Sales slump in Texas slows 99 Cents Only store expansion

DSN Retailing Today, July 25, 2005 by Doug Desjardins

CITY OF COMMERCE, CALIF. -- Struggling 99 Cents Only is slowing down expansion and will open about half the number of stores it originally planned for 2005. The chain will open just seven new stores the remainder of the year and none of those will be in Texas, where weak sales have been a big part of its problems.

The 225-store retailer reported a 2.9% decline in same-store sales for the second quarter following a 2.7% drop in the first quarter. In a statement, 99 Cents Only president Eric Schiffer said the company "was profitable in the first and second quarters of 2005 and continues to be debt free with a strong cash position." But he acknowledged that its problems will likely continue this year, noting that "we may not see substantial improvement through the balance of 2005."

In December 2004, Schiffer said the chain would open 25 stores in 2005 but that number has been whittled down to 15.99 Cents Only opened 33 new stores last year and has been opening 20 to 25 new stores per year for the past several years.

While Schiffer said the slump in second-quarter sales was due in part to Easter coming in the first quarter of this year, he added that sales at stores in Texas "exceeded the average decline of comp sales for all stores."

Most analysts trace the root of the chain's problems back to its expansion into Texas in 2003, where it bought a distribution center from Albertson's and has since opened 36 stores in Dallas and Houston. In 2004, the chain saw its same-store sales dip by 1.5% and 3.8% in the fourth quarter.

In a July 1 report, SunTrust Robinson Humphrey analyst Patrick McKeever noted that "stores in Texas appear to be doing only $2.2 million per year versus $4.8 million for stores outside of Texas" and added that "under-performance in Texas remains a major problem and we don't see a quick fix."

Analysts have been expecting 99 Cents Only to put the brakes on expansion in Texas and focus on its core markets in California and Arizona and that appears to be what it's doing. The retailer opened three stores in Texas in the first quarter and has no more openings planned there for 2005.

The chain is also dealing with internal problems. In March, cfo Jim Ritter resigned after just three months on the job and founder David Gold recently stepped down as ceo following health problems he suffered in 2004.