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

COMMERCE, Calif., July 25, 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 second quarter ended June 18, 2017.

Second Quarter Highlights:

  • Net sales increase of 3.9% to $1,078.3 million
  • Comparable store sales increase of 1.3%
  • Net income of $7.1 million, or $0.09 per diluted share
  • Adjusted net income of $11.0 million, or $0.14 per diluted share
  • Adjusted EBITDA of $48.0 million

"The second quarter marked a return to positive comparable store sales growth, reflecting the expected lessening of pressures from deflation and growth-related sales cannibalization, as well as from customer growth attributable to our strong competitive position," said David Hirz, President and Chief Executive Officer.  "We expect sales growth will continue to be supported by the maturation of new stores opened over the past two years, as well as marketing and promotional initiatives aimed at increasing store traffic and building basket size."

Mr. Hirz added, "Smart & Final is well known for meeting the needs of both business and household customers with quality warehouse-club sized and private label products, plus a unique assortment of items for small businesses.  We have a differentiated position in our value-priced and convenient stores with strong digital capabilities.  With a broad range of online and delivery options to serve our customers, Smart & Final is well positioned for continued success in an evolving marketplace."

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 EBITDA, adjusted EBITDA, adjusted net income, adjusted net income per share, and adjusted net income per diluted share,  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 a non-GAAP adjusted basis.

Fiscal Second Quarter 2017 Financial Results
Net sales were $1,078.3 million in the 12-week quarter ended June 18, 2017, representing a 3.9% increase as compared to $1,038.3 million for the same period of 2016. Net sales growth was driven by a 1.3% increase in comparable store sales and from the net sales contribution of new stores. The increase in comparable store sales was attributable to a 1.9% increase in comparable transaction count, partially offset by a 0.6% decrease in comparable average transaction size, including the effect of cannibalization from new stores.

Net sales for Smart & Final banner stores were $836.1 million, a 3.0% increase as compared to $811.8 million for the same period of 2016. Comparable store sales growth for the Smart & Final banner was 1.2% in the second quarter.

Net sales for Cash & Carry banner stores were $242.2 million, a 6.9% increase as compared to $226.5 million for the same period of 2016. Comparable store sales growth for the Cash & Carry banner was 1.8% in the second quarter.

Gross margin was $162.3 million, a 3.2% increase as compared to $157.2 million in the second quarter of 2016. Gross margin rate was 15.0% as compared to 15.1% for the same period of 2016.

Operating and administrative expenses were $143.1 million, a 3.1% increase as compared to $138.8 million for the same period of 2016. This increase was primarily related to expenses associated with the 31 new stores that opened beginning in the second quarter of 2016 through the end of the second quarter of 2017 and related support costs.

Net income was $7.1 million, including the effect of store development expenses, as compared to $7.8 million for the same period of 2016. Net income per diluted share was $0.09 as compared to $0.10 for the same period of 2016.

Adjusted net income was $11.0 million, as compared to $15.5 million for the same period of 2016. Adjusted net income per diluted share was $0.14 as compared to $0.20 for the same period of 2016.

Adjusted EBITDA was $48.0 million as compared to $50.7 million for the same period of 2016.

Fiscal Year-to-date Financial Results
In the twenty-four weeks ended June 18, 2017, net sales were $2,045.3 million, an increase of 5.1% as compared to $1,946.7 million in the same period of 2016.  Net sales growth was driven by the net sales contribution of new stores, partially offset by a 0.5% decline in comparable store sales.  The decline in comparable store sales was attributable to a 0.8% increase in comparable transaction count and a 1.3% decrease in comparable average transaction size. 

Net sales for Smart & Final banner stores were $1,601.1 million, an increase of 5.3% as compared to $1,521.1 million in the first half of 2016. Year-to-date comparable store sales for the Smart & Final banner decreased 0.6%.

Net sales for Cash & Carry banner stores were $444.2 million, a 4.4% increase as compared to $425.7 million in the same period of 2016.  Year-to-date comparable store sales for the Cash & Carry banner decreased 0.2%.

Net income was $2.5 million, as compared to $6.2 million in the first half of 2016. Net income per diluted share was $0.03 as compared to $0.08 for the same period of 2016.

Adjusted net income was $9.5 million, as compared to $22.1 million in the first half of 2016. Adjusted net income per diluted share was $0.12 as compared to $0.28 in the same period of 2016.

Adjusted EBITDA was $72.4 million, as compared to $85.7 million in the same period of 2016.

Growth and Development
During the fiscal second quarter of 2017, the Company opened four new Smart & Final Extra! stores, completed one conversion of a legacy Smart & Final store to the Extra! format, and one relocation. The Company opened one new Cash & Carry store. As of June 18, 2017, the Company operated a total of 313 stores, including 180 Smart & Final Extra! stores, 72 legacy Smart & Final stores and 61 Cash & Carry stores.

