Recession Leave a Foul Impression on 99 Cents Only

Something turned sour on 99 Cents Only in the second quarter.

When the dollar store retailer, one of the recession's success stories, recently released its fiscal second quarter revenues, comparable store sales came in at just over two percent. Compared generally to retailing, that's pretty good, but, Wedbush Morgan analysts Joan Storms pointed out, below a consensus forecast of almost four percent.

Comps were particularly low in 99 Cents Only's core California market. Outside of Texas -- a state that the company was getting ready to leave until fortunes recently turned around â€"- comps gained just under one percent.

The problem? Food. Throughout the recession edibles have been the key to success and the inexpensive victuals 99 Cents Only provided its shoppers helped get customers through the doors. But in the latest quarter, Storms noted, the retailer ran into an availability problem on produce, a perishable food category the consumers have to restock regularly, and a grocery store price war in Southern California.

Fact is, retailing has become more homogeneous in the recession, with retailers becoming more deeply involved with and exposed to operational areas they only dabbled in earlier. In addition to food, health and personal care, pharmacy and consumer electronics are operations that retailers are widely adopting. As a result circumstances grow more competitive, which makes the ramifications of what is happening in one retail sector more important to others.

So 99 Cents Only got beat up a little in the second quarter. Storms characterized the problems as aberrations and is still strong on the stock. But aberrations are likely to strike more retailers going forward as they cross competitive lines in the scramble for whatever incremental dollars emerge from the recovery.