Agenda

• Company• Industry• Thesis• Financials• Q&A

Company

Simple Concept

The sale of various consumable merchandise with an emphasis on

name-brand products through its retail stores at price points of 99¢ or less.

Best of Both Worlds

Southwest Focus

Store LocationsDistribution Centers

183

22

11

46

Brand Name Products

50% of sales

Retail Mix

Retail 96.4%

Wholesale 3.6%

Stationary & Party 5%

Seasonal 4% Other 11%

Hardware 5%

Health & Beauty Care 9% Food &

Grocery 51%

Household & Housewares 15%

Average ticket: $9.55

Customer Base

9999¢¢

9999¢¢9999¢¢9999¢¢9999¢¢ 9999¢¢

9999¢¢

Opportunistic Purchasing

• Scavenger purchase policy• Possible due to supplier inefficiency• Orders are typically large• Allow for substantial price reduction

Industry

Extreme Value Retail Industry

• Business Model– Opportunistic Buying– Closeouts & manufacturer overruns– Seasonal/Special Buying– Regular merchandise

• 36% of households frequent on a monthly basis• Located in high traffic or neighborhood strip malls• Average receipt around $10• $40B Industry/ 5.6% annual growth

Macroeconomic Risks

• Economic slowdown – Shift to less profitable product purchases– Net decrease in sales

• Inflationary Pressure– Ability to pass on costs limited by operational &

competitive forces• Energy Prices

– Increases cost to transport goods from distribution warehouses to retail stores

• Labor Wages– Employees are paid at minimum wage levels

Competitors

Competitors

• Dollar tree– $1 or less– Regional, private & off-brands

• Family Dollar– $10 or less– 40% brand name sales

Competitors

• Price Smart– Membership fees

• Fred's– Freestanding stores– 36% off pharmaceuticals

• Duckwall-ALCO– Situated in towns of 5,000 or less– No single price point

Competition Everywhere

99¢ Only StoresDollar TreeFamily Dollar

Thesis

Thesis

• Poor growth; Decreasing earnings• Trading at premium to competitors• NDN’s business is inherently flawed

Store Openings Slowing

• New store growth is needed to spur earnings growth– Fiscal ‘09: 7% vs. Fiscal ’08: 11%

• Trouble in new markets– 2 store closings in Texas

• Saturation issues– This isn’t Starbucks

Sales Per Square Foot Falling

309 308270 250 254

$0

$50

$100

$150

$200

$250

$300

$350

2002 2003 2004 2006 2007

CAGR 3.8%

Increasing COGS & SG&A

• 51% of retail is food items– Increase in food prices

• New fresh foods and groceries plan– Spoilage increases: 3.3% of sales

• Employee wage increases– Lean structure– Class-action lawsuits

Minimum Wage Increases

$0.00$1.00$2.00$3.00$4.00$5.00$6.00$7.00$8.00$9.00

2002 2003 2004 2005 2006 2007 2008 2009

Arizona California Nevada Texas

Lease Expirations

2007 2008-2010 2011-2013 2014-Beyond

Option to Renew 17 79 67 47

No Renewal Options 13 2 4 191

Year of Expiration

Comparables

P/E Forward P/E P/E/G EV/EBITDA P/Book Debt/Equity

12.77 10.54 0.92 5.42 2.49 27.2%11.50 12.04 1.15 5.09 2.41 26.8%43.06 N/A N/A 14.08 2.61 8.7%14.29 14.03 1.13 5.61 0.09 14.5%15.97 9.15 1.28 6.62 0.50 52.7%98.56 38.56 3.64 15.61 1.20 1.5%

32.69 16.86 1.62 8.74 1.55 21.9%15.13 12.04 1.15 6.12 1.81 20.7%

Company

Dollar Tree Stores IncFamily Dollar Stores IncPriceSmart IncFred's IncDuckwall-ALCO Stores, Inc99¢ Only Stores Inc

MEANMEDIAN

Why Is It Trading So High?

Date Purchase (Shares) Price

01.18.08 5,609 $6.6401.22.08 7,531 $7.1101.28.08 29,500 $7.4902.07.08 44,120 $8.2402.08.08 -4,645 $8.4003.04.08 5,300 $9.31

Akre Capital Management

Long Term Outlook is Bleak

• Without changing business model, business fails long-term

• Inflation– Brand name prices increase

• Costs increase due to growth• 99¢ ceiling

Financials

Revenue Grows, Income Declines

714862 972 1,024 1,105

$0

$200

$400

$600

$800

$1,000

$1,200

2002 2003 2004 2006 2007

Sales($ in millions)

61 59

1011

28

$0

$10

$20

$30

$40

$50

$60

$70

2002 2003 2004 2006 2007

Net Income

CAGR 9.1%CAGR -30.6%

SG&A Increase

25.0% 27.3%32.1% 33.3% 35.6%

0%5%

10%

15%20%25%30%35%

40%45%50%

2002 2003 2004 2006 2007

CAGR 17.1%

SG&A Increase

• Warehouse costs• Payroll

– Retail store labor & benefits• Distribution costs • Corporate costs

Decreasing Operating Margin

13.1%10.6%

4.0%1.1% 0.6%

0%

2%

4%

6%

8%

10%

12%

14%

2002 2003 2004 2006 2007

CAGR -46.0%

Earnings Per Share Slumping

0.87 0.82

0.39

0.16 0.14$0.00$0.10$0.20$0.30$0.40$0.50$0.60$0.70$0.80$0.90$1.00

2002 2003 2004 2006 2007

CAGR -30.6%

This Year’s Performance Lagging

($ in millions) Nine Months Ended December 31,2006 2007

Sales $826.7 $908.9Operating Income 9.1 3.1Earnings Per Share 0.15 0.10

Take-Away

Factors Playing Against NDN

• Inflation– Increasing prices of goods

• Increasing SG&A and COGS• Poor growth outlook• Penny shortage

Risks To Thesis

• Buyout• Change in business model• Bernanke declares no more inflation• No more minimum wage increases• Employees decide to work for free• Wal-Marts & supermarkets blow up

Acquisition Risk

• PE Shop: too expensive• Dollar Tree: already doing fine• Family Dollar: lease expenses

– Slightly different business models• 30% Insider Holding

Change In Business Model Risk

• 99¢ Only Stores 1.84¢ Only Stores• Increase in costs• Loss of competitive edge

– Dollar Tree will dominate

Bottom Line

• The business is inherently flawed• Decreasing earnings• Poor growth• Trading at premium to competitors

Same Store Sales

3.6%4.5%

-1.8%

0.3%

2.4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

2002 2003 2004 2006 2007

CAGR -7.8%

D&A ’02-’07

1419

333128

$0

$5

$10

$15

$20

$25

$30

$35

2002 2003 2004 2006 2007($ in millions)

CAGR 17.7%

COGS

59.9% 59.9% 61.0% 62.5% 60.8%

0%10%20%30%40%50%60%70%80%90%

100%

2002 2003 2004 2006 2007

CAGR 9.5%