NDN 99 Cents Only Stores Common Stock

CITY OF COMMERCE, Calif., May 25, 2011 /PRNewswire/ -- 99 Cents Only Stores® (NYSE:NDN) (the "Company") announced its financial results for the fourth quarter and full-year fiscal 2011 ended April 2, 2011. The Company's fiscal 2011 began on March 28, 2010 and ended on April 2, 2011, and consisted of 53 weeks, with one additional week included in our fourth quarter. The Company plans to file its Annual Report on Form 10-K for fiscal 2011 tomorrow, May 26, 2011.

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Highlights for the fourth quarter of fiscal 2011 compared to the fourth quarter of fiscal 2010:

• The Company's retail sales for the fourth quarter of fiscal 2011, a 14-week period, were $366.4 million, compared to $328.6 million for the fourth quarter of fiscal 2010, a 13-week period. The additional week included in the fourth quarter of fiscal 2011 contributed an additional $26.9 million of retail sales. Same-store sales, calculated on a comparable 13-week period, increased 0.5%
• Consolidated gross margin decreased by 120 basis points to 39.9% of sales
  • Product cost increased by 50 basis points to 57.1%
  • Shrinkage was higher by 50 basis points at 2.8%
  • Other items in cost of sales increased by 20 basis points to 0.2%
• Consolidated operating expenses decreased by 130 basis points to 30.6% of sales
  • Retail operating costs decreased 30 basis points to 22.2%
  • Distribution and transportation costs decreased 10 basis points to 4.8%
  • Corporate G&A costs decreased 10 basis points to 3.3%
  • Other operating expenses decreased 80 basis points to 0.3%
• Consolidated Income Before Taxes increased to $28.1 million, or 7.4% of revenues, from $24.8 million, or 7.3% of revenues
• Consolidated net income increased by $1.0 million to $17.9 million, or $0.25 per diluted share, versus $16.9 million in the prior year, or $0.24 per diluted share; the effective tax provision rate increased to 36.3% from 31.9% for the fourth quarter in the prior year

Eric Schiffer, CEO of 99 Cents Only Stores®, stated, "We are pleased with the continued progress of our long-term operational improvement programs. Continuous improvement in all areas of our cost structure has enabled us to achieve a pre-tax profit margin of 7.4% for the fourth quarter of fiscal 2011 versus 7.3% for the same quarter in the prior year, and 8.3% for the full fiscal year versus 6.9% for the prior year. Despite continued improvement in our pre-tax profit margin, our net income as a percentage of sales declined for the fourth quarter to 4.7% versus 5.0% last year.  This percentage decline was primarily due to an increase in the effective tax rate from 31.9% of pre-tax income to 36.3% of pre-tax income, primarily due to one-time tax benefits in the fourth quarter of fiscal 2010.  We look forward to further discussing our results on today's earnings release conference call."

The details for participating in today's conference call can be found following the financial discussion.

CONSOLIDATED RESULTS (including Non-Texas and Texas operations)

Total consolidated sales for the fourth quarter of fiscal 2011, a 14-week period, were $378.5 million compared to net sales of $339.3 million for the fourth quarter of fiscal 2010, a 13-week period.  The additional week included in the fourth quarter of fiscal 2011 contributed an additional $27.9 million of total sales. Same-store sales for the fourth quarter of fiscal 2011, calculated on a comparable 13-week period, increased 0.5% versus the fourth quarter of fiscal 2010 despite a negative effect from a change in the timing of Easter sales.  The fourth quarter of fiscal 2010 included the second and third weeks prior to Easter, whereas the last week of the fourth quarter of fiscal 2011 was four weeks prior to Easter.

Consolidated gross profit for the fourth quarter of fiscal 2011 was $150.9 million, compared to $139.4 million for the fourth quarter of the prior fiscal year.  The Company's consolidated gross profit margin was 39.9% for the fourth quarter of fiscal 2011 versus 41.1% for the fourth quarter of the prior fiscal year. Shrinkage was 2.8% of net sales for the fourth quarter of fiscal 2011 compared to 2.3% for the fourth quarter of fiscal 2010. Adjustments to reduce inventory reserves contributed to an unusually low shrinkage rate during the fourth quarter of fiscal 2010.  Additionally, cost of products sold increased to 57.1% of net sales for the fourth quarter of fiscal 2011 compared to 56.6% of net sales for the fourth quarter of fiscal 2010 primarily due to merchandise cost increases. The remaining change was mainly due to an increase in freight costs by 30 basis points for the fourth quarter of fiscal 2011, which was partially offset by decreases in other less significant items included in cost of sales.

