Smart & Final Stores, Inc. Reports First Quarter 2015 Financial Results

COMMERCE, Calif., April 28, 2015 /PRNewswire/ -- Smart & Final Stores, Inc. (the "Company") (NYSE:SFS) today reported financial results for the fiscal first quarter ended March 22, 2015.

First Quarter Highlights:

  • Net sales increased 11.9% to $822.2 million
  • Comparable store sales growth of 6.1%
  • Net income of $4.9 million, or $0.06 per diluted share
  • Adjusted net income increased 66.8% to $7.7 million, or $0.10 per diluted share
  • Adjusted EBITDA increased 15.9% to $35.0 million
  • 258 stores at quarter-end, including 102 Smart & Final Extra! stores

"The year is off to a strong start, with Smart & Final Stores delivering against our business plans and financial objectives," said Dave Hirz, President and Chief Executive Officer. "Once again, sales performance across both of our banners was strong, resulting in a 6.1% total company comparable store sales increase. Underlying our robust sales performance is the expansion of our Smart & Final Extra! stores and our supporting slate of merchandising and marketing initiatives." 

Mr. Hirz continued, "We have a unique retail model which is resonating with today's consumers. Our two banners – Smart & Final and Cash & Carry – are highly complementary, offering shoppers a wide range of quality products with exceptional value and in a highly convenient shopping experience.  And importantly, our growth plans are on track, with new store development, a steady pace of Smart & Final legacy-to-Extra! store conversions, and merchandising and marketing activities all contributing positively to our financial performance."

In order to aid understanding of the Company's business performance, it has presented results in conformity with accounting principles generally accepted in the United States ("GAAP") and has also presented adjusted net income, adjusted net income per share, adjusted net income per diluted share, EBITDA and adjusted EBITDA, which are non-GAAP measures that are explained and reconciled to the comparable GAAP measures in the tables included in this release. Where applicable, the numbers below are first presented on a GAAP basis and then on an adjusted basis.

First Quarter Fiscal 2015 Financial Results
Net sales were $822.2 million, an 11.9% increase as compared to $735.0 million in the same period of 2014. Net sales growth was driven by a 6.1% increase in comparable store sales and from the net sales contribution of new stores. The growth in comparable store sales was comprised of a 4.2% increase in comparable transaction count and a 1.9% increase in comparable average transaction size.

Net sales for Smart & Final banner stores were $628.8 million, an 11.9% increase as compared to $561.9 million in the same period of 2014.  Comparable store sales growth for the Smart & Final banner was 4.9% in the first quarter.

Net sales for Cash & Carry banner stores were $193.3 million, an 11.7% increase as compared to $173.1 million in the same period of 2014.  Comparable store sales growth for the Cash & Carry banner was 10.2% in the first quarter.

Gross margin from operations was $122.2 million, a 16.8% increase as compared to $104.6 million in the same period of 2014. Gross margin rate in the first quarter was 14.9% as compared to 14.2% in the same period of 2014.

Operating and administrative expenses were $107.0 million, a 15.8% increase as compared to $92.4 million in the same period of 2014. This increase was primarily related to higher sales volumes, increased store support costs and public company costs.

Net income was $4.9 million, as compared $2.5 million in the same period of 2014. Net income per diluted share was $0.06 as compared to $0.04 in the same period of 2014.

Adjusted net income was $7.7 million, an increase of 66.8% as compared to $4.6 million for the same period of 2014. Adjusted net income per diluted share was $0.10 as compared to $0.08 in the same period of 2014.

Adjusted EBITDA was $35.0 million, an increase of 15.9% as compared to $30.2 million in the same period of 2014.

Growth and Development
During the fiscal first quarter of 2015, the Company opened four new Smart & Final Extra! stores. As of March 22, 2015, the Company operated a total of 102 Smart & Final Extra! and 103 legacy Smart & Final stores, and 53 Cash & Carry stores.

Operating Stores at Quarter End (March 22, 2015)



 Smart & Final
Banner Stores 


 Cash & Carry
Banner Stores 


 Total Company 


 Legacy format 


  Extra! format 


 Total 



End of Fiscal 2014

103


98


201


53


254

  New stores

-


4


4


-


4

  Relocations

-


-


-


-


-

  Conversions

-


-


-


-


-

End of 1st Quarter 2015

103


102


205


53


258

 

In the second quarter of fiscal 2015, the Company expects to open five new Smart & Final Extra! stores, complete four conversions of legacy Smart & Final stores to the Extra! format, including one store relocation, and relocate one Cash & Carry store.

For the remainder of fiscal year 2015, the Company expects to open 16 additional new Smart & Final Extra! stores, complete nine additional conversions of legacy stores to the Extra! format, including three store relocations, and open three additional Cash & Carry stores, including one store relocation. The Company continues to expect the pace of new store openings to be relatively consistent throughout 2015.  