Operating Stores at Fiscal Quarter End (June 18, 2017)



Smart & Final Banner Stores



Extra!
format


Legacy
format


Total


Cash & Carry
Banner Stores


Total
Company

End of Fiscal 2016

172


74


246


59


305

New stores

6


-


6


2


8

Relocations, net

1


(1)


-


-


-

Conversions

1


(1)


-


-


-

Store closures

-


-


-


-


-

End of 2nd Quarter 2017

180


72


252


61


313



















Leverage and Liquidity
As of June 18, 2017, the Company's debt, net of debt issuance costs, was $665.7 million and cash and cash equivalents were $63.2 million.

As of June 18, 2017, the Company generated cash from operations of $95.1 million and invested $69.5 million in capital expenditures, primarily related to the development of Extra! format stores and to improvements of existing assets.

Outlook
The Company is maintaining its previously issued guidance framework for the full year ending December 31, 2017, while narrowing the guidance range for certain elements (as noted in bold type):

Net sales growth

5.5% - 6.0%

Comparable store sales growth

1.0% - 1.5%

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 - $190 million

Adjusted net income

$39 - $41 million

Adjusted diluted EPS

$0.50 - $0.52

Capital expenditures 

$120 - $130 million

Fully diluted weighted average shares

77 million

The above guidance includes certain non-GAAP financial measures (namely adjusted EBITDA, adjusted net income and adjusted net income per diluted share), 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 third quarter of fiscal year 2017, the Company expects to open 3 new Smart & Final Extra! stores and 2 new Cash & Carry stores.

Fiscal Second 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 second quarter 2017 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 (844) 512-2921 (U.S.) or (412) 317-6671 (International) and entering the replay pin number: 13665867. The telephonic replay will be available until 11:59 p.m. Eastern Time, August 8, 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. The Company operates 314 grocery and foodservice stores under the "Smart & Final," "Smart & Final Extra!" and "Cash & Carry Smart Foodservice" banners in California, Oregon, Washington, Arizona, Nevada, Idaho, Montana 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

Condensed Consolidated Statements of Operations 

(Unaudited)

(In Thousands, Except Share and Per Share Amounts)


















Twelve Weeks Ended


Twenty-four Weeks Ended


June 18, 2017


June 19, 2016


June 18, 2017


June 19, 2016

















Net sales 

$    1,078,287


$    1,038,281


$    2,045,304


$    1,946,734

Cost of sales, buying and occupancy 

916,017


881,067


1,749,923


1,661,169

Gross margin 

162,270


157,214


295,381


285,565









Operating and administrative expenses 

143,062


138,819


278,736


263,901

Income from operations 

19,208


18,395


16,645


21,664









Interest expense, net 

8,335


7,441


16,509


14,752

Equity in earnings of joint venture 

47


284


214


728

Income before income taxes 

10,920


11,238


350


7,640









Income tax (provision) benefit

(3,792)


(3,432)


2,186


(1,472)

Net income

$           7,128


$           7,806


$           2,536


$           6,168









Net income per share:








       Basic

$             0.10


$             0.11


$             0.04


$             0.08

       Diluted

$             0.09


$             0.10


$             0.03


$             0.08









Weighted average shares outstanding:








       Basic

72,573,681


73,197,064


72,430,786


73,193,107

       Diluted

76,251,510


78,907,184


76,478,054


78,976,605

  

Smart & Final Stores, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Amounts)










June 18, 2017


January 1, 2017


 (Unaudited) 



Assets 




Current assets: 




Cash and cash equivalents 

$       63,225


$          54,235

Accounts receivable, less allowances of $433 and $434 at 




June 18, 2017 and January 1, 2017, respectively 

32,988


31,809

Inventories 

266,569


278,718

Prepaid expenses and other current assets 

30,086


48,769

Deferred income taxes 

-


22,105

Total current assets 

392,868


435,636





Property, plant, and equipment: 




Land 

9,123


9,106

Buildings and improvements 

20,468


17,351

Leasehold improvements 

321,777


301,522

Fixtures and equipment 

382,168


353,764

Construction in progress 

18,849


12,110


752,385


693,853

Less accumulated depreciation and amortization 

289,389


249,251


462,996


444,602





Capitalized software, net of accumulated amortization of 




$15,293 and $13,293 at June 18, 2017 and 




January 1, 2017, respectively 

15,545


10,392

Other intangible assets, net 

366,296


369,519

Goodwill 

611,242


611,242

Equity investment in joint venture 

14,644


14,366

Other assets 

68,796


66,662

Total assets 

$  1,932,387


$     1,952,419









Liabilities and stockholders' equity




Current liabilities: 




