Smart & Final Stores, Inc. Reports First Quarter 2017 Financial Results

COMMERCE, Calif., May 3, 2017 /PRNewswire/ -- Smart & Final Stores, Inc. (the "Company") (NYSE:SFS), the value-oriented food and everyday staples retailer, today reported financial results for the fiscal first quarter ended March 26, 2017.

First Quarter Highlights:

  • Net sales increase of 6.4% to $967.0 million
  • Comparable store sales decrease of 2.5%, including impacts of deflation, cannibalization and adverse weather
  • Net loss of $4.6 million, or $0.06 per diluted share
  • Adjusted net loss of $1.5 million, or $0.02 per diluted share
  • Adjusted EBITDA of $24.4 million

"The operating environment in the first quarter remained challenging, with lingering effects of deflation and cannibalization weighing on our sales performance and results of operations," said David Hirz, President and Chief Executive Officer. "Our ability to deliver first quarter net sales growth of 6% year-over-year, despite market conditions and severe weather in our market areas, highlights the effectiveness of our differentiated model, as a one-stop shop for our household and business customers, and our unique product assortment of private label, club sizes and high quality perishables.   In the second half of 2017, we expect deflationary and cannibalization pressures to alleviate, and with severe weather behind us, anticipate positive comparable store sales growth and improved financial comparisons."

Mr. Hirz added, "As we look beyond the current environment, we remain excited about the opportunity to grow and strengthen our two well-positioned store banners. During the first quarter, we opened two new Smart & Final Extra! stores and one new Cash & Carry store, and we are on track to open a total of 19 new stores in 2017.  Our pipeline of 2017 new stores provides us the opportunity to strengthen our presence in existing market areas, as well as introduce our brands to household and business customers in new communities."

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 (loss), adjusted net income (loss) per share, adjusted net income (loss) 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 First Quarter 2017 Financial Results
Net sales were $967.0 million in the 12-week quarter ended March 26, 2017, representing a 6.4% increase as compared to $908.5 million for the same period of 2016. Net sales growth was driven by the net sales contribution of new stores, partially offset by a 2.5% decrease in comparable store sales. The decrease in comparable store sales was attributable to a 0.4% decrease in comparable transaction count, including the effect of cannibalization from new stores, and a 2.1% 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 $765.0 million, a 7.8% increase as compared to $709.3 million for the same period of 2016. Comparable store sales for the Smart & Final banner decreased 2.5% in the first quarter.

Net sales for Cash & Carry banner stores were $202.0 million, a 1.5% increase as compared to $199.1 million for the same period of 2016. Comparable store sales for the Cash & Carry banner decreased 2.4% in the first quarter.

Gross margin from operations was $133.1 million, a 3.7% increase as compared to $128.4 million in the first quarter of 2016. Gross margin rate was 13.8% as compared to 14.1% for the same period of 2016.

Operating and administrative expenses were $135.7 million, an 8.5% increase as compared to $125.1 million for the same period of 2016. This increase was primarily related to expenses associated with 26 new stores opened over the prior 12 months and related support costs.

Net loss was $4.6 million, including the effect of store development expenses and an income tax benefit of $6.0 million, as compared to net loss of $1.6 million and an income tax benefit of $2.0 million for the same period of 2016. Net loss per diluted share was $0.06 as compared to $0.02 for the same period of 2016.

Adjusted net loss was $1.5 million as compared to adjusted net income of $6.6 million for the same period of 2016. Adjusted net loss per diluted share was $0.02 as compared to adjusted net income per diluted share of $0.08 for the same period of 2016.

Adjusted EBITDA was $24.4 million as compared to $35.0 million for the same period of 2016.

Growth and Development
During the fiscal first quarter of 2017, the Company opened two new Smart & Final Extra! stores and one new Cash & Carry store. As of March 26, 2017, the Company operated a total of 308 stores, including 174 Smart & Final Extra! stores, 74 legacy Smart & Final stores and 60 Cash & Carry stores.

