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Discount retailer 99 Cents Only receives negative rating adjustment by Moody's.

Southwestern-based dollar store chain lags behind competitors during pandemic, encounters difficulties in debt repayment.

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Struggling Southwestern Dollar Store Chain Lags Behind Peers During Pandemic, Faces Debt Repayment...
Struggling Southwestern Dollar Store Chain Lags Behind Peers During Pandemic, Faces Debt Repayment Issues

Get the Dish: 99 Cents Only's Tough Time in the Retail World

Discount retailer 99 Cents Only receives negative rating adjustment by Moody's.

Here's the skinny on what's been happening with 99 Cents Only, one of the top discount retailers in the US:

Quick Peek: The Rating Rumble

Moody's dropped the corporate credit rating of 99 Cents Only to Caa2 from Caa1, signaling a rise in default risk. Along with the rating drop, they also swapped the outlook from positive to stable. In a nutshell, things aren't looking so hot financially, and free cash flow is expected to remain in the red.

The Inside Scoop: 99 Cents Only's Struggles

99 Cents Only has been battling to get its finances in a stable position for quite a while. The company's history includes multiple debt restructurings, but these haven't managed to address the underlying financial issues, if the low ratings are any indication. Unfortunately, they haven't been able to keep up with the stiff competition, even during the pandemic.

Opponents Galore

The competition isn't easy; 99 Cents Only has some heavy hitters to square off against, like Dollar General (a fast-growing force) and Dollar Tree (which also operates Family Dollar banners). Aldi, a discount grocery chain that's been rapidly expanding, puts added pressure on the entire sector.

Coalition of Owners

Things go back to 1982 when Dave Gold inherited a small liquor store and tested the waters with 99-cent wine. From there, the first 99 Cents Only store was born in Los Angeles, selling televisions for 99 cents to the first nine customers. Today, the company brings in around $2.2 billion in revenue, according to Moody's, and has over 350 stores, primarily in the Southwestern US.

Geography and Competition

Despite its sizable footprint, 99 Cents Only's small scale, heavy concentration in California, and intense competition in key markets are reflected in its credit rating.

Execution Woes

Analysts also highlight potential risks in executing 99 Cents Only's strategic initiatives, especially when it comes to cost cuts in a cutthroat environment.

A Steep Price Tag

Ares Management bought 99 Cents Only for a cool $1.6 billion in 2011. Despite attempts to reduce the debt load, the company's credit metrics have remained poor for years. Regrettably, the owners continue to siphon cash out of the company, with annual dividends draining the cash flow, and they could potentially cash in by selling off real estate.

At the Helm

Barry Feld, former chief of Cost Plus World Market, was appointed CEO of 99 Cents Only last March, hoping to steer the ship through these challenging times.

  1. The finance industry, including Moody's, has signaled a rise in default risk for 99 Cents Only due to a drop in their corporate credit rating from Caa1 to Caa2.
  2. In the retail world, 99 Cents Only faces stiff competition from fast-growing forces like Dollar General and Dollar Tree, as well as Aldi, a discount grocery chain that's been rapidly expanding.
  3. The company's history includes multiple debt restructurings, yet its financial issues persist, as indicated by the low ratings.
  4. Research suggests potential risks in 99 Cents Only's strategic initiatives, particularly cost cuts, due to the competitive, cutthroat business environment.
  5. Executives, such as Barry Feld who took over as CEO last March, are tasked with navigating these challenging times for the retailer.
  6. In an effort to address the financial troubles, the owners have drained the company's cash flow by issuing annual dividends.
  7. In addition, there's the possibility that the owners could cash in by selling off real estate assets, further impacting the company's financial health.
  8. Given the company's heavy concentration in California and small scale, along with intense competition in key markets, it's no surprise that 99 Cents Only's credit rating has taken a hit.
  9. The retail landscape is constantly evolving, and 99 Cents Only must adapt on multiple fronts: from keeping up with the competition to implementing effective strategies, all while navigating the challenges posed by market factors like inflation, the pandemic, and cybersecurity threats.

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