Smart & Final Stores, Inc. Reports First Quarter 2016 Financial Results

COMMERCE, Calif., May 3, 2016 /PRNewswire/ -- Smart & Final Stores, Inc. (the "Company") (NYSE:SFS), the value-oriented food and everyday staples retailer, today reported financial results for the twelve-week period ended March 27, 2016.

First Quarter Highlights:

  • Net sales increased 10.5% to $908.5 million
  • Comparable store sales growth of 2.0%
  • Net loss of $2.0 million, or $0.03 per diluted share
  • Adjusted net income of $6.3 million, or $0.08 per diluted share
  • Adjusted EBITDA of $35.0 million
  • 290 stores at quarter-end, including 143 Smart & Final Extra! stores

"Smart & Final Stores' positive momentum has continued with a solid start to 2016.  Strong traffic growth contributed to a 2.0% comparable store sales increase in the first quarter despite persistent deflationary headwinds," said David Hirz, President and Chief Executive Officer.  "We continue to drive engagement and attract new customers with our successful merchandising and marketing initiatives."

Mr. Hirz added, "Our exciting store development plans are ahead of schedule. Next week we plan to open the last of the 33 acquired former Albertsons and Safeway locations, which were briefly operated under the Haggen banner.  With these locations, we're increasing Smart & Final's presence in our important Los Angeles and Orange County markets, as well as doubling our penetration in the California Central Coast and San Diego markets.  In all of our markets, we look forward to building deeper community ties and meeting the shopping needs of each unique area."

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 2016 Financial Results

Net sales were $908.5 million, representing a 10.5% increase as compared to $822.2 million in the same period of 2015.  Net sales growth was driven by a 2.0% increase in comparable store sales and from the net sales contribution of new stores. The growth in comparable store sales was comprised of a 2.4% increase in comparable transaction count and a 0.4% decrease in comparable average transaction size, including the impact of deflation in key product categories in both store banners.

Net sales for Smart & Final banner stores were $709.3 million, a 12.8% increase as compared to $628.8 million in the same period of 2015.  Comparable store sales growth for the Smart & Final banner was 2.5% in the first quarter.

Net sales for Cash & Carry banner stores were $199.1 million, a 3.0% increase as compared to $193.3 million in the same period of 2015.  Comparable store sales growth for the Cash & Carry banner was 0.3% in the first quarter.

Gross margin from operations was $128.4 million, a 5.1% increase as compared to $122.2 million in the same period of 2015. Gross margin rate in the first quarter was 14.1% as compared to 14.9% in the same period of 2015, and was impacted by the carrying costs associated with the acquired former Haggen banner stores.

Operating and administrative expenses were $125.1 million, a 17.0% increase as compared to $107.0 million in the same period of 2015. This increase was primarily related to expenses associated with 32 new stores developed over the prior 12 months and related support costs.

Net loss was $2.0 million, including the effect of higher store development costs, as compared to net income of $4.9 million in the same period of 2015. Net loss per diluted share was $0.03 as compared to net income per diluted share of $0.06 in the same period of 2015.

Adjusted net income was $6.3 million, a decrease of 19.1% as compared to $7.7 million for the same period of 2015. Adjusted net income per diluted share was $0.08 as compared to $0.10 in the same period of 2015.

Adjusted EBITDA remained unchanged at $35.0 million, as compared to the same period of 2015.

Growth and Development

During the first quarter of fiscal year 2016, the Company opened 14 new Smart & Final Extra! stores and completed two relocations of legacy Smart & Final stores to the Smart & Final Extra! format stores. As of March 27, 2016, the Company operated a total of 143 Smart & Final Extra! and 92 legacy Smart & Final stores, and 55 Cash & Carry stores.

Operating Stores at Quarter End (March 27, 2016)














Smart & Final Banner Stores


Cash & Carry
Banner Stores


Total Company


Extra! format


Legacy format


Total



End of Fiscal Year 2015

127


94


221


55


276

New stores

14


-


14


-


14

Relocations, net

2


(2)


-


-


-

Conversions

-


-


-


-


-

End of 1st Quarter 2016

143


92


235


55


290

 

Leverage and Liquidity

At March 27, 2016, the Company's debt, net of debt issuance costs, was $616.5 million and cash and cash equivalents were $63.1 million.

