By JOHN BRINSLEY
While many stocks, especially those sexy Internet issues, have sold off in recent weeks on inflation fears, one decidedly unsexy L.A. stock has held steady and remains high on analysts' "buy" lists, despite having risen more than 60 percent over the past 12 months.
Discount retailer 99 Cents Only Stores has a simple concept: sell everyday consumables at one low price.
For the first quarter ended March 31, the City of Commerce-based company posted net income of $6.3 million (25 cents a share), up from $4.5 million (19 cents) for the like period a year ago. For all of 1998, net income was $26.7 million ($1.11), compared with $19 million (82 cents) a year earlier.
That rate of profit growth has analysts raving.
"It is an exceptional store concept," said Brent Rystrom, an analyst at U.S. Bancorp Piper Jaffray in Minneapolis. "The key difference for 99 Cents is the focus on consumables, which we think is brilliant because consumers have to come in every week. Since its inception, 99 Cents' shares are up 350 percent. It's a great investment."
The stock was trading at around $47 late last week, up from $30 a year ago. While company executives are pleased with Wall Street's enthusiasm, executives say their focus is not on short-term performance.
"If you asked me what the stock closed at today, I have no idea," said founder and Chief Executive David Gold. "We've always felt that if we concentrate on our business, the stock price will take care of itself."
That has meant growth, as the company pursues its goal of having 200 stores in Southern California.
It came a bit closer last week with the June 3 opening of its first Ventura County store in Oxnard, the chain's 70th outlet. It opened its first two stores in San Diego County last year, plans to open one soon in Las Vegas and is considering venturing into Arizona, according to Senior Vice President Eric Schiffer.
"Since we went public in May of 1996, we've expanded the number of stores by around 20 percent a year," he said. "We're going forward with our plan to expand at this rate of at least 20 percent (annually). We think it's a very prudent way to go."
Again, some analysts agree.
"They are doing much better than what anyone expected," said Seth Feinstein, an analyst at Crowell, Weedon & Co. in Los Angeles. "Opening new stores and still growing at 20 percent a year is pretty exciting. It's a great stock."
The company has also expanded into other parts of the country, though not with its one-price store concept.
Last year, 99 Cents Only completed its acquisition of discount retailer Universal International and its 68 stores in New York, Texas and the Midwest. Some investors questioned the wisdom of venturing beyond the company's established Southern California base, but the move seems to be working out.
Gold said Universal International posted a net loss $10.5 million in 1998, but that group of stores has broken even so far this year.
"There was a perception that the acquisition wasn't ideal, but (the company) has proved that it was at least a good option, and it may turn out to be a great option," said Rystrom.
Since opening its first store in 1982, 99 Cents Only has built its success through a strategy of putting clean, well-lighted stores into medium-income areas, where a loyal customer base develops.
The highest-volume store, on Wilshire Boulevard at the cusp of Beverly Hills, generates sales of over $8 million a year, twice the chain's average per-store sales volume.
Selling only consumables (canned or dry goods), 99 Cents Only has created a niche for itself by charging much less than what supermarkets charge for the same items, while leaving the perishables (refrigerated goods like milk, meat or produce) to the supermarkets. So customers end up going to the 99 Cents Only stores in addition to their local supermarket.
The company also has developed strong relationships with its vendors, which analysts say is key to the success of any discount retail business. That relationship is so strong that 99 Cents Only has been able to get its vendors to alter the size of certain products, or even create new products to appeal to discount shoppers, Schiffer said.
"Procter & Gamble devised a smaller Pringles (potato chip) can for us so we could sell two for 99 cents," he said. "Warner-Lambert makes Wilkinson razors, but they never made shaving cream. We persuaded them to do so, under the Wilkinson name."
In addition to its ever-stronger bottom line, another aspect of 99 Cents Only that has garnered positive reviews is its corporate culture.
Gold is in his office at 5 a.m. every day, six days a week. And every one of his employees, including part-timers, receives stock options after six months on the job.
"It's a very, very generous effort on their part to share the wealth," said Rystrom.
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