Smart & Final Stores, Inc. Reports Third Quarter 2014 Results

COMMERCE, Calif., Nov. 12, 2014 /PRNewswire/ -- Smart & Final Stores, Inc. (the "Company") (NYSE: SFS) today reported results for its 16-week third quarter ended October 5, 2014.

Third Quarter Highlights:

  • Net sales increased 10.8% to $1.13 billion
  • Comparable store sales growth of 6.6%
  • Net income increased 1.9% to $10.2 million
  • Adjusted net income increased 24.9% to $14.9 million, or $0.24 per diluted share
  • Operated 252 stores at quarter-end, including 90 Smart & Final Extra! stores

"It's an exciting time at Smart & Final Stores," said Dave Hirz, President and Chief Executive Officer. "Our store banners are uniquely positioned at the intersection of value, convenience and quality.  We are leading the way with the growth of our Smart & Final Extra! stores which offer a one-stop shopping experience that resonates with today's household and business customers.  We continue to grow sales in both of our store banners – Smart & Final and Cash & Carry – and this has translated into strong financial results."

Mr. Hirz continued, "Importantly, we continue to see growth in customer transactions as our distinct merchandise and strong value pricing remains a compelling proposition for both household and business customers. Our strong financial performance of 10.8% sales growth and 6.6% comparable store sales growth provides a strong foundation for continued growth, and we plan to continue a robust program of new store openings during the balance of this year and during 2015."

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.

Fiscal Third Quarter 2014 Financial Results

Net sales were $1,131.8 million, a 10.8% increase as compared to $1,021.4 million in the same period of 2013. Net sales growth was driven by a 6.6% increase in comparable store sales and from the sales contribution of new stores.  In the 16 weeks ended October 5, 2014 the company opened six new stores, and has opened 13 new stores in the 52 weeks ended October 5, 2014.  All of the new stores have been in the Smart & Final Extra! store format.  The growth in comparable store sales was comprised of a 3.9% increase in comparable transaction count and a 2.5% increase in comparable average transaction size.

Net sales for Smart & Final banner stores were $839.3 million, a 10.5% increase as compared to $759.7 million in the same period of 2013.  Comparable store sales growth for the Smart & Final banner was 4.7% in the third quarter.

Net sales for Cash & Carry banner stores were $292.5 million, an 11.8% increase as compared to $261.7 million in the same period of 2013.  Comparable store sales growth for the Cash & Carry banner was 11.8% in the third quarter.

Gross margin from operations was $169.5 million, a 10.9% increase as compared to $152.8 million in the same period of 2013. Gross margin rate in the third quarter was 15.0%, consistent with the same period in 2013.

Operating and administrative expenses increased to $140.7 million as compared to $121.4 million in the same period of 2013. This increase was primarily related to higher sales volumes, increased store support costs, and costs charged to expense associated with the Company's initial public offering in September 2014.

Net income was $10.2 million, a 1.9% increase as compared to $10.0 million in the same period of 2013. Net income per diluted share was $0.17 as compared to $0.17 in the same period of 2013.

Adjusted net income was $14.9 million as compared to $11.9 million for the same period of 2013. Adjusted net income per diluted share was $0.24 as compared to $0.20 in the same period of 2013.

Adjusted EBITDA was $57.1 million, or a 4.3% increase as compared to $54.7 million in the same period of 2013.

Fiscal Year-to-date Financial Results

Net sales were $2,694.9 million in the 40 weeks (three fiscal quarters) ended October 5, 2014, a 9.2% increase as compared to $2,467.5 million in the same period of 2013. Net sales growth was driven by a 5.8% increase in comparable store sales growth and the net sales contribution from new stores.  The growth in comparable store sales was comprised of a 3.8% increase in comparable transaction count and a 1.9% increase in comparable average transaction size. 

Net sales for Smart & Final banner stores were $2,024.3 million, or a 9.0% increase as compared to $1,857.2 million in the same period of 2013. Year-to-date comparable store sales growth for the Smart & Final banner was 4.4%.

Net sales for Cash & Carry banner stores were $670.6 million, or a 9.9% increase as compared to $610.3 million in the same period of 2013.  Year-to-date comparable store sales growth for the Cash & Carry banner was 9.9%.

Net income was $23.8 million, a 57.3% increase as compared to $15.2 million in the same period of 2013. Net income per diluted share was $0.40 as compared to $0.26 for the same period of 2013.

Adjusted net income was $34.3 million as compared to $23.7 million in the same period of 2013. Adjusted net income per diluted share was $0.57, compared to $0.40 in the same period of 2013.

