99 Cents Only Stores - Momentum - Zacks Rank Buy

99 Cents Only Stores (NDN) continues to trade near its 52-week high as the results from its 2008 "Profit Improvement Plan" reverse a multi-year decline in income. The company's Q4 results from early February included a 40% earnings surprise.

Company Description

99c Only Stores sells consumer products through its retail stores for 99c or less in the United States. The company was founded in 1965, operates more than 279 stores and has a market cap of $1.13 billion.

In 2008, after a few tough years in which NDN's income was steadily declining, the company launched its "Profit Improvement Plan," a strategic initiative designed to drive long-term profits on new pricing, merchandise, reduced labor costs and improved distribution efficiencies. The results were apparent on Feb 4 when the company reported better than expected Q4 results.

Fourth-Quarter Results

Revenue for the period was up 2.3% from last year to $359 million. Same-store sales were up 3.1%. Earnings came in at 35 cents, 40% ahead of the Zacks Consensus Estimate. NDN has surprised in each of the last four quarters by an average of 79%.

NDN gained in a couple of key categories, with gross margin up 240 basis points to 43.1% of sales. Retail operating costs decreased 60 basis points to 3.2%, while corporate general and administrative costs were down 60 basis points to 3.2%.

Strong Balance Sheet

NDN also boasts a very strong balance sheet, with $187 million in cash and no debt.

Estimates Up

Analysts like what they are seeing from the company, recently raising estimates on the strong quarter. The current-year is up 13 cents in the last two months to 77 cents. The next-year estimate is up 13 cents in the same time to 90 cents per share.

Valuation

After the string of gains, shares of NDN are a bit pricey, trading with a forward P/E multiple of 21X, a premium to the overall market. The company does however have a favorable P/B multiple of 2X, a discount to both the S&P 500 and the industry average.

The Chart

Shares of NDN continue to trade near the 52-week high in spite of the higher valuation. If shares do pull back look for support at the long-term trend line, take a look below.

Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Surprise Trader Service.
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