In the twelve-week period ended March 27, 2016, the Company generated cash from operations of $11.9 million and invested $30.3 million in capital expenditures, primarily related to the development of Extra! format stores and to improvements of existing assets.

Outlook

The Company is maintaining the previously issued guidance for the 2016 fiscal year ending January 1, 2017:

Net sales growth

15% - 16%

Comparable store sales growth 

2.5% - 3.0%

Unit growth (net new stores)

33 Smart & Final Extra!

4 - 5 Cash & Carry

Relocations of existing stores to Extra! format

6 Smart & Final

 

Conversions of legacy stores to Extra! format

6 stores

Adjusted EBITDA

$205 - $210 million

Adjusted net income

$58 - $60 million  

Adjusted diluted EPS

$0.75 - $0.77

Capital expenditures 

$150 - $160 million

Basic weighted average shares

73.3 million

Fully diluted weighted average shares

77.6 million

The above guidance includes certain non-GAAP financial measures (namely adjusted net income, adjusted net income per diluted share and Adjusted EBITDA), which exclude certain costs and non-cash costs and provide investors with additional financial measures of the expected operating performance of the Company's business. The primary factors in reconciling these non-GAAP financial measures to comparable GAAP measures include the following: costs associated with the acquired Haggen store locations of approximately $19 million, non-cash rent related to other stores of approximately $6 million and share-based compensation expense of approximately $9 million. The other amounts needed to reconcile these non-GAAP financial measures to comparable GAAP measures cannot be quantified and are not available without an unreasonable effort.  

In the second quarter of 2016, the Company expects to open 16 new Smart & Final Extra! stores and complete two relocations of legacy Smart & Final stores to the Extra! format. At the end of the second quarter, the Company expects to have opened 30 of the 33 new Smart & Final Extra! stores planned for fiscal year 2016. 

First Quarter 2016 Conference Call

The Company will host a conference call today at 2:00 p.m. PT / 5:00 p.m. ET to discuss its first quarter 2016 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 8:00 p.m. Eastern Time, by dialing (877) 870-5176 (U.S.) or (858) 384-5517 (International) and entering the replay pin number: 13634612.  The telephonic replay will be available until 11:59 p.m. Eastern Time, on Tuesday, May 17, 2016.

About Smart & Final

Smart & Final Stores, Inc. (NYSE:SFS), is a value-oriented food and everyday staples retailer, headquartered in Commerce (near Los Angeles), California. The Company offers quality products in a variety of sizes, saving household, nonprofit and business customers time and money. As of March 27, 2016, the Company operated 290 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 Northwestern Mexico operated through a joint venture. In business for 145 years, the Company remains committed to giving back to local communities through employee volunteer opportunities and Company donations to local nonprofits.

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 special note concerning "Forward-Looking Statements," "Risk Factors," "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 

(Unaudited)

(In Thousands, Except Share and Per Share Amounts)












Twelve Weeks Ended



March 27, 2016


March 22, 2015












Net sales 

$          908,453


$          822,170


Cost of sales, buying and occupancy 

780,102


700,005


Gross margin 

128,351


122,165







Operating and administrative expenses 

125,082


106,951


Income from operations 

3,269


15,214







Interest expense, net 

7,311


7,998


Equity in earnings of joint venture 

444


515


(Loss) income before income taxes 

(3,598)


7,731







Income tax benefit (provision)

1,580


(2,848)


Net (loss) income

$            (2,018)


$              4,883







Net (loss) earnings per share:





       Basic

$              (0.03)


$                0.07


       Diluted

$              (0.03)


$                0.06







Weighted average shares outstanding:





       Basic

73,189,149


73,084,282


       Diluted

73,189,149


76,654,281


 

Smart & Final Stores, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Amounts)










March 27, 2016


January 3, 2016


 (Unaudited) 



Assets 




Current assets: 




Cash and cash equivalents 

$          63,073


$          59,327

Accounts receivable, less allowances of $448 and $454 at 




March 27, 2016 and January 3, 2016, respectively 

24,903


27,304

Inventories 

235,250


234,289

Prepaid expenses and other current assets 

34,026


29,072

Deferred income taxes 

22,471


22,471

Total current assets 

379,723


372,463





Property, plant, and equipment: 




