With Cash Coming In, 99 Cents Only Invests in Real Estate
Success has its advantages and 99 Cents Only (NDN) is preparing to cash in.
Earnings per share of 35 cents in the third quarter, reported last week, easily beat an analyst consensus for about 25 cents, and comparable store sales, those in stores open for at least a year, gained over three percent. As a result, the company got a happy reception from Wall Street. More importantly, the company reported a willingness to reinvest its gains in a way that makes the most of circumstances that certainly favor it.
The company contends it is jumping on opportunities that are arising on the real estate front.
In a research note, Wedbush Morgan analyst Joan Storms reported that 99 Cents Only is reducing occupancy costs by buying certain of its new store locations and opportunistically purchasing some of its leased stores. The company purchased four leased stores during the fourth quarter and is looking for additional buying chances. Storms notes that the company owns only 60 of its stores, but now that's closer to 20 percent of the total compared to less than 15 percent historically.
In addition, 99 Cents Only plans to expand the square footage it operates by at least five percent through 2012, taking advantage of good real estate opportunities.
Given the direction the dollar store retailer is taking, Storms raised her earnings per share forecast for the fourth quarter by a penny to 16 cents and for fiscal year 2011 by 18 cents to 92 cents.
Less then two years ago, 99 Cents Only faced a much different future. It was about to pull out of its newest territory, Texas, after stores there couldn't build sales effectively. Then the recession hit, and Texas turned around as consumers shopped for bargains. The bulk of the chain operates in California, Arizona and Nevada, but even the fact it depended upon one of the regions hit hardest by the recession worked in its favor. Consumers in the Southwest were particularly motivated to shop for the bargains 99 Cents Only offered. Now the retailer is pressing its advantage, setting itself up for a time when at least some consumers will be less bargain oriented by attaining lower real estate costs and entering more communities. In essence, the company is securing its future by making the most of present opportunities.