It's official. 99 Cents Only (NYSE:NDN) is caught up on its paperwork, having filed all of its financial reports through the current year's 10-K annual report.

Perhaps uncertainty is worse than reality. Even though the deep discounter's report offered no surprises -- it had reported preliminary figures a few weeks ago, and things were generally worse this time around than last year -- shareholders still bid the stock higher yesterday.

As I mentioned in the earlier report, while things are bad year over year, the company has been gaining traction in recent months. Certain improvements continued on a sequential basis. Comps have been growing for the past seven quarters, though they weren't as good as the numbers from competitors like Dollar Tree (NASDAQ:DLTR). In addition, the company's getting inventory issues and expenses as a percentage of sales under control. Maybe that's what shareholders like about the "extreme value" retailer, though the data's no different now than it was in June.

With 99 Cents Only, investors need to monitor the overall economy, and that of California. More than 80% of the company's stores are located in that state, with a smattering of the remainder in a few other western states and Texas. A declining economy could have a big impact on results, particularly if it results from or causes inflationary pressures.

True, that might seem counterintuitive for a company selling products for less than a dollar. But because it has a set limit on what it can charge for its products -- no more than $0.99 -- the company isn't able to easily pass along cost increases to customers. If inflation rises, or the minimum wage gets hiked, for example, 99 Cents Only must eat a portion of that increase, which hits its bottom line. Its gross margins are healthy, but operating and net margins are razor-thin.

























All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

99 Cents Only still found it necessary to dole out stock options, despite the company's performance, making its knife-edged profit margin even thinner. In fact, expensing stock options caused the retailer to report a loss this quarter, rather than breaking even. Its $1.3 million charge cost the company a penny per share, the exact amount of its loss. Always nice to know that management is getting its cut, no matter how the company performs.

The extreme value retailer has been trying to turn itself around, and one can argue it's finally seeing positive results. Yet rivals like Big Lots (NYSE:BIG), Dollar General (NYSE:DG), and Family Dollar (NYSE:FDO) have been performing much better on most metrics. Whether that kind of operation deserves a higher share price, or stock-option rewards to management, are questions Fools should ponder carefully before committing dollars here.

For more on the discount retailers, check out:

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.