Operating expenses were $115.7 million, or 30.6% of consolidated sales, for the fourth quarter of fiscal 2011 versus $108.3 million, or 31.9% of sales, for the fourth quarter of the prior fiscal year.  The Company's improved operating expense ratio is a result of across-the-board decreases in the components of operating expense as a percentage of sales.  A primary driver of this improvement was lower payroll-related expenses as a result of improvement in labor productivity and a reduction in equity-based compensation expenses.

Consolidated operating income for the fourth quarter of fiscal 2011 was $27.9 million, compared to $24.4 million for the fourth quarter of fiscal 2010.  Operating income as a percentage of sales increased 20 basis points to 7.4% for the fourth quarter of fiscal 2011 versus 7.2% for the fourth quarter of last year.  

Net income for the fourth quarter of fiscal 2011 increased to $17.9 million, or $0.25 per diluted share, compared to net income of $16.9 million, or $0.24 per diluted share, for the fourth quarter of fiscal 2010.  Net income as a percentage of sales declined to 4.7% versus 5.0% in the same quarter last year due to an increase in the effective tax provision rate from 31.9% to 36.3% of Income Before Taxes, primarily due to one-time tax benefits in the fourth quarter of fiscal 2010 associated with the expiration of the statutes of limitations for uncertain tax positions.

For the full fiscal year ended April 2, 2011, a 53-week period, net sales were $1,423.9 million, compared to $1,355.2 million in fiscal 2010, a 52-week period.  Net retail sales increased to $1,380.4 million, compared to $1,314.2 million for fiscal 2010, and included the benefit of an additional week in the fourth quarter of fiscal 2011 which contributed an additional $26.9 million of retail sales.  Annual same-store sales, calculated on a comparable 52-week period, increased 0.7% in fiscal 2011 compared to fiscal 2010.  Net income for fiscal 2011 was $74.3 million, or $1.05 per diluted share, compared to net income of $60.4 million, or $0.87 per diluted share, in fiscal 2010.  The fiscal 2011 net income results include proceeds from a legal settlement from a third party administrator related to workers' compensation of approximately $2.2 million in the third quarter of fiscal 2011. The fiscal 2010 net income results include net lease termination and closing costs of approximately $2.5 million.

During fiscal 2011, the Company opened eleven stores, with six in California, two in Arizona and three in Texas, and closed one store in California upon expiration of its lease.  The Company currently operates 285 stores, with 211 stores in California, 35 in Texas, 27 in Arizona, and 12 in Nevada.  

MANAGEMENT ANALYSIS OF CONSOLIDATED OPERATIONS

The Company will report the results of its non-Texas operations on a consolidated basis with its Texas operations in accordance with GAAP in its Annual Report on Form 10-K for fiscal 2011. The Company is also providing a management analysis in this release of its quarterly operating results including more detailed expense information and separate analyses for non-Texas and Texas operations.  Analysis and reconciliation to GAAP consolidated results is shown in Table 1 and Table 2 at the end of this release.  The Company believes it is meaningful for investors to review an analysis of its results of operations separately for non-Texas and Texas operations in addition to its consolidated results while the cost structure of its Texas operations is still materially different from the cost structure of its overall financial results.  The Company's non-Texas operations comprise all of its operations in California, Arizona, and Nevada and generate approximately 92% of its retail sales revenue.  The analysis for Texas operations provided in Table 1 for the fourth quarter of fiscal 2011 and fiscal 2010 and also in Table 2 for fiscal year 2011 and 2010, includes only revenues and expenses incurred directly in the Texas operations, with no allocation of costs incurred in the California distribution centers or corporate offices; these unallocated, indirect costs are not material to non-Texas results but may be material to Texas results.  During fiscal 2010, Texas stores were operated under unusual conditions, with 11 stores closed during the first quarter and one store closed in the second quarter, and thus the comparison of fiscal 2011 quarterly results to fiscal 2010 quarterly results is not indicative of future comparisons for the ongoing operations of the 35 stores that currently remain open.  The non-GAAP financial measures in Table 1 and Table 2 should be viewed in addition to, and not as an alternative to, the Company's consolidated financial statements prepared in accordance with GAAP.  

