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WIKI ANALYSIS
99 Cent Only Stores is an extreme value retailer with stores in 4 US states selling brand-name items from groceries to housewares, all of which cost only $0.99. In 2008, 99 Cents Only changed its fiscal year end date; thus, the company's 2008 fiscal year began in March 2007 and ended in March 2008. [1] From fiscal year 2006 to fiscal year 2008, net sales increased 17.2%, from $1.02 billion in 2006 to $1.2 billion in fiscal year 2008.[2] Over the same period, net income decreased 75%, from $11.4 million in 2006 to $2.9 million in 2008, due to increased costs in fiscal years 2006 and 2007.[3]
Since 2006, inflation and general increases in manufacturing and transportation costs resulted in increased costs to the company.[4] From 2006 to 2008, total operating expenses have increased by $95.7 million. [5]The company's efforts to expand the chain met with difficulty in Texas, where net sales per store in 2008 were about half of net sales in stores elsewhere. Texas stores averaged $2.4 million in net sales, while other stores averaged $4.8 million.[6] The company has benefited, however, from growth in the deep discount industry as a whole--from fiscal year 2006 to fiscal year 2008, 99 Cents Only's retail sales have grown 18%.[7]
Company Overview
99 Cent Only is the nation's oldest chain of single-priced general retailers, founded in 1982.[8] 99 Cents Only has 277 locations nationwide; 70% of their stores (193) are located in California, 17% in Texas (48 stores), 9% in Arizona (24 stores), and 4% in Nevada (12 stores.) [8]. Like other single-priced general retailers in the market, all items in store locations cost only $0.99, regardless of the product type or item being purchased.[8] Retailers which operate under this $0.99 price point are often commonly referred to as "dollar stores."
Despite an "extreme value" approach to pricing merchandise, 99 Cents Only cultivates a vendor relationship with many familiar companies, including Hershey's, Dole, Heinz, Johnson & Johnson, Arm & Hammer, and Coca-Cola, among others.[2] By buying in bulk quantities and taking advantage of closeout and newly discontinued merchandise, the company offers customers brand-name products for the same stated price of $0.99.[2]
Business and Financial Metrics
Since 2006, net sales from all business segments of the company increased 17.2% from $1.02 billion in fiscal year 2006 to $1.2 billion in fiscal year 2008. [2]. Over the same period, net income dropped 75%, from $11.4 million in 2006 to $2.9 million in 2008. [2]. Between fiscal year 2007 and fiscal year 2008, net income decreased from $9.8 million to $2.9 million, primarily due to increased costs in fiscal years 2007 and 2008. Between 2006 and 2008, total operating costs increased by $95.7 million. [9] Average net sales per square foot of retail store locations in 2008 was $263, an increase from $254 in 2007.[10]
In fiscal year 2008, the 39 99 Cents Only retail locations in Texas averaged $2.6 million of sales per store compared to non-Texas locations, which averaged $4.9 million of sales per store. [6] In fiscal year 2007, the company's 36 open locations in Texas performed similarly in comparison to the average of locations outside Texas--Texas stores averaged $2.4 million in sales, while other locations averaged $4.8 million. [6]
In the 2008 fiscal year, a considerable majority of sales came from grocery and food products, with 52% of total sales by product type.[2] General household and housewares comprise the next largest category of total sales at 15%. [2]Product categories which each comprise less than 10% of total sales include health and beauty care, stationery and party merchandise, seasonal and holiday wares, and hardware. [2]The "other" category, a catch-all for any products which do not fall into the other delineated categories, comprised 12% of all total sales across all active locations.[2]
Business Segments
- Retail stores (96.6% of net sales in FY 2008): The bulk of the company's net sales come from 99 Cents Only stores, totaling $1.15 billion of net sales in fiscal year 2008.[7] In fiscal year 2008, retail net sales increased 8.9% from fiscal year 2007, an increase of about $94.4 million. The jump in net sales from fiscal year 2007 to fiscal year 2008 is attributed to both an increase in net sales across the board, as well as the full impact of stores which opened in 2007 and concluded their first full year of operations in 2008. [7]
- Wholesale (3.4% of net sales in FY 2008): A small percentage of total sales are made through the company's Bargain Wholesale division, which offers merchandise for resale to retailers, distributors, and exporters. Bargain Wholesale sales earned $40.5 million in fiscal year 2008, a 0.9% increase from fiscal year 2007, largely due to new customers. [7]
Trends and Forces
Inflation results in difficulty sticking to dollar price point.
