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Success Turns 99 Cents Only Change of Heart on Texas

Recently, 99 Cents Only has been on a roll, and now its rolling the dice once again, announcing a determination to keep operating in Texas, a slow developing market that it now hopes will turn profitable in 2011.

The company had decided to exit the Lone Star State due to sluggish performance, but the recession has given the dollar store operator a lift, boosting core market sales in and around California and throughout the chain. It did close some Texas stores, which, according to a filing with the United States Securities and Exchange Commission, negatively impacted sales in the current quarter, the first in the company's 2010 fiscal year. Still, 99 Cents Only posted net sales of $332.1 million versus $295 million in the corresponding period last year, with much of the gain coming from an over seven percent comparable store sales advance. The seven percent comp derives from a six percent increase in California, Arizona and Nevada and a 23 percent increase in Texas.

Operating income of $15.4 million was up from a loss of $2 million in the year-earlier quarter and net income of $9.5 million was up from a loss of $1.5 million. Earnings per share of 14 cents were better news than the two cents per share loss suffered last year, and Wedbush Morgan analyst Joan Storms noted that the result clobbered the seven cents per share estimate she had set for the quarter and a consensus estimate of eight cents.

Storms, in a research note, observed:

On Aug. 4, the board decided to rescind its previous decision to exit Texas. The company has closed the 15 worst performing stores, and the existing stores are now comping in excess of the 23 percent reported for the first quarter, and annualized sales run rates are now $3.3 million.
She noted that the company's first quarter Texas operating loss narrowed to $600,000 this year from $3.7 million in last year's first quarter, evidence that company plans to reach an operating profit in early 2011 are credible. Storms added: "Overall, we are optimistic that remaining in soon-profitable Texas offers future growth opportunities and extends expansion in existing markets for at least the next few years."

The company has kept filling out existing markets through the recession. During the first quarter, it opened two stores in California and re-opened a store in Texas that had been closed to repair hurricane damage. Through the end of fiscal 2010, 99 Cents Only plans to open 10 to 12 stores in total, with most debuting in the year's second half and all but two or three to bow in California.

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