Novice Investing - Counting Every Dollar Stores

Date: Thursday 28th 2008f August 2008 01:03:03 AM

Counting Every Dollar Stores - 06/13/2008

By: Hari Wibowo

		99 Cents Only Stores 4000 East Union Pacific Avenue City of Commerce, CA 90023 United States

We have seen it in the headlines. Oil price is going up, inflation is accelerating. As a result, food prices and other daily necessities are going up as well. With interest rate forecasted to increase, so will your mortgage payment. Meanwhile, your salary probably doesn't increase as much. What can common folks do to survive? They would go to discount stores such as Wal-Mart Stores Inc. (WMT), which is probably the reason why Wal-Mart shares is trading close to its 52 week high. With forward Price Earning ratio of 17.05, Wal-Mart may not be an appealing investment candidate but you would have to find another candidate such as 99 Cents Only Stores (NDN).

As the name implies, 99 Cents Only Stores sells retail goods with prices of USD 0.99. Now, that is where your dollar counts. Judging from its core business, 99 Cents Only Stores cater to low-middle income earners who are pinched the hardest by the rise in inflation. The good thing is 99 Cents Only Stores is trading near its 52 week low. What gives? Just this past week, 99 Cents Only Stores reported a fourth quarter loss due to higher expense and higher inventory shrinkage (which can be caused by theft, shoplifting or accounting errors). As a result, share price plunged to $ 7.25 per share. This gives 99 Cents Only Stores a market capitalization of $ 506 Million.

You will be hard pressed to find a retailer with significant net cash position. This is because retailers rely on their logistic efficiency and inventory management to churn out profit. For example, the faster the inventory turnover rate, the less capital a retailer needs to operate the business. Thus, retailers generally keep a low amount of cash. 99 Cents Only Stores, however, is flushed with cash. As of 31st December 2007, the company hoarded $ 116 Million ($ 1.66 per share) of positive net cash or 23% of its

total market capitalization. This will comes in handy in difficult times. For the past several years, 99 Cents Only Stores has been reporting reduced profits with $ 9.76 Million of net income in fiscal year ending in March 31st 2007. For 2008 fiscal year, the company is on track to report a break even year. Clearly, this is a difficult time for the company.

If you traced back its financial statements, the root of the problem is indeed its selling general administrative expense, which has risen more than gross profit. The company has acknowledged this problem but going forward, we have no idea how 99 Cents would perform. We know that if oil price stays high, more people will come and visit the stores. That would benefit 99 Cents Only Stores. With its shares trading at 52 week low, one could wonder how high the share will go.

Comparing 99 Cents Only Stores with its competitors reveal a different side of the story.

Company	Price Per Share	Net Cash Per Share	Earning Per Share	Forward P/E
99 Cents Only Stores (NDN)	$ 7.25	$ 1.66	$ 0.16	34.94
Big Lots Inc. (BIG)	$ 33.30	($ 1.56)	$ 1.86	18.74
Dollar Tree Inc. (DLTR)	$ 36.25	($ 1.89)	$ 2.38	16.03
Family Dollar Stores (FDO)	$ 21.25	$ 0.48	$ 1.51	13.75

Despite the fact that 99 Cents Only Stores shares is trading near its 52 week low, it is the most expensive of the bunch. The rest of the competitors are actually trading close to its 52 week high. Thus, Wall street actually knew that 99 Cents has some ongoing problem with its business. In fact, based on analysts profit forecast of $ 0.16 per share, Wall street does not expect a significant improvements anytime soon.

END

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding 99 Cents Only Stores (NDN) or any other securities.

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