Leverage and Liquidity
At March 22, 2015, the Company's debt, net of debt discount, was $588.4 million and cash and cash equivalents was $124.1 million.

The Company generated cash from operations of $38.1 million in the 12 weeks ended March 22, 2015. The Company invested $24.4 million in capital expenditures, including openings of Extra! format stores and improvements of existing assets.

Outlook

The Company is reiterating the following previously issued outlook for Fiscal Year 2015:



Fiscal Year Ended January 3, 2016

Net sales growth

11% - 12%

Comparable store sales growth

3.5% - 4.5%

Unit growth (net new stores)

20 Smart & Final Extra!

2 Cash & Carry

Relocations of existing stores

3 Smart & Final

1 Cash & Carry

Conversions of legacy stores to the Extra! format

6 stores

Adjusted EBITDA

$185 - $190 million

Adjusted net income

$51 - $53 million

Adjusted diluted EPS

$0.67- $0.70

Capital expenditures

$135 - $145 million

Basic weighted average shares

73.1 million

Fully diluted weighted average shares

76.6 million

First Quarter 2015 Conference Call
The Company will host a conference call today at 1:30 p.m. PT / 4:30 p.m. ET to discuss its fiscal first quarter 2015 financial results. To participate in the call, please dial (877) 407-0784 (U.S.) or (201) 689-8560 (International) ten minutes prior to the start time. The conference call can also be accessed on the "Investors" section of the Company's web site at http://www.smartandfinal-investor.com/.

For those unable to participate during the live broadcast, a telephonic replay of the call will also be available beginning today at approximately 7:30 p.m. Eastern Time, by dialing (877) 870-5176 (U.S.) or (858) 384-5517 (International) and entering the replay pin number: 13603649.  The telephonic replay will be available until 11:59 p.m. Eastern Time, on Tuesday, May 12, 2015.

About Smart & Final
Smart & Final Stores, Inc. (NYSE: SFS), is a value-oriented food and everyday staples retailer that serves household and business customers. The Company is headquartered in Commerce (located in Los Angeles), CA, where it was founded over 140 years ago.  As of March 22, 2015, the Company operated 258 grocery and foodservice stores under the "Smart & Final", "Smart & Final Extra!" and "Cash & Carry Smart Foodservice" banners in California, Oregon, Washington, Arizona, Nevada, and Idaho, with an additional 15 stores in northern Mexico operated through a joint venture.

Forward-Looking Statements
Certain statements contained in this release that are not historical information contain forward-looking statements. The forward-looking statements involve risks and uncertainties and actual results may differ materially from those projected or implied. Further, certain forward-looking statements are based on assumptions of future events which may not prove to be accurate. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "may," "should," "expects," "plans," "anticipates," "could," "intends," "target," "projects," "contemplates," "believes," "estimates," "predicts," "potential" or "continue" or, in each case, their negative, or other variations or comparable terminology. The Company derives many of its forward-looking statements from its operating budgets and forecasts, which are based upon many detailed assumptions. While the Company believes that its assumptions are reasonable, it is difficult to predict the impact of known factors and, of course, it is impossible to anticipate all factors that could affect actual results. These factors are discussed in the "Risk Factors," "Special Note Concerning Forward-Looking Statements," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Business" sections and elsewhere in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission.

You should keep in mind that any forward-looking statement made by the Company herein, or elsewhere, speaks only as of the date on which made. New risks and uncertainties come up from time to time, and it is impossible for the Company to predict these events or how they may affect it. The Company has no obligation to update any forward-looking statements after the date hereof, except as required by federal securities laws.

Smart & Final Stores, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Income 

(Unaudited)

(Dollars in Thousands, Except Share and Per Share Amounts)






 Twelve Weeks Ended 



March 22, 2015

March 23, 2014










Net sales 

$          822,170

$          735,016


Cost of sales, buying and occupancy 

700,005

630,427


Gross margin 

122,165

104,589






Operating and administrative expenses 

106,951

92,358


Income from operations 

15,214

12,231






Interest expense, net 

7,998

8,836


Equity in earnings of joint venture 

515

452


Income before income taxes 

7,731

3,847






Income tax provision

(2,848)

(1,340)


Net income

$              4,883

$              2,507






Basic earnings per share

$                0.07

$                0.04


Diluted earnings per share

$                0.06

$                0.04






Weighted average shares outstanding:




       Basic

73,084,282

57,171,190


       Diluted

76,654,281

59,495,270


 

Smart & Final Stores, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Dollars in Thousands, Except Share and Per Share Amounts)





 March 22, 2015 

 December 28, 2014 


 (Unaudited) 


Assets 



Current assets: 