Fourth Quarter Management Analysis of Non-Texas Operations

Highlights for the fourth quarter of fiscal 2011, a 14-week period, versus the fourth quarter of fiscal 2010, a 13-week period:

• Retail sales for the Company's non-Texas retail operations were $336.8 million, compared to $302.1 million.  Same-store sales, calculated on a comparable 13-week period, increased 0.7%
• Non-Texas gross margin decreased 50 basis points to 40.3% of sales
  • Product cost increased 40 basis points to 57.0%
  • Shrinkage decreased 10 basis points to 2.7%
• Non-Texas operating expenses decreased 90 basis points to 30.5% of sales
  • Retail operating costs decreased 30 basis points
  • Distribution and transportation costs increased 10 basis points  
  • Corporate G&A costs decreased 20 basis points
  • Other operating expenses decreased 50 basis points
• Non-Texas operating income increased to $27.5 million, or 7.9% of sales, from $23.5 million, or 7.6% of sales

For the Company's non-Texas operations compared to its consolidated results, non-Texas gross margin was 40 basis points higher at 40.3% and operating expenses were 10 basis points lower at 30.5%, resulting in an operating income contribution from non-Texas operations of 7.9% versus consolidated operating income of 7.4%.

The non-Texas operating income contribution for the fourth quarter of fiscal 2011 was $27.5 million, an operating margin of 7.9% of sales, compared to operating income of $23.5 million and an operating margin of 7.6% of sales for non-Texas for the same quarter of fiscal 2010, an improvement of 30 basis points.  

Fourth Quarter Management Analysis of Texas Operations

For the Company's Texas operations, the fourth quarter fiscal 2011 operating income was $0.4 million, compared to operating income of $0.9 million for the fourth quarter of fiscal 2010. The decrease in Texas operating income for the current quarter versus the same quarter last year was primarily due to an increase in merchandise purchase costs and the absence of an adjustment to our shrink reserves further described below. Texas continues to deliver a positive cash contribution.

Texas operating results for the fourth quarter of fiscal 2010 included a one-time reduction in shrink reserves of $1.8 million based on a shrink analysis performed during that quarter.  Texas operating results for the fourth quarter of fiscal 2010 also included lease termination costs of approximately $1.1 million relating to the closing of some of the Company's Texas stores.  

OUTLOOK

The Company believes that revenue growth in fiscal 2012 will primarily result from new store openings and increases in same-store sales. For fiscal 2012, the Company expects same-store sales to be positive in low single digits and plans to open at least 16 stores with most of its new stores expected to be opened in California. The first new stores should open in July and the majority of the store openings will be in the second half of fiscal 2012.

CASH AND LIQUIDITY

As of the end of the fourth quarter of fiscal 2011, the Company held $212.9 million in cash and short and long-term marketable securities, and had no debt.  The inventories at the end of the fourth quarter of fiscal 2011 were $191.5 million versus $171.2 at the end of fourth quarter of fiscal 2010.  The increase in inventories was primarily due to growth in the number of stores and increased in-stock levels at the stores.  

CONFERENCE CALL DETAILS

The Company's conference call to discuss its fiscal 2011 fourth quarter and the other matters described in this release is scheduled for today, Wednesday, May 25, 2011 at 1:30 p.m. Pacific Time.  You can participate in the live call by dialing (888) 771-4371 from the U.S.A. and (847) 585-4405 from international locations and entering confirmation code 29786462.  Please phone in approximately 9 minutes before the call is scheduled to begin and hold for a ConferencePlus operator to assist you.  Please inform the operator that you are calling in for 99 Cents Only Stores' fourth quarter fiscal 2011 earnings release conference call, and be prepared to provide the operator with your name, company name, and position if requested.  A telephone replay will be available approximately two hours after the call concludes and will be available through Wednesday, June 8, 2011, by dialing (888) 843-7419 from the United States, or (630) 652-3042 from international locations, and entering confirmation code 29786462.

A copy of this earnings release and any other financial and statistical information about the period to be presented in the conference call will be available prior to the call at the section of the Company's website entitled "Investor Relations" at www.99only.com.