In 2008, vendor prices, labor, energy, and fuel costs all increased as a result of inflation and other market forces, resulting in higher costs to retail stores and the company at large. [4]The company's business model did not permit the increased costs to be passed along to the customer because 99 Cents Only retail stores cannot raise prices above 99 cents, regardless of company costs. 99 Cents Only have previously had to pull certain items from stock due to vendor price increases; 2008 was the first year the company attributed such increases to inflation. [11] From fiscal year 2006 to fiscal year 2008, the company's total operating expenses increased by $95.7 million. [12]
The "deep discount" market is a quickly growing one, particularly in rough economic climates.
The deep discount industry is, across the board, seeing a greater level of activity from consumers of varying incomes. As of September 2008, 99 Cents Only's retail stores made $307.4 million in net sales, an increase from the $280.6 million in net sales made in September of 2007, the fiscal year prior. [13]In August and September of 2008, when most retailers reported a drop in sales, many deep discount industry companies reported modest gains--Family Dollar Stores, a very similar company to 99 Cents Only, saw an increase in same-store sales of 3.6% and 5.6% in August and September 2008, while average sales across all retailers, including discount stores, only rose 2.0%[14] In the second quarter of fiscal year 2008, Dollar Tree Stores had a profit gain of 15%.[14] From fiscal year 2006 to fiscal year 2008, net sales in 99 Cents Only retail stores grew by 18%. [7]
Competition from established value retailers proves an impediment to geographic expansion.
99 Cents Only's stated goal of eventually expanding nationwide has already hit a regional roadblock. In fiscal years 2007 and 2008, net sales in the company's Texas stores were about half of net sales in stores located in other states.[6] In 2008, two stores in Houston were closed for underperformance.[6] Texas as a whole has a large number of retail stores operating under the dollar price point or similar discount pricing strategies. Family Dollar Stores has 817 locations throughout the state, Dollar Tree Stores operates 212 stores in the state, and larger competitor Walmart has 444 stores in Texas locations.[15][16] [17]99 Cents Only's experience in Texas shows that the company's retail stores will not necessarily succeed in all areas of the nation, particularly in areas with large numbers of competitor stores already open.
Competition
99 Cents Only's major price-point competitors are two other public companies--Dollar Tree Stores and Family Dollar Stores. In addition, the company competes with Big Lots and Walmart, two other national discount chains.
- Dollar Tree Stores (DLTR) is a similarly branded deep discount store with locations in the 48 contiguous U.S. states.[18] In 2007, the last fully reported fiscal year, Dollar Tree Inc. had an operating income of $330.3 million, a 6% increase from 2006's operating income of $310.8 million. 2007 net income was $201.3 million, a 4.8% increase from 2006 net income of $192 million.[19]
- Family Dollar Stores is a deep discount retailer with more than 6,500 locations in 44 states.[20] In fiscal year 2007, Family Dollar saw an operating income of $388.6 million, up from $317.3 million in 2006, for a total 22% increase. Net income in 2007 was $242.8 million, up from $195.1 million in 2006, a 24% increase.[21]
- Walmart is a discount retailer with 4,141 locations across the United States and 3,121 international locations. [22] Though the company's business model also relies on discounting merchandise, Walmart does not have a specific price point in the way the dollar stores do.[23]In fiscal year 2008, the company made $374,526 million in net sales, an 8.6% increase from 2007 fiscal year net sales of $344,992 million.[24] Net income in 2008 was $12,731 million, up from $11,284 million in 2007.[24]
- Big Lots is a national closeout retailer, offering shoppers brand-name discontinued and test market merchandise at a lower price than other mainstream retail stores. Like Walmart, Big Lots does not have a specific price point. [25] Big Lots has 1,353 retail locations in 47 U.S. states. [26] In fiscal year 2007, net sales were $4,656.3 million, a 1.8% decrease from 2006's net sales of $4,743 million. [27].
