 2009, when the retailer committed to actually closing some of its Texas stores, it suspended its plan to exit the state for up to six months. So while it shuttered four Lone Star State locations during the fourth quarter of fiscal 2009 and 10 more stores by mid-April, 99 Cents Only also reopened one Texas store in May following hurricane-related repairs. Today, it operates 34 stores in Texas.

After several years of trying to get its footing in Texas, 99 Cents Only management finally determined last year that it was taking too long to gain traction. Wedbush Morgan analyst Joan Storms said the company's management has reevaluated. Executives noted that entry into other markets, such as San Diego, evolved into successes after an initial slow period, although not of the length experienced in Texas.

For awhile, it even seemed as if its Texas problems might drag the whole company down in a period earlier in the decade when things were going poorly in various parts of the organization. Now, with the recession driving consumers through its doors in the core California market, 99 Cents Only is flush, with its recently announced fourth quarter earnings coming in at 10 cents per share, double Storms' estimate, and comparable store sales up 6.2 percent. Now, Texas looks like the promised land again and not the slow-growth purgatory that once haunted the retailer's executives. The only trouble on the horizon: If recession underlies the success in Texas, the company is back in the same old bind if shoppers abandon it in the recovery, and all this leaving and not leaving and leaving again will become very, perhaps dangerously expensive.