Shares of discount retailer 99 Cents Only Stores
The company now expects to earn between $0.04 and $0.07 per share for the second quarter, down (just a bit) from the earlier projected range of $0.19 to $0.20. Also, total sales are expected to come in at $235 million to $238 million, compared with an expected range of $242 million to $247 million. Same-store sales (a good measure of a retailer's overall strength) are now expected to fall into negative territory. The company, which had been expecting to see an increase in same-store sales of 1% to 2%, now expects a decrease of 3% to 4%.
99 Cents Only offered a plethora of excuses to explain its troubles, including higher dairy-product pricing, higher litigation and worker-compensation costs, and rising gasoline prices. It seems, however, that most of the blame can be focused on the company itself. Higher gas and dairy costs hurt the bottom line of many companies, but competitors Dollar Tree
In reality, the poor performance of 99 Cents Only seems to be more of a problem with management. Though it won't exactly come right out and say it, the company does seem to recognize this fact. It plans to hire an outside consulting firm to help evaluate its inventory controls at stores and warehouses.
99 Cents Only may also want to consider slowing its growth slightly. To improve its troubles in the Houston market, the company was planning to open 14 new stores in the city. It might prove more productive to better manage its existing stores and inventory before opening several new stores.
So, after the pummeling it suffered yesterday, is the company now a bargain worth buying? The answer depends on how quickly it will be able to overcome these enormous obstacles. Though 99 Cents Only would offer no specifics, it's obvious that this quarter's poor performance will affect the company's annual figures. Whether or not it will carry over into next year is unclear. However, it might be best to wait for some signs of a turnaround before putting your 99 cents into this one.
Fool contributor Mike Cianciolo welcomes feedback and doesn't own any of the companies in this article.