Operating Stores at Fiscal Quarter End (March 26, 2017)














Smart & Final Banner Stores


Cash & Carry
Banner Stores


Total
Company


Extra!
format


Legacy
format


Total



End of Fiscal 2016

172


74


246


59


305

New stores

2


-


2


1


3

Relocations, net

-


-


-


-


-

Conversions

-


-


-


-


-

Store closures

-


-


-


-


-

End of 1st Quarter 2017

174


74


248


60


308






















Leverage and Liquidity
As of March 26, 2017, the Company's debt, net of debt issuance costs, was $685.4 million and cash and cash equivalents were $50.4 million.

As of March 26, 2017, the Company generated cash from operations of $21.3 million and invested $29.1 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 full year ending December 31, 2017:

Net sales growth

5.5% - 6.5%

Comparable store sales growth

1.0% - 2.0%

Unit growth (new stores)

15 Smart & Final Extra!

4 Cash & Carry

Relocations of existing stores to Extra! format

3 Smart & Final stores

Expansions or conversions of legacy stores to Extra! format

4 to 5 Smart & Final stores

Adjusted EBITDA

$185 - $195 million

Adjusted net income

$39 - $43 million

Adjusted diluted EPS

$0.50 - $0.55

Capital expenditures 

$120 - $130 million

Fully diluted weighted average shares

77 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: pre-opening costs associated with new stores of approximately $6 million, non-cash rent related to stores of approximately $4 million and share-based compensation expense of approximately $10 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 fiscal year 2017, the Company expects to open four new Smart & Final Extra! stores and one new Cash & Carry store.

Fiscal First Quarter Conference Call
The Company will host a conference call today at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time to discuss its fiscal first quarter 2017 financial results. To participate in the call, please dial (877) 423-9813 (U.S.) or (201) 689-8573 (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 (844) 512-2921 (U.S.) or (412) 317-6671 (International) and entering the replay pin number: 13659241. The telephonic replay will be available until 11:59 p.m. Eastern Time, on Wednesday, May 17, 2017.

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 26, 2017, the Company operated 308 grocery and foodservice stores under the "Smart & Final," "Smart & Final Extra!" and "Cash & Carry Smart Foodservice" banners in California, Oregon, Washington, Arizona, Nevada, Idaho and Utah, with an additional 15 stores in Northwestern Mexico operated through a joint venture. In business for over 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

Consolidated Statements of Operations 

(In Thousands, Except Share and Per Share Amounts)










Twelve Weeks
Ended


Twelve Weeks
Ended


March 26, 2017


March 27, 2016









Net sales 

$              967,017


$              908,453

Cost of sales, buying and occupancy 

833,906


780,102

Gross margin 

133,111


128,351





Operating and administrative expenses 

135,674


125,082

Income (loss) from operations 

(2,563)


3,269





Interest expense, net 

8,174


7,311

Equity in earnings of joint venture 

167


444

Loss before income taxes 

(10,570)


(3,598)





Income tax benefit

5,978


1,960

Net loss

$                (4,592)


$                (1,638)





Net loss per share:




       Basic

$                  (0.06)


$                  (0.02)

       Diluted

$                  (0.06)


$                  (0.02)





Weighted average shares outstanding:




       Basic

72,287,891


73,189,149

       Diluted

72,287,891


73,189,149

 

Smart & Final Stores, Inc. and Subsidiaries

Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Amounts)










March 26, 2017


January 1, 2017





Assets 




Current assets: 




Cash and cash equivalents 

$          50,385


$          54,235

Accounts receivable, less allowances of $433 and $434 at March 26, 2017 and January 1, 2017, respectively 

27,367


31,809

Inventories 

266,698


278,718

Prepaid expenses and other current assets 

59,492


48,769

Deferred income taxes 

-


22,105

Total current assets 

403,942


435,636





Property, plant, and equipment: 