Accounts payable 

$     230,786


$        225,227

Accrued salaries and wages 

33,273


31,933

Accrued expenses

86,025


82,925

Current portion of debt, less debt issuance costs

48,531


62,352

Total current liabilities 

398,615


402,437





Long-term debt, less debt issuance costs

617,178


616,588

Deferred income taxes 

108,595


129,902

Postretirement and postemployment benefits 

118,530


121,409

Other long-term liabilities 

133,693


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 - 73,972,443 and 72,930,653 at 




June 18, 2017 and January 1, 2017, respectively

74


73

Additional paid-in capital 

504,407


500,666

Retained earnings

64,308


65,093

Accumulated other comprehensive loss

(13,013)


(13,583)

Total stockholders' equity 

555,776


552,249

Total liabilities and stockholders' equity 

$  1,932,387


$     1,952,419

 

Smart & Final Stores, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In Thousands)










 Twenty-four Weeks Ended 


June 18, 2017


June 19, 2016

Operating activities 




Net income 

$            2,536


$            6,168

Adjustments to reconcile net income to net cash provided 




by operating activities: 




Depreciation 

25,989


21,752

Amortization 

18,008


15,035

Amortization of debt discount and debt issuance costs

891


1,280

Share-based compensation

4,304


3,418

Deferred income taxes

524


(811)

Equity in earnings of joint venture 

(214)


(728)

Loss on disposal of property, plant, and equipment 

14


65

Asset impairment 

550


181

Changes in operating assets and liabilities: 




Accounts receivable, net 

(2,958)


(1,074)

Inventories

12,149


(11,602)

Prepaid expenses and other assets 

18,318


2,017

Accounts payable 

5,559


18,215

Accrued salaries and wages 

1,340


(2,153)

Other accrued liabilities 

8,128


8,682

Net cash provided by operating activities 

95,138


60,445





Investing activities 




Purchases of property, plant, and equipment 

(62,646)


(70,346)

Proceeds from disposal of property, plant, and equipment 

1,807


409

Assets acquired in Haggen Transaction


(2,227)

Investment in capitalized software 

(6,836)


(1,385)

Other 

(458)


(279)

Net cash used in investing activities 

(68,133)


(73,828)





Financing activities




Proceeds from exercise of stock options

3,626


1,783

Payment of minimum withholding taxes on net share settlement of 




    share-based compensation awards

(1,524)


(106)

Fees paid in conjunction with debt financing

(123)


(133)

Borrowings on bank line of credit

38,000


40,000

Payments on bank line of credit

(52,000)


(15,000)

Stock repurchases

(5,994)


(5,104)

Net cash (used in) provided by financing activities

(18,015)


21,440





Net increase in cash and cash equivalents

8,990


8,057

Cash and cash equivalents at beginning of period

54,235


59,327

Cash and cash equivalents at end of period

$          63,225


$          67,384





Cash paid during the period for:




Interest 

$          11,012


$            7,467

Income taxes

$                   1


$            5,476





Non-cash investing and financing activities




Software development costs incurred but not paid

$               340


$               490

Construction in progress costs incurred but not paid

$            9,634


$          13,542

 

 Smart & Final Stores, Inc. and Subsidiaries 

 Segment Information 

 (In Thousands) 












 Smart & Final 


 Cash & Carry 


 Corporate / Other 


 Consolidated 

Twelve Weeks Ended June 18, 2017 









 Net sales 


$         836,134


$         242,153


$                             -


$     1,078,287

 Cost of sales, distribution and store occupancy 


706,610


207,372


2,035


916,017

 Operating and administrative expenses 


107,796


17,441


17,825


143,062

 Income (loss) from operations 


$           21,728


$           17,340


$                 (19,860)


$          19,208



















 Capital expenditures 


$           33,830


$             3,501


$                     3,057


$          40,388





































Twelve Weeks Ended June 19, 2016 









 Net sales 


$         811,754


$         226,527


$                             -


$     1,038,281

 Cost of sales, distribution and store occupancy 


685,129


193,579


2,359


881,067

 Operating and administrative expenses 


108,041


15,225


15,553


138,819

 Income (loss) from operations 


$           18,584


$           17,723


$                 (17,912)


$          18,395



















 Capital expenditures 


$           40,524


$                824


$                     1,470


$          42,818





































 Twenty-four Weeks Ended June 18, 2017 









 Net sales 


$      1,601,103


$         444,201


$                             -


$     2,045,304

 Cost of sales, distribution and store occupancy 


1,363,402


382,505


4,016


1,749,923

 Operating and administrative expenses 


211,702


33,607


33,427


278,736

 Income (loss) from operations 


$           25,999


$           28,089


$                 (37,443)