Land 

10,810


10,940

Buildings and improvements 

20,021


20,441

Leasehold improvements 

245,626


237,820

Fixtures and equipment 

282,775


266,080

Construction in progress 

37,223


19,501


596,455


554,782

Less accumulated depreciation and amortization 

190,114


174,906


406,341


379,876





Capitalized software, net of accumulated amortization of $13,110 and $12,356 at March 27, 2016 and January 3, 2016, respectively




11,077


11,365

Other intangible assets, net 

374,912


376,122

Goodwill 

611,242


611,242

Equity investment in joint venture 

13,219


12,763

Other assets 

55,464


53,250

Total assets 

$     1,851,978


$     1,817,081









Liabilities and stockholders' equity




Current liabilities: 




Accounts payable 

$        185,432


$        194,149

Accrued salaries and wages 

30,210


33,859

Accrued expenses

98,195


77,374

Current portion of debt, less debt issuance costs

29,052


3,904

Total current liabilities 

342,889


309,286





Long-term debt, less debt issuance costs

587,415


586,956

Deferred income taxes 

127,761


128,752

Postretirement and postemployment benefits 

116,948


117,417

Other long-term liabilities 

114,264


108,099





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 - 73,659,156 and 73,789,608 at March 27, 2016 and January 3, 2016, respectively




74


74

Additional paid-in capital 

503,007


502,304

Retained earnings

66,413


70,181

Accumulated other comprehensive loss

(6,793)


(5,988)

Total stockholders' equity 

562,701


566,571

Total liabilities and stockholders' equity 

$     1,851,978


$     1,817,081

 

Smart & Final Stores, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In Thousands)










 Twelve Weeks Ended 


March 27, 2016


March 22, 2015

Operating activities 




Net (loss) income 

$              (2,018)


$               4,883

Adjustments to reconcile net income to net cash provided 




by operating activities: 




Depreciation 

10,189


8,056

Amortization 

7,345


6,445

Amortization of deferred financing costs and debt discount 

639


655

Share-based compensation

1,507


2,384

Excess tax benefits related to share-based payments

(379)


(55)

Deferred income taxes

(446)


(883)

Equity in earnings of joint venture 

(444)


(515)

Gain on disposal of property, plant, and equipment 

78


(3)

Asset impairment 

128


431

Changes in operating assets and liabilities: 




Accounts receivable, net 

2,401


4,120

Inventories

(961)


12,313

Prepaid expenses and other assets 

(5,838)


9,061

Accounts payable 

(8,717)


(19,828)

Accrued salaries and wages 

(3,649)


1,944

Other accrued liabilities 

12,037


9,059

Net cash provided by operating activities 

11,872


38,067





Investing activities 




Purchases of property, plant, and equipment 

(28,217)


(22,920)

Proceeds from disposal of property, plant, and equipment 

386


4,889

Assets acquired in Haggen Transaction

(1,801)


Investment in capitalized software 

(696)


(1,463)

Other 

(209)


(1,260)

Net cash used in investing activities 

(30,537)


(20,754)





Financing activities




Proceeds from exercise of stock options

146


107

Payment of minimum withholding taxes on net share settlement of share-based compensation awards




(91)


Fees paid in conjunction with debt financing

(31)


(31)

Borrowings on bank line of credit

25,000


Payments of public offering costs


(214)

Excess tax benefits related to share-based payments

379


55

Stock repurchases

(2,992)


Net cash provided by (used in) financing activities

22,411


(83)





Net increase in cash and cash equivalents

3,746


17,230

Cash and cash equivalents at beginning of period

59,327


106,847

Cash and cash equivalents at end of period

$             63,073


$           124,077





Cash paid during the period for:




Interest 

$                  236


$                  212

Income taxes

$                      4


$                  770





Non-cash investing and financing activities




Software development costs incurred but not paid

$                    79


$                  117

Construction in progress costs incurred but not paid

$             23,660


$             15,947

 

 Smart & Final Stores, Inc. and Subsidiaries 

 Segment Reporting 

 (In Thousands) 












