99 Cents Only Stores

99 Cents Only Stores (NDN) battled through a tough second quarter in which inflationary pressures pushed their earnings for the period into the red. But in spite of the loss, analysts are projecting strong earnings growth, and the company's share price has been locked into a very nice rally for the past few months.

99 Cents Only Stores operates as a retailer of consumer goods in the United States. The company was founded in 1965, has a market cap $742 million and is headquartered in Commerce City, California.

Second-Quarter Results

In spite of a challenging second quarter, reported on Aug 7, shares of NDN have been locked into a very smooth up trend since early July.

Sales were up a little more than 4% from last year to $304.9 million. Due to accelerating food and energy prices, and an increase in minimum wages, the company posted a loss of $1.5 million, or 2 cents per share, down from income of $4 million, or 4 cents per share last year. Analysts had been projecting a loss of one penny per share.

Providing some texture to the financial results, the company noted that its cost of sales rose to $188 million from $178.9 million last year, while general and administrative expenses rose to $118.8 million from $113.5 million.

Exiting Texas

99 Cents Only announced on Sep 18 that it was planning to exit the Texas market where it owns and operates a total of 48 stores, 20 of which are located in Houston. The company has been unsuccessful in developing this market for the last 5 years. 99 cent Only operates 230 stores in California, Nevada and Arizona, comprising 90% of its total business.

99 Cents to 99.99 Cents

In an attempt to stem higher costs, 99 Cents Only announced that it was increasing its prices to 99.99 cents from 99 cents. The new pricing structure will be implemented at 277 stores in late September.

Analyst Estimates

Analyst estimates have fluctuated in the last few months, finally landing at the top-side of the recent range. The current-year estimate stands at 15 cents per share, while the next-year estimate is fairly bullish, pegged at 31 cents, a 108% earnings growth projection.

The Chart

As previously mentioned, shares of NDN have been rallying since early July, advancing from just over $5 to a recent high above $11. At these levels, this company will need to produce robust earnings in order to support more growth. Take a look at the chart.

Read the full analyst report on NDN