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99 Cents Only Stores Trims Its 2nd-Quarter Forecast Again

The discount retailer cites problems at its L.A. distribution center among other woes.

June 12, 2004|Leslie Earnest | Times Staff Writer

99 Cents Only Stores, struggling with a variety of woes including problems at its Los Angeles distribution center, Friday lowered its second-quarter sales and earnings projections.

The City of Commerce-based retailer, which sells everything for less than a dollar, said it expected to earn 4 cents to 7 cents a share in the quarter ending June 30, instead of the 19 cents it had predicted earlier. The reduction was the company's second downward earnings revision for the period.

Sales are expected to be $235 million to $238 million, 3% to 4% lower than previously anticipated, the company said. Sales at stores open at least a year -- a key measure of retail performance -- probably will fall by as much as 4%, the retailer said, adding that same-store sales improved in the second half of May and the first week of June.

The company said its Los Angeles distribution center had been overcrowded, causing deliveries to be delayed. As a result, stores ran short of merchandise, which hurt sales.

"They need to show they've got their ship in order," Dan Kapusta, an analyst at Banc One Investment Advisors, told Bloomberg News.

99 Cents Only also blamed its problems on higher wholesale prices for dairy products and rising fuel costs, as well as cost cutting by California grocery chains struggling to win back customers after their recent labor strife.

In addition, Chief Executive David Gold, 71, is in the hospital after heart bypass surgery this week, the firm disclosed.

The retailer will hire a consultant to evaluate its inventory controls and other procedures, President Eric Schiffer said.

"We believe we can resolve our distribution difficulties as well as address the challenging economic events affecting the company's sales and margins in the current quarter," he said in a statement.

The retailer declined to offer earnings projections for subsequent quarters.

U.S. markets were closed Friday in observance of a national day of mourning for former President Reagan, so there was no immediate investor reaction to the company's announcement. Its shares, which fell 86 cents Thursday to $20.48 on the New York Stock Exchange, are down 25% this year.

Shareholder John Chevedden of Redondo Beach, who attended the company's annual meeting Friday, said he was concerned that the company didn't give earnings projections for the second half of the year.

"They had been saying before, 'OK, we haven't been doing so well in the last three quarters, but we're going to make it up in the last two quarters of 2004,' and that has just evaporated," he said. "There's something to worry about if they won't even make a forecast now."

99 Cents Only Stores has been struggling recently on various levels. It stepped into a hotbed of competition last year when it moved into Texas, which has many so-called dollar stores, including some owned by the much larger Family Dollar Stores Inc. and industry leader Dollar General Corp.

Hoping to boost sales, 99 Cents Only Stores said it planned to introduce a "more flexible pricing strategy" in the Texas market next week. It didn't elaborate, other than to say that prices will remain capped at 99 cents.

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