99 Cents Only to exit Texas market
CITY OF COMMERCE, Calif. 99 Cents Only Stores announced that it will exit the Texas market where it has 48 stores to focus on its core markets of California, Arizona, and Nevada, where it has 230 stores which contribute approximately 90% of the company’s sales.
Despite years of positive same-store sales, the company’s Texas stores were only generating slightly more than half of the average sales of its non-Texas stores. Additionally, the company’s Texas operation remains unprofitable. Based on its recently completed strategic review, the company now believes that even if it continued to invest in its Texas operations over the next few years and was successful in achieving substantial sales increases, and closed its most unprofitable stores and right-sized its distribution center, the result would still likely be only a minimal profit providing an unacceptable return on investment to justify the substantial cost and effort.
Eric Schiffer, ceo of 99 Cents Only Stores said, “After more than five years of hard work by many talented associates, we have made the painful decision to cease operation of our Texas stores. Although progress was continually made over the years, we were still losing money in Texas and we determined that it was not likely we would achieve profitability in the near future or attain an acceptable level of return on investment in the long term.”
Based on the company’s unaudited financial analysis of the prior four quarters ended June 28, revenue associated with Texas operations was approximately $120 million per annum. Operating income was a loss of approximately $15 million per annum (without allocation of any non-Texas costs or overhead), or, after applying the company’s estimated annual effective tax rate, approximately 15 cents in loss per diluted share.
The impact of this decision on the company’s long term profit improvement program is expected to be positive. The cost structure of the Texas market on a percentage of sales basis was higher in all categories than the company’s other markets.