| Fiscal Year 2007 | Net retail sales (in millions) | Number of retail locations | Average annual sales per store (in millions) |
| 99 CENTS ONLY STORES (NDN)[28] | $1,064.5 | 251 | $4.5 |
| Family Dollar Stores (FDO) [29] | $6,800 | 6,438 | $1.1 |
| Dollar Tree Stores (DLTR)[19] | $3,969.4 | 3,219 | $1.3 |
| Wal-Mart (WMT)[30] | $344,992 | 6,779 | n/a |
| Big Lots (BIG)[31] | $4,656.3 | 1,353 | n/a
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References
- ↑ Form 10-K.pdf 99 Cent Only Inc. 2008 10-K pg. 1
- ↑ Form 10-K.pdf 99 Cent Only Inc. 2008 10-K pg. 29
- ↑ 4.0 4.1 Form 10-K.pdf 99 Cent Only Inc. 2008 10-K "Effects of Inflation" pg. 32
- ↑ Form 10-K.pdf 99 Cent Only Inc. 2008 10-K pg. 23
- ↑ 6.0 6.1 6.2 6.3 6.4 Form 10-K.pdf 99 Cent Only Inc. 2008 10-K pg. 24
- ↑ 7.0 7.1 7.2 7.3 7.4 Form 10-K.pdf 99 Cent Only Inc. 2008 10-K pg. 5
- ↑ 8.0 8.1 8.2 99 Cent Only Stores. About Us.
- ↑ Form 10-K.pdf 99 Cent Only Inc. 2008 10-K pg. 23
- ↑ Form 10-K.pdf 99 Cent Only Inc. 2008 10-K pg. 25
- ↑ Form 10-K.pdf 99 Cent Only Inc. 2008 10-K "Inflation may affect..." pg. 11
- ↑ Form 10-K.pdf 99 Cent Only Inc. 2008 10-K pg. 23
- ↑ 99 Cent Only Inc. Second Quarter 2008 10-Q pg. 5
- ↑ 14.0 14.1 Retail Traffic. Dollar Stores See Dollar Signs.
- ↑ Family Dollar Inc. 2008 Annual Report to Shareholders Stores and Distribution Centers pg. 15
- ↑ Dollar Tree Inc. 2007 10-K pg. 13
- ↑ Wal-Mart Stores, Inc.-Texas.
- ↑ Dollar Tree Inc.. Dollar Tree Inc. Company Overview.
- ↑ 19.0 19.1 Dollar Tree Inc. 2007 10-K pg. 17
- ↑ Family Dollar Inc.. Family Dollar Stores.
- ↑ Family Dollar Inc. 2008 Annual Report to Shareholders Financial Summary pg. 5
- ↑ Wal-Mart 2008 10-K pg. 4
- ↑ Wal-Mart About Us.
- ↑ 24.0 24.1 Wal-Mart 2008 10-K pg. 27
- ↑ BigLots About Us.
- ↑ BigLots Corporate 2008 10-K pg. 4
- ↑ BigLots Corporate 2008 10-K pg. 18
- ↑ Form 10-K.pdf 99 Cent Only Inc. 2008 10-K pg. 23
- ↑ [ Family Dollar Inc. 2007 10-K] pg. 17
- ↑ Dollar Tree Inc. 2007 10-K pg. 17
- ↑ BigLots Corporate 2008 10-K pg. 18
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