Cash and cash equivalents 

$              124,077

$                 106,847

Accounts receivable, less allowances of $796 and $787 at 

  March 22, 2015 and December 28, 2014, respectively 

19,547

23,666

Inventories 

211,091

223,404

Prepaid expenses and other current assets 

17,650

26,532

Deferred income taxes 

22,419

22,419

Total current assets 

394,784

402,868




Property, plant, and equipment: 



Land 

10,394

11,165

Buildings and improvements 

20,441

23,938

Leasehold improvements 

186,732

176,114

Fixtures and equipment 

214,170

203,473

Construction in progress 

16,301

7,344


448,038

422,034

Less accumulated depreciation and amortization 

128,205

115,350


319,833

306,684




Capitalized software, net of accumulated amortization of 
  $10,231 and $9,486 at March 22, 2015 and 
 
December 28, 2014, respectively 

10,819

10,403

Other intangible assets, net 

324,437

325,289

Goodwill 

611,242

611,242

Deferred financing costs, net 

5,556

5,894

Equity investment in joint venture 

11,824

11,924

Other assets 

53,565

54,988

Total assets 

$           1,732,060

$              1,729,292







Liabilities and stockholders' equity



Current liabilities: 



Accounts payable 

$              165,069

$                 184,897

Accrued salaries and wages 

30,526

28,582

Accrued expenses 

84,766

72,667

Total current liabilities 

280,361

286,146




Long-term debt, less current portion and debt discount 

588,402

588,117

Deferred income taxes 

123,866

125,673

Postretirement and postemployment benefits 

126,741

127,004

Other long-term liabilities 

90,053

85,144




Commitments and contingencies 






Stockholders' equity: 



Common stock, $0.001 par value; 



Authorized shares – 340,000,000



Issued and outstanding shares - 73,771,218 and 73,755,388
  at March 22, 2015 and December 28, 2014, respectively

74

74

Additional paid-in capital 

492,096

489,550

Retained earnings 

36,884

32,001

Accumulated other comprehensive loss

(6,417)

(4,417)

Total stockholders' equity 

522,637

517,208

Total liabilities and stockholders' equity 

$           1,732,060

$              1,729,292

 

Smart & Final Stores, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in Thousands)





 Twelve Weeks Ended 


 March 22, 2015 

 March 23, 2014 

Operating activities 



Net income 

$                  4,883

$                  2,507

Adjustments to reconcile net income to net cash provided 

by operating activities: 



Depreciation 

8,056

7,652

Amortization 

6,445

6,367

Amortization of deferred financing costs and debt discount 

655

735

Share-based compensation

2,384

Excess tax benefits related to share-based payments

(55)

Deferred income taxes

(883)

Equity in earnings of joint venture 

(515)

(452)

Gain on disposal of property, plant, and equipment 

(3)

(2)

Asset impairment 

431

73

Changes in operating assets and liabilities: 



Accounts receivable, net 

4,120

(118)

Inventories

12,313

19,057

Prepaid expenses and other assets 

9,061

(1,111)

Accounts payable 

(19,828)

(4,120)

Accrued salaries and wages 

1,944

1,244

Other accrued liabilities 

9,059

692

Net cash provided by operating activities 

38,067

32,524




Investing activities 



Purchases of property, plant, and equipment 

(22,920)

(13,645)

Proceeds from disposal of property, plant, and equipment 

4,889

15

Investment in capitalized software 

(1,463)

(599)

Other 

(1,260)

(39)

Net cash used in investing activities 

(20,754)

(14,268)




Financing activities



Proceeds from exercise of stock options

107

Fees paid in conjunction with debt financing

(31)

(31)

Payments on bank debt

(1,800)

Payments of IPO issuance costs

(214)

Excess tax benefits related to share-based payments

55

Contingent consideration related to acquisition of SFHC

(248)

Net cash used in financing activities

(83)

(2,079)




Net increase in cash and cash equivalents

17,230

16,177

Cash and cash equivalents at beginning of period

106,847

53,699

Cash and cash equivalents at end of period

$              124,077

$                69,876




Cash paid during the period for:



Interest 

$                     212

$                  7,103

Income taxes

$                     770

$                         –




Non-cash investing and financing activities



Software development costs incurred but not paid

$                     117

$                       49

Construction in progress costs incurred but not paid

$                15,947

$                17,831

 

 Smart & Final Stores, Inc. and Subsidiaries 

 Segment Reporting 

 (Unaudited) 

 (Dollars in Thousands) 












 Smart & Final 


 Cash & Carry 


 Corporate / Other 


 Consolidated 

Twelve Weeks Ended March 22, 2015 









Net sales 


$         628,836


$         193,334


$                             -


$        822,170

Cost of sales, distribution and store occupancy 


530,620


167,307


2,078


700,005

Operating and administrative expenses 


78,247


13,887


14,817


106,951

Income (loss) from operations 


$           19,969


$           12,140


$                 (16,895)