$          16,645



















 Capital expenditures 


$           54,804


$             6,374


$                     8,304


$          69,482





































 Twenty-four Weeks Ended June 19, 2016 









 Net sales 


$      1,521,068


$         425,666


$                             -


$     1,946,734

 Cost of sales, distribution and store occupancy 


1,291,811


364,696


4,662


1,661,169

 Operating and administrative expenses 


203,241


30,050


30,610


263,901

 Income (loss) from operations 


$           26,016


$           30,920


$                 (35,272)


$          21,664



















 Capital expenditures 


$           67,123


$             1,886


$                     2,722


$          71,731

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 EBITDA and adjusted EBITDA, adjusted net income, adjusted net income per share, and adjusted net income per diluted share) 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 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.  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.

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 net income to EBITDA, adjusted EBITDA and adjusted net income, and net income per share to adjusted net income per share and adjusted net income per diluted share, for the twelve-week and twenty-four week periods ended June 18, 2017 and June 19, 2016.

 Smart & Final  Stores, Inc. and Subsidiaries 

 Reconciliation of Net Income to Non-GAAP EBITDA and Adjusted EBITDA 

 (Unaudited) 

 (In Thousands) 










Twelve Weeks
Ended June 18,
2017


Twelve Weeks
Ended June 19,
2016


Twenty-four
Weeks Ended
June 18, 2017


Twenty-four
Weeks Ended
June 19, 2016

 Net income 

$            7,128


$            7,806


$           2,536


$           6,168

 Depreciation and amortization  

22,314


19,253


43,997


36,787

 Interest expense, net 

8,335


7,441


16,509


14,752

 Income tax provision (benefit) 

3,792


3,432


(2,186)


1,472

 EBITDA 

41,569


37,932


60,856


59,179









 Adjustments to EBITDA 








 Net loss from closed stores and exit costs (a) 

891


2,602


1,281


3,738

 Loss from asset dispositions (b) 

300


57


628


185

 Share-based compensation expense (c) 

2,489


1,911


4,304


3,418

 Non-cash rent (d) 

376


586


736


834

 Pre-opening costs (e) 

1,190


247


2,161


437

 Costs associated with acquired Haggen store locations (f) 

1,201


7,373


2,402


17,950

 Other items (g) 

25


-


81


6

 Adjusted EBITDA 

$           48,041


$           50,708


$         72,449


$         85,747

 

 Smart & Final  Stores, Inc. and Subsidiaries 

 Reconciliation of Net Income to Non-GAAP Adjusted Net Income 

 (Unaudited) 

 (In Thousands, Except Share and Per Share Amounts) 










Twelve Weeks
Ended June 18,
2017


Twelve Weeks
Ended June 19,
2016


Twenty-four
Weeks Ended
June 18, 2017


Twenty-four
Weeks  Ended
June 19, 2016

 Net income 

$            7,128


$            7,806


$           2,536


$           6,168

 Income tax provision (benefit) 

3,792


3,432


(2,186)


1,472

 Income before income taxes 

10,920


11,238


350


7,640









 Adjustments to net income 








 Net loss from closed stores and exit costs (a) 

891


2,602


1,281


3,738

 Loss from asset dispositions (b) 

300


57


628


185

 Share-based compensation expense (c) 

2,489


1,911


4,304


3,418

 Non-cash rent (d) 

376


586


736


834

 Pre-opening costs (e) 

1,190


247


2,161


437

 Costs associated with acquired Haggen store locations (f) 

1,201


7,373


2,402


17,950

 Other items (g) 

25


-


81


6

 Adjusted income tax provision 

(6,365)


(8,546)


(2,422)


(12,107)

 Adjusted net income 

$           11,027


$           15,468


$           9,521


$         22,101









Adjusted Net Income Per Share
















Net income per share - basic

$             0.10


$             0.11


$           0.04


$           0.08

Per share impact of net income adjustments

0.05


0.10


0.09


0.22

Adjusted net income per share - basic

$             0.15


$             0.21


$           0.13


$           0.30

Net income per share - diluted

$             0.09


$             0.10


$           0.03


$           0.08

Per share impact of net income adjustments

0.05


0.10


0.09


0.20

Adjusted net income per share - diluted

$             0.14


$             0.20


$           0.12


$           0.28









Weighted average shares - basic

72,573,681


73,197,064


72,430,786


73,193,107

Weighted average shares - fully diluted

76,251,510


78,907,184


76,478,054


78,976,605



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

(g)

Represents severance costs in the twelve-week period ended June 18, 2017 and the twenty-four week periods ended June 18, 2017 and June 19, 2016.

 

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

 

SOURCE Smart & Final Stores, Inc.