Adjusted EBITDA was $134.8 million, or a 7.2% increase as compared to $125.8 million in the same period of 2013.

Growth and Development

During the third quarter of fiscal 2014, the Company opened six new Smart & Final Extra! stores and completed four conversions of legacy Smart & Final to the Smart & Final Extra! store format. As of October 5, 2014, the Company operated a total of 90 Smart & Final Extra! and 110 legacy Smart & Final stores, and 52 Cash & Carry stores.

Operating Stores at Period End












Smart & Final Banner Stores


Cash & Carry


Total


Legacy format


Extra! format


Total


Banner Stores


Company

End of Fiscal Year 2013

119


69


188


52


240

New stores

-


6


6


-


6

Relocations

(1)


1


-


-


-

Conversions

(4)


4


-


-


-

End of 2nd Quarter 2014

114


80


194


52


246











New stores

-


6


6


-


6

Relocations

-


-


-


-


-

Conversions

(4)


4


-


-


-

End of 3rd Quarter 2014

110


90


200


52


252

 

In the fourth quarter of fiscal 2014, the Company expects to open one additional new Smart & Final Extra! store, complete seven additional conversions of legacy stores to the Extra! format, including one store relocation, and open one new Cash & Carry store. 

Leverage and Liquidity

The Company generated cash from operations of $100.4 million in the 40 weeks ended October 5, 2014 and invested $89.7 million in capital expenditures for property, plant, and equipment and capitalized software.  

During the third quarter of 2014, in conjunction with its initial public offering, the Company repaid approximately $115.5 million in borrowings under its Term Loan Facility.  At the end of the quarter the Company's debt, net of debt discount, was $587.8 million and cash was $110.1 million.

Initial Public Offering

On September 29, 2014, the Company completed its initial public offering of 13,450,000 shares of common stock, at a price to the public of $12.00 per share, before underwriting discounts and commissions. The Company additionally sold 2,017,500 shares as a result of the underwriters' exercise of their over-allotment option to purchase additional shares. The initial public offering, including exercise of the over-allotment option, generated aggregate net proceeds to the Company of approximately $167.7 million, net of underwriting discounts and commissions and direct offering expenses.

Q4 2014 Outlook

The following provides information on the Company's guidance for the fourth quarter of 2014:


4th Quarter 2014

Net sales growth

9.5% - 10.5%

Comparable store sales growth 

4.5% - 5.5%

Unit growth (net new stores)

1 Smart & Final Extra!

1 Cash & Carry

Relocations of existing stores

1 store

Conversions of legacy stores to the Extra! format

6 stores

Adjusted EBITDA

$37.0 - $39.0 million

Adjusted net income

$8.5 - $9.5 million  

Capital expenditures 

$28.0 - $30.0 million

 

Third Quarter 2014 Conference Call

The Company will host a conference call today at 1:30 p.m. PT / 4:30 p.m. ET to discuss its third quarter 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 1-877-870-5176 (U.S.) or 1-858-384-5517 (international) and entering the replay pin number: 13593690.  The telephonic replay will be available until 11:59 p.m. Eastern Time, on Wednesday, November 26, 2014.

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 October 5, 2014, the Company operated 252 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 13 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 prospectus that is contained in the Company's registration statement on Form S-1 (File No. 333-196931) 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)








Sixteen Weeks Ended


Forty Weeks Ended






October 5,

October 6,


October 5,

October 6,


2014

2013


2014

2013

Net sales

$ 1,131,821

$ 1,021,392


$ 2,694,908

$ 2,467,493

Cost of sales, buying and occupancy

962,317

868,580


2,292,630

2,101,358

Gross margin

169,504

152,812


402,278

366,135







Operating and administrative expenses

140,678

121,417


334,527

295,456

Income from operations

28,826

31,395


67,751

70,679







Interest expense, net

(11,725)

(14,386)


(29,483)

(39,815)

Loss on early extinguishment of debt

(2,224)


(2,224)

(7,139)

Equity in earnings of joint venture

318

887


1,032

1,408

Income before income taxes

15,195

17,896


37,076

25,133







Income tax provision

(4,972)

(7,863)


(13,231)

(9,973)

Net income

$ 10,223

$ 10,033


$ 23,845

$ 15,160







Net income per share:






     Basic

$ 0.17

$ 0.18


$ 0.41

$ 0.27

     Diluted

$ 0.17

$ 0.17


$ 0.40

$ 0.26

Weighted average shares outstanding:






     Basic

59,101,972

57,171,190


57,969,954

56,989,129

     Diluted

61,232,212

59,522,595


60,196,116

59,308,332







 


Smart & Final Stores, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Unaudited)

