99 Cents Only Stores’ stock might not be getting all the coin it deserves from investors, but analysts aren’t stingy in complimenting the discount retailer’s turnaround.
The Commerce company reported net income was up 141 percent in its fiscal fourth quarter, which ended March 27, despite a modest 3 percent increase in revenue. But the company’s shares, which closed at $14.91 on June 3, are only up 12 percent from the beginning of the year.
Wedbush retail analyst Joan Storm, who maintains a “neutral” rating on shares, is almost exuberant about the company’s improvement in the past year.
“The company has done an amazing job, even though there’s not a short-term catalyst to drive the stock right now,” said Storm, who has covered the company for several years and considers the stock undervalued. Eight of 11 analysts covering the company rate it a “buy.”
99 Cents Only has benefitted from the recession pushing even upper-middle-class shoppers to check out its low prices on staples, and growing inventory of fresh produce and dairy products.
Also, the seasoned retail executive team brought in after company founder and Chairman David Gold retired as chief executive introduced innovations aimed at making the regional retail chain more competitive with competitors such as Dollar General Corp. of Goodlettsville, Tenn., and Dollar Tree Inc. of Chesapeake, Va.
A significant investment in information technology has begun to pay off in managing inventory and expense control, and improving margins.
Even the company’s remaining Texas operations are showing improvement. Closing one-third of its stores in the Lone Star State boosted same-store sales there by more than 19 percent in the quarter. The company even has begun using the remaining 32 Texas locations as test sites for pricing and promotion ideas. Those include breaking the 99-cent barrier to sell milk by the gallon in order to gain more sales from large families.
“We are giving consumers more and more reasons to stay in our store and not have to go to the market or drugstore as frequently as they would in the past,” Chief Executive Eric Schiffer said during a May 26 conference call.
Storm of Wedbush and George Whalin, president of Retail Management Consultants in San Marcos, said 99 Cents Only is at a disadvantage compared with its competitors in the Eastern United States because its stores tend to be larger and located in markets where retail rents are higher. But he noted that its client demographic, especially in Southern California, tends to be much more affluent. It’s not uncommon to see Mercedes-Benz in an L.A. store parking lot. And Schiffer has said that its Beverly Hills-adjacent stores are among the company’s busiest.
Indeed, the era of the bargain has been kind to the chain.
“It wasn’t that many years ago that people bragged about how much something cost – now they brag about the bargain they got,” Whalin said. “While the ultrawealthy have gone back to Saks, the aspirationally wealthy haven’t. Shopping at 99 Cents continues to be chic.”
