99 Cents Only Leaders Showing They Take Stores' Woes to Heart

WALL STREET WEST

After undergoing heart bypass surgery last month, David Gold, the 71-year-old chairman and chief executive of 99 Cents Only Stores Inc., was back at work part-time last week talking to analysts about the company's lackluster second-quarter results. Gold is expected to return to work full-time by the end of the July, analysts said.

Gold and company President Eric Schiffer told analysts they are committed to beefing up the management ranks, possibly by hiring a chief operating officer to take charge of planning and merchandising. Wall Street has pummeled shares of the Commerce-based discount retailer since March, after same-store sales turned negative.

Shares of 99 Cents Only, which peaked at $35.93 in August 2003, have fallen to $14.55 as of July 21. The shares are likely to remain trading in the range of $14 to $16 until the company shows it is addressing some of its problems, said Joan Storms, an analyst at Wedbush Morgan Securities Inc.

"If they announce the hiring of a seasoned chief operating officer, it could be a catalyst for the stock," she said.

The company has hired an unnamed local consultant to advise it on a range of issues from its inventory problems to Sarbanes-Oxley compliance. To relieve its capacity problems, 99 Cents Only has added 200,000 square feet of warehouse space, a 20 percent increase, at its distribution center in Los Angeles.

In addition, executives said they are trimming the pace of upcoming store openings, to annual unit growth of 15 percent to 20 percent, from a 30 percent growth rate.

Last week, 99 Cents Only reported net income of $2.6 million for the second quarter ended May 31, down from $14.8 million in the year-ago period. Sales rose 14.6 percent to $237.7 million from $100 million in the year-ago quarter.

Company officials did not return calls.

Kate Berry

Rise and Fall

In the days after plastics manufacturer Summa Industries released strong third quarter earnings late last month, the Torrance-based company's stock shot up 44 percent on heavy volume to as high as $14.34 a share on July 6. But days later, the stock had given back most of its gains.

Last week, Summa shares were trading at about $11, $1 above where they were before the company's June 23 earnings announcement.

"I don't have an explanation as to why it went as high as it did and came back down," said Summa Industries Chairman, Chief Executive and Chief Financial Officer James Swartwout.

Summa manufactures thousands of products for diverse industrial and commercial uses, including plastic coils used in switches, plastic lighting components and parts for conveyor belts used in food processing.

Summa Industries reported an 81 percent jump in net income to $1.4 million for the third quarter ended May 31, versus $768,000 in the year-ago period. Third-quarter sales rose 17 percent to $33.2 million, from $28.3 million in the year-ago period.

Kate Berry

Baby-Boom Boom

With the completion last week of its acquisition of Financial Freedom Holdings Inc., Pasadena mortgage lender IndyMac Bancorp Inc. became the largest originator of reverse mortgages in the nation.

Rising health care costs and aging baby boomers could fuel demand for reverse mortgages, which IndyMac expects will make up 15 percent of its earnings by 2008.

Though reverse mortgages typically involve hefty fees, they allow seniors to tap into their home equity by receiving a lump sum or monthly payments. The loans do not have to be repaid until the borrowers move or die.

The danger, of course, is that home prices decline after the run-up of the past several years, evaporating the equity that protects mortgage lenders. In the case of reverse mortgages, the home's residual value is the first resort, not the last, when it comes to repayment.

Pamela Marsh, a spokeswoman for IndyMac, said the company believes home prices will continue to remain at lofty levels. IndyMac is protected on the downside because Federal Housing Administration insurance (paid for by the borrower) guarantees against losses to the lender. FHA insurance has a mortgage limit cap that varies from $82,000 to $161,000, depending on local housing costs.

Kate Berry

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