(Dollars in Thousands, Except Share Amounts)



October 5, 2014

December 29, 2013

Assets



Current assets:



Cash and cash equivalents

$ 110,068

$ 53,699

Accounts receivable, less allowances of $903 and $766 at



     October 5, 2014 and December 29, 2013, respectively

23,606

19,453

Inventories

211,042

209,502

Prepaid expenses and other current assets

16,143

17,938

Deferred income taxes

23,845

20,747

Total current assets

384,704

321,339




Property, plant, and equipment:



Land

11,165

10,394

Buildings and improvements

23,801

20,441

Leasehold improvements

160,324

119,306

Fixtures and equipment

192,318

148,271

Construction in progress

12,522

5,541


400,130

303,953

Less accumulated depreciation and amortization

102,215

59,961


297,915

243,992




Capitalized software, net of accumulated amortization of $8,594 and $5,168 at October 5, 2014 and



December 29, 2013, respectively

10,534

12,664

Other intangible assets, net

326,141

328,865

Goodwill

611,242

611,242

Deferred financing costs, net

6,251

8,272

Equity investment in joint venture

12,001

10,948

Other assets

55,092

62,219

Total assets

$ 1,703,880

$ 1,599,541




Liabilities and Stockholders' equity



Current liabilities:



Accounts payable

$ 165,950

$ 153,644

Accrued salaries and wages

25,115

22,337

Accrued expenses

77,333

69,174

Current portion of long-term debt

-

7,200

Total current liabilities

268,398

252,355




Long-term debt, less current portion and debt discount

587,824

698,991

Deferred income taxes

151,814

151,232

Postretirement and postemployment benefits

74,632

84,155

Other long-term liabilities

82,644

70,949




Commitments and contingencies






Stockholders' equity:



   Preferred stock, $0.001 par value;



Authorized shares – 10,000,000



Issued and outstanding shares – none

   Common stock, $0.001 par value;



   Authorized shares – 340,000,000



Issued and outstanding shares - 73,074,360 at October 5, 2014;



57,171,190 at December 29, 2013

73

57

Additional paid-in capital

486,679

311,935

Retained earnings (deficit)

22,728

(1,117)

Accumulated other comprehensive income

29,088

30,984

Total stockholders' equity

538,568

341,859

Total liabilities and stockholders' equity

$ 1,703,880

$ 1,599,541


Smart & Final Stores, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in Thousands)


Forty Weeks Ended


October 5,

October 6,


2014

2013

Operating activities



Net income

$                        23,845

$                           15,160

Adjustments to reconcile net income to net cash provided by operating activities:



Depreciation

27,107

25,657

Amortization

21,886

20,983

Amortization of deferred financing costs and debt discount

2,509

3,364

Share-based compensation

8,455

Excess tax benefits related to share-based payments

(730)

Deferred income taxes

(3,382)

Equity in earnings of joint venture

(1,032)

(1,408)

Loss on disposal of property, plant, and equipment

28

50

Asset impairment

501

201

Loss on early extinguishment of debt

2,224

7,139

Changes in operating assets and liabilities:



Accounts receivable, net

(2,871)

(2,991)

Inventories, net

(1,540)

(4,552)

Prepaid expenses and other assets

3,589

17,060

Accounts payable

12,306

12,382

Accrued salaries and wages

2,778

(3,497)

Other accrued liabilities

4,752

(16,084)

Net cash provided by operating activities

100,425

73,464




Investing activities



Purchases of property, plant, and equipment

(87,619)

(40,991)

Proceeds from disposal of property, plant, and equipment

33

38

Investment in capitalized software

(2,065)

(1,675)

Purchase of intangible asset

(100)

Other

(38)

(260)

Net cash used in investing activities

(89,789)

(42,888)




Financing activities



Borrowings on bank line of credit

5,000

Issuance of bank debt, net of issuance costs

50,055

Issuance of common stock in IPO

173,080

Issuance of common stock, other

79

1,700

Proceeds from exercise of stock options

450

Payment of minimum withholding taxes on net share settlement of stock option exercise

(2,667)

Fees paid in conjunction with debt financing

(200)

(191)

Payments on bank line of credit

(7,000)

Payments on bank debt

(120,880)

(59,213)

Payments of IPO issuance costs

(4,611)

Excess tax benefits related to share-based payments

730

Contingent consideration related to acquisition of SFHC

(248)

Net cash provided by (used in) financing activities

45,733

(9,649)




Net increase in cash and cash equivalents

56,369

20,927

Cash and cash equivalents at beginning of period

53,699

35,987

Cash and cash equivalents at end of period

$                      110,068

$                           56,914




Cash paid during the period for:



Interest

$                        33,174

$                           42,068

Income taxes

$                        11,375

$                             7,682




Non-cash investing and financing activities



Software development costs incurred but not paid

$                               57

$                                    –

Construction in progress costs incurred but not paid

$                        12,593

$                             3,427

IPO issuance costs incurred but not paid

$                             757

$                                    –




Other consideration payable for acquisition of Smart & Final Holdings Corp.