$          15,214



















Capital expenditures 


$           20,867


$             1,678


$                     1,838


$          24,383




























Twelve Weeks Ended March 23, 2014 









Net sales 


$         561,942


$         173,074


$                             -


$        735,016

Cost of sales, distribution and store occupancy 


478,359


150,273


1,795


630,427

Operating and administrative expenses 


67,588


12,302


12,468


92,358

Income (loss) from operations 


$           15,995


$           10,499


$                 (14,263)


$          12,231



















Capital expenditures 


$           12,195


$                128


$                     1,921


$          14,244

 

Non-GAAP Financial Measures
To supplement the Company's financial information presented in accordance with GAAP, the Company uses certain non-GAAP financial measures, namely adjusted net income, adjusted net income per share, adjusted net income per diluted share, EBITDA and Adjusted EBITDA to clarify and enhance understanding of its past performance. The Company defines adjusted net income as net income adjusted for the items set forth in the tables below.  The Company defines adjusted net income per share as adjusted net income divided by the weighted average basic shares outstanding.  The Company defines adjusted net income per diluted share as adjusted net income divided by the weighted average diluted shares outstanding.  The Company defines EBITDA as net income before depreciation and amortization, interest expense and provision for income tax, and adjusted EBITDA as EBITDA adjusted for the items set forth in the tables below.

Use of these non-GAAP measures may differ from similar measures reported by other companies. Each of these non-GAAP measures has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of the Company's results as reported under GAAP.

The following tables present reconciliations of adjusted net income, EBITDA and adjusted EBITDA to net income, and adjusted net income per share and adjusted net income per diluted share to net income per share, for the twelve-week periods ended March 22, 2015 and March 23, 2014.

 Smart & Final Stores, Inc. and Subsidiaries 

 Reconciliation of EBITDA to Adjusted EBITDA 

 (Unaudited) 

 (Dollars in Thousands) 






 Twelve Weeks Ended 


March 22, 2015


March 23, 2014

 Net income 

$              4,883


$              2,507

 Depreciation and amortization  

14,501


14,019

 Interest expense, net 

7,998


8,836

 Income tax provision 

2,848


1,340

 EBITDA 

30,230


26,702





 Adjustments to EBITDA 




 Transaction costs (a) 

61


-

 Loss from closed stores and exit costs (b) 

90


307

 Loss from asset dispositions (c) 

408


73

 Share-based compensation expense (d) 

2,384


-

 Non-cash rent (e) 

793


1,184

 Pre-opening costs (f) 

1,133


441

 Other items (g) 

(70)


1,527

 Adjusted EBITDA 

$            35,029


$            30,234

 

 Smart & Final Stores, Inc. and Subsidiaries 

 Reconciliation of Net Income to Non-GAAP Adjusted Net Income 

 (Unaudited) 

 (Dollars in Thousands, Except Share and Per Share Amounts) 






 Twelve Weeks Ended 


March 22, 2015


March 23, 2014

 Net income 

$              4,883


$              2,507

 Income tax provision 

2,848


1,340

 Net income before income taxes 

7,731


3,847





 Adjustments to Net Income 




 Transaction costs (a) 

61


-

 Loss from closed stores and exit costs (b) 

90


307

 Loss from asset dispositions (c) 

408


73

 Share-based compensation expense (d) 

2,384


-

 Non-cash rent (e) 

793


1,184

 Pre-opening costs (f) 

1,133


441

 Other items (g) 

(70)


1,527

 Adjusted income tax provision 

(4,805)


(2,749)

 Adjusted net income 

$              7,725


$              4,630





Adjusted Net Income Per Share








Net income per share - basic

$                0.07


$                0.04

Per share impact of net income adjustments

0.04


0.04

Adjusted net income per share - basic

$                0.11


$                0.08

Net income per share - diluted

$                0.06


$                0.04

Per share impact of net income adjustments

0.04


0.04

Adjusted net income per share - diluted

$                0.10


$                0.08





Weighted average shares - basic

73,084,282


57,171,190

Weighted average shares - fully diluted

76,654,281


59,495,270


(a)  Represents costs primarily associated with the secondary public offering of the Company's common stock by certain of its stockholders that were charged to expense in the twelve weeks ended March 22, 2015.

(b)  Represents costs associated with store closure and exit costs.

(c)  Represents non-cash loss associated with asset dispositions and impairment charges.

(d)  Represents expenses associated with the Company's equity-based incentive award program.

(e)  Represents non-cash component of recognized rent expense.

(f)   Represents new store and relocation opening costs consisting primarily of rent, utilities, distribution, store labor and advertising.

(g)  Represents consulting expenses related to strategic growth initiatives for the twelve weeks ended March 23, 2014.

 

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SOURCE Smart & Final Stores, Inc.