Land 

9,082


9,106

Buildings and improvements 

17,351


17,351

Leasehold improvements 

310,151


301,522

Fixtures and equipment 

363,819


353,764

Construction in progress 

16,636


12,110


717,039


693,853

Less accumulated depreciation and amortization 

269,108


249,251


447,931


444,602





Capitalized software, net of accumulated amortization of $14,284 and $13,293 at March 26, 2017 and January 1, 2017, respectively 

14,246


10,392

Other intangible assets, net 

367,907


369,519

Goodwill 

611,242


611,242

Equity investment in joint venture 

14,512


14,366

Other assets 

68,239


66,662

Total assets 

$     1,928,019


$     1,952,419









Liabilities and stockholders' equity




Current liabilities: 




Accounts payable 

$        216,774


$        225,227

Accrued salaries and wages 

31,446


31,933

Accrued expenses

86,195


82,925

Current portion of debt, less debt issuance costs

68,454


62,352

Total current liabilities 

402,869


402,437





Long-term debt, less debt issuance costs

616,902


616,588

Deferred income taxes 

108,329


129,902

Postretirement and postemployment benefits 

120,157


121,409

Other long-term liabilities 

133,791


129,834





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 -   73,155,074 and 72,930,653 at 




March 26, 2017 and January 1, 2017, respectively

73


73

Additional paid-in capital 

502,044


500,666

Retained earnings

57,180


65,093

Accumulated other comprehensive loss

(13,326)


(13,583)

Total stockholders' equity 

545,971


552,249

Total liabilities and stockholders' equity 

$     1,928,019


$     1,952,419

 

Smart & Final Stores, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(In Thousands)










 Twelve Weeks Ended 


 Twelve Weeks Ended 


March 26, 2017


March 27, 2016

Operating activities 




Net loss

$                          (4,592)


$                          (1,638)

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




Depreciation 

12,783


10,189

Amortization 

8,900


7,345

Amortization of debt discount and debt issuance costs

445


639

Share-based compensation

1,814


1,507

Deferred income taxes

284


(446)

Equity in earnings of joint venture 

(167)


(444)

Loss on disposal of property, plant, and equipment 

21


78

Asset impairment 

325


128

Changes in operating assets and liabilities: 




Accounts receivable, net 

2,663


2,401

Inventories

12,020


(961)

Prepaid expenses and other assets 

(11,524)


(6,218)

Accounts payable 

(8,453)


(8,717)

Accrued salaries and wages 

(487)


(3,649)

Other accrued liabilities 

7,279


12,037

Net cash provided by operating activities 

21,311


12,251





Investing activities 




Purchases of property, plant, and equipment 

(24,570)


(28,217)

Proceeds from disposal of property, plant, and equipment 

1,785


386

Assets acquired in Haggen Transaction


(1,801)

Investment in capitalized software 

(4,524)


(696)

Other 

(55)


(209)

Net cash used in investing activities 

(27,364)


(30,537)





Financing activities




Proceeds from exercise of stock options

2,335


146

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

(106)


(91)

Fees paid in conjunction with debt financing

(31)


(31)

Borrowings on bank line of credit

28,000


25,000

Payments on bank line of credit

(22,000)


-

Stock repurchases

(5,995)


(2,992)

Net cash provided by financing activities

2,203


22,032





Net (decrease) increase in cash and cash equivalents

(3,850)


3,746

Cash and cash equivalents at beginning of period

54,235


59,327

Cash and cash equivalents at end of period

$                          50,385


$                          63,073





Cash paid during the period for:




Interest 

$                            2,340


$                               236

Income taxes

$                                   –


$                                   4





Non-cash investing and financing activities




Software development costs incurred but not paid

$                               344


$                                 79

Construction in progress costs incurred but not paid

$                          11,537


$                          23,660

 

 Smart & Final Stores, Inc. and Subsidiaries 

 Segment Reporting 

 (In Thousands) 