$                          2,359

$                           18,630

 

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 table 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 table 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 table shows 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 sixteen-week and forty-week periods ended October 5, 2014 and October 6, 2013.


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)


























 Sixteen Weeks Ended 


 Forty Weeks Ended 


October 5, 2014


October 6, 2013


October 5, 2014


October 6, 2013









Net income

$             10,223


$             10,033


$             23,845


$             15,160

Income tax provision

4,972


7,863


13,231


9,973

Net income before income taxes

15,195


17,896


37,076


25,133









Adjustments to Net Income








Transaction costs (a)

1,169


139


1,639


213

Net (income) loss from closed stores and exit costs (b)

491


1,011


1,461


2,456

(Gain) loss from asset dispositions (c)

271


26


506


70

Share-based compensation expense (d)

6,714


-


8,455


-

Non-cash rent (e)

1,573


1,154


4,151


2,946

Pre-opening costs (f)

1,123


432


3,099


691

Loss on extinguishment of debt (g)

2,224


-


2,224


7,139

Other items (h)

(3,952)


399


(2,280)


702

Adjusted income tax provision

(9,908)


(9,128)


(22,015)


(15,662)

Adjusted net income

14,900


11,929


34,316


23,688









Adjusted Net Income Per Share
















Net income per share - basic

$                 0.17


$                 0.18


$                 0.41


$                 0.27

Per share impact of adjustments to net income

$                 0.08


$                 0.03


$                 0.18


$                 0.15

Adjusted net income per share - basic

$                 0.25


$                 0.21


$                 0.59


$                 0.42









Net income per share - diluted

$                 0.17


$                 0.17


$                 0.40


$                 0.26

Per share impact of adjustments to net income

$                 0.07


$                 0.03


$                 0.17


$                 0.14

Adjusted net income per share - diluted

$                 0.24


$                 0.20


$                 0.57


$                 0.40









Weighted average shares - basic

59,101,972


57,171,190


57,969,954


56,989,129

Weighted average shares - fully diluted

61,232,212


59,522,595


60,196,116


59,308,332


















Smart & Final Stores, Inc. and Subsidiaries

Reconciliation of EBITDA to Adjusted EBITDA

(Unaudited)

(Dollars in Thousands)


























 Sixteen Weeks Ended 


 Forty Weeks Ended 


October 5, 2014


October 6, 2013


October 5, 2014


October 6, 2013









Net income

$             10,223


$             10,033


$             23,845


$             15,160

Depreciation and amortization

20,540


19,265


48,993


46,640

Interest expense, net

11,725


14,386


29,483


39,815

Income tax provision

4,972


7,863


13,231


9,973

EBITDA

47,460


51,547


115,552


111,588









Adjustments to EBITDA








Transaction costs (a)

1,169


139


1,639


213

Net (income) loss from closed stores and exit costs (b)

491


1,011


1,461


2,456

(Gain) loss from asset dispositions (c)

271


26


506


70

Share-based compensation expense (d)

6,714


-


8,455


-

Non-cash rent (e)

1,573


1,154


4,151


2,946

Pre-opening costs (f)

1,123


432


3,099


691

Loss on extinguishment of debt (g)

2,224


-


2,224


7,139

Other items (h)

(3,952)


399


(2,280)


702

Adjusted EBITDA

$             57,073


$             54,708


$           134,807


$           125,805

 

(a)  Represents costs primarily associated with the Company's initial public offering that were charged to expense for the sixteen-week and forty-week periods ended October 5, 2014.
(b)  Represents costs associated with store closure and exit costs.
(c)  Represents non-cash gain or 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 the write-off of unamortized debt discount and deferred financing costs.
(h)  Represents (i) reversal of a reserve related to executive compensation for the sixteen-week and forty-week periods ended October 5, 2014, (ii) death benefit income from a Company-owned life insurance policy for the sixteen-week and forty-week periods ended October 5, 2014, (iii) consulting expenses related to strategic growth initiatives for the forty-week period ended October 5, 2014, and (iv) costs primarily related to a legal settlement for the sixteen-week and forty-week periods ended October 6, 2013, net.

 

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SOURCE Smart & Final Stores, Inc.