Chain of discount store operator 99 Cents only Stores' (
NDN) earnings will be guided by the company's percentage of discounts it had offered to lift its holiday sales. While there was a general belief that holiday season witnessed strong sales, there are fears that many retailers had offered more discount to lure more consumers to beat competition to make the most in the holiday season. The company will report its earnings numbers for the third quarter on January 11 after the market closes.
The increased discount is likely to impact the retailers' earnings performance given the trend that more than half a dozen retailing companies announced earnings reduction only last week when they announced their December comparable store sales numbers.
Expectations
Wall Street analysts are expecting the company to report earnings of 41 cents a share on revenues of $393.08 million. While earnings projection indicate 7.89 percent growth, analysts project 7.6 percent growth in revenue.
Second Quarter Results
99 Cents Only Stores reported net income of $15.1 million or 21 cents a share on revenues of $363 million, higher than $12.9 million or 18 cents a share on revenues of $333.6 million in the year ago quarter. While profit growth was 17 percent, revenue witnessed 8.8 percent upside from the previous year quarter.
Street analysts had estimated the company to earn 22 cents a share on revenues of $358.64 million.
While releasing second quarter numbers, 99 Cents Only Stores indicated that its revenue growth would be guided by the increased same-store sales. The company had also lifted its same-store sales for fiscal 2012 to mid-single digits.
Earnings History
99 Cents Only Stores failed to meet analysts' earnings expectations in the last three quarters and in the second quarter of the previous year, it could match analysts' projection. Interestingly, during the last 60 days, analysts' have lifted their earnings projection of the company by a cent to 41 cents a share from 40 cents a share. In the second and first quarter of current fiscal year, the company earned 21 cents and 25 cents a share respectively and in the previous year's fourth and third quarter, the earnings per share was 25 cents and 38 cents respectively.
Versus Peers
99 Cents Only Stores enjoys better gross margin and operating margin compared to industry average. The company's gross margin for the trailing twelve-month period is 40.63 percent compared to industry average of 29.99 percent and Dollar Tree's (DLTR) 35.75 percent and Wal-Mart's (WMT) 25.04 percent. Similarly, operating margin stood at 8.18 percent versus industry average of 5.33 percent and Dollar Tree's healthy 11.54 percent and Wal-Mart's 5.94 percent.
iStock Punch
While there is every reason to believe that 99 Cents Only Stores' margins could come under pressure as a result of more discounts offered by various retailers during the last holiday season sales, the company's better margin for the trailing twelve-month period could help them to post better than expected results too. Analysts' increasing their earnings estimation in the last two months also assumes significance.