 Smart & Final 


 Cash & Carry 


 Corporate / Other 


 Consolidated 


 Twelve Weeks Ended March 26, 2017 










 Net sales 


$         764,969


$         202,048


$                             -


$        967,017


 Cost of sales, distribution and store occupancy 


656,792


175,133


1,981


833,906


 Operating and administrative expenses 


103,906


16,166


15,602


135,674


 Income (loss) from operations 


$             4,271


$           10,749


$                 (17,583)


$          (2,563)






















 Capital expenditures 


$           20,974


$             2,873


$                     5,247


$          29,094










































 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


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 (loss), EBITDA and adjusted EBITDA to net loss, and adjusted net income (loss) per share and adjusted net income (loss) per diluted share to net loss per share, for the twelve week fiscal quarters ended March 26, 2017 and March 27, 2016.

 Smart & Final  Stores, Inc. and Subsidiaries 

 Reconciliation of EBITDA to Adjusted EBITDA 

 (Unaudited) 

 (In Thousands) 







Twelve Weeks
Ended March 26,
2017


Twelve Weeks
Ended March 27,
2016


 Net loss 

$              (4,592)


$              (1,638)


 Depreciation and amortization  

21,683


17,534


 Interest expense, net 

8,174


7,311


 Income tax benefit 

(5,978)


(1,960)


 EBITDA 

19,287


21,247







 Adjustments to EBITDA 





 Net loss from closed stores and exit costs (a) 

390


1,136


 Loss from asset dispositions (b) 

328


128


 Share-based compensation expense (c) 

1,814


1,507


 Non-cash rent (d) 

360


248


 Pre-opening costs (e) 

971


191


 Costs associated with acquired Haggen store locations (f) 

1,201


10,576


 Other (g) 

56


6


 Adjusted EBITDA 

$              24,407


$              35,039







 

 Smart & Final  Stores, Inc. and Subsidiaries 

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

 (Unaudited) 

 (In Thousands, Except Share and Per Share Amounts) 







Twelve Weeks
Ended March 26,
2017


Twelve Weeks
Ended March 27,
2016


 Net loss 

$              (4,592)


$              (1,638)


 Income tax benefit 

(5,978)


(1,960)


 Loss before income taxes 

(10,570)


(3,598)







 Adjustments to net loss 





 Net loss from closed stores and exit costs (a) 

390


1,136


 Loss from asset dispositions (b) 

328


128


 Share-based compensation expense (c) 

1,814


1,507


 Non-cash rent (d) 

360


248


 Pre-opening costs (e) 

971


191


 Costs associated with acquired Haggen store locations (f) 

1,201


10,576


 Other (g) 

56


6


 Adjusted income tax benefit (provision) 

3,935


(3,561)


 Adjusted net income (loss) 

$              (1,515)


$               6,633







Adjusted Net Income (Loss) Per Share










Net loss per share - basic

$              (0.06)


$              (0.02)


Per share impact of net income (loss) adjustments

0.04


0.11


Adjusted net income (loss) per share - basic

$              (0.02)


$                0.09


Net loss per share - diluted

$              (0.06)


$              (0.02)


Per share impact of net income (loss) adjustments

0.04


0.10


Adjusted net income (loss) per share - diluted

$              (0.02)


$                0.08







Weighted average shares - basic

72,287,891


73,189,149


Weighted average shares - fully diluted

72,287,891


79,046,024




(a)

Represents costs associated with store closure and exit costs.

(b)

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

(c)

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

(d)

Represents non-cash component of recognized rent expense.

(e)

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

(f)

Represents new store opening and relocation costs and non-cash rent related to acquired former Haggen store locations.

(g)

Represents costs primarily associated with severance costs in the twelve week fiscal quarters ended March 26, 2017 and March 27, 2016.

 

Smart & Final Stores, Inc. logo (PRNewsFoto/Smart & Final Stores LLC)

 

SOURCE Smart & Final Stores, Inc.