 Smart & Final 


 Cash & Carry 


 Corporate / Other 


 Consolidated 

 Twelve Weeks Ended March 27, 2016 









 Net sales 


$         709,314


$         199,139


$                             -


$        908,453

 Cost of sales, distribution and store occupancy 


606,682


171,117


2,303


780,102

 Operating and administrative expenses 


95,200


14,825


15,057


125,082

 Income (loss) from operations 


$             7,432


$           13,197


$                 (17,360)


$            3,269



















 Capital expenditures 


$           26,599


$             1,062


$                     1,252


$          28,913

 Assets acquired in Haggen Transaction 


$             1,801


$                     -


$                             -


$            1,801



















 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

 

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 evaluate our operating and financial performance and to compare such performance to that of prior periods. We also use these non-GAAP financial measures in making operational and financial decisions and in establishing operational goals. We believe that providing these non-GAAP financial measures to investors, as a supplement to GAAP financial measures, helps investors to (i) evaluate our operating and financial performance and future prospects, (ii) compare financial results across accounting periods, (iii) better understand the long-term performance of our core business and (iv) evaluate trends in our business, all consistent with how management evaluates such performance and movements. 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 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 period ended March 27, 2016.

 

 Smart & Final  Stores, Inc. and Subsidiaries 

 Reconciliation of EBITDA to Adjusted EBITDA 

 (Unaudited) 

 (In Thousands) 






 Twelve Weeks Ended 


March 27, 2016


March 22, 2015

 Net (loss) income 

$            (2,018)


$              4,883

 Depreciation and amortization  

17,534


14,501

 Interest expense, net 

7,311


7,998

 Income tax provision 

(1,580)


2,848

 EBITDA 

21,247


30,230





 Adjustments to EBITDA 




 Transaction costs (a) 

-


61

 Net loss from closed stores and exit costs (b) 

1,136


90

 Loss from asset dispositions (c) 

128


408

 Share-based compensation expense (d) 

1,507


2,384

 Non-cash rent (e) 

1,084


793

 Pre-opening costs (f) 

191


1,133

 Costs associated with acquired Haggen store locations (g) 

9,740


-

 Other items (h) 

6


(70)

 Adjusted EBITDA 

$            35,039


$            35,029

 

 Smart & Final  Stores, Inc. and Subsidiaries 

 Reconciliation of Net (Loss) Income to Non-GAAP Adjusted Net Income 

 (Unaudited) 

 (In Thousands, Except Share and Per Share Amounts) 






 Twelve Weeks Ended 


March 27, 2016


March 22, 2015

 Net (loss) income 

$              (2,018)


$                4,883

 Income tax provision 

(1,580)


2,848

 Net income before income taxes 

(3,598)


7,731





 Adjustments to Net (Loss) Income 




 Transaction costs (a) 

-


61

 Net loss from closed stores and exit costs (b) 

1,136


90

 Loss from asset dispositions (c) 

128


408

 Share-based compensation expense (d) 

1,507


2,384

 Non-cash rent (e) 

1,084


793

 Pre-opening costs (f) 

191


1,133

 Costs associated with acquired Haggen store locations (g) 

9,740


-

 Other items (h) 

6


(70)

 Adjusted income tax provision 

(3,941)


(4,805)

 Adjusted net income 

$                6,253


$               7,725





Adjusted Net Income Per Share








Net income per share - basic

$                (0.03)


$                 0.07

Per share impact of net income adjustments

0.12


0.04

Adjusted net income per share - basic

$                  0.09


$                 0.11

Net income per share - diluted

$                (0.03)


$                 0.06

Per share impact of net income adjustments

0.11


0.04

Adjusted net income per share - diluted

$                 0.08


$                 0.10





Weighted average shares - basic

73,189,149


73,084,282

Weighted average shares - fully diluted

77,486,353


76,654,281






(a)  Represents costs primarily associated with the Company's secondary public offering that were charged to expense in the quarter 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 new store opening costs and non-cash rent related to acquired former Haggen store locations.

(h)  Represents (i) severance costs in the quarters ended March 27, 2016 and March 22, 2015 and (ii) death benefit income from a Company-owned life insurance policy in the quarter ended March  22, 2015.

 

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SOURCE Smart & Final Stores, Inc.