Smart & Final Stores, Inc. Reports First Quarter 2018 Financial Results

COMMERCE, Calif., May 2, 2018 /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 25, 2018.

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

First Quarter Highlights:

  • Net sales increased 5.1% to $1,016.2 million with a comparable store sales increase of 1.2%
  • Gross margin increased 9.9%
  • Adjusted EBITDA increased 17.3% to $28.6 million
  • Net loss of $7.1 million or $0.10 per share
  • Adjusted net loss of $2.8 million or $0.04 per share
  • Expanded Smart & Final banner online channels by adding the Shop Smart & Final mobile app
  • Launching transition of Cash & Carry banner to "Smart Foodservice Warehouse Stores"

"There are a number of performance highlights to note in the quarter, including a year-over-year net sales increase of 5.1% and over 17% growth in adjusted EBITDA" said David Hirz, president and chief executive officer. "Despite continuing promotional activity within the grocery landscape, we were able to improve our gross margin rate driven by maturing new stores, merchandising initiatives aimed at both household and business customers, and the expansion of our marketing channels.  We've also been successfully growing our business customer sales, a key differentiator for us in the market."    

Mr. Hirz continued, "E-commerce sales increased over 85%, off a small base, and we have a robust plan for growing our e-commerce capabilities in both banners in 2018, with first quarter accomplishments including the launch of our Shop Smart & Final mobile app. We expect the development of our e-commerce and related offerings will support customer traffic, through both customer acquisition and retention, as adoption of this channel accelerates.  Finally, we're excited to announce the transition of the Cash & Carry Smart Foodservice banner to "Smart Foodservice Warehouse Stores", which we believe better supports our brand messaging and value proposition, and reflects how our customers view us in the market."

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 loss, adjusted net loss per share, and adjusted net loss 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 results below are first presented on a GAAP basis and then on a non-GAAP adjusted basis.

Fiscal First Quarter 2018 Financial Results
Net sales were $1,016.2 million in the 12-week quarter ended March 25, 2018, representing a 5.1% increase as compared to $967.0 million for the same period of 2017. Net sales growth was driven by a 1.2% increase in comparable store sales and by the net sales contribution of new stores. Comparable store sales growth was comprised of a 2.9% increase in comparable average transaction size, partially offset by a 1.7% decrease in comparable transaction count.

Net sales for Smart & Final banner stores were $795.2 million, a 4.0% increase as compared to $765.0 million for the same period of 2017. Comparable store sales growth for the Smart & Final banner was flat in the first quarter.

Net sales for Smart Foodservice Warehouse banner stores were $221.0 million, a 9.4% increase as compared to $202.0 million for the same period of 2017. Comparable store sales growth for the Smart Foodservice Warehouse banner was 5.8% in the first quarter.

Gross margin was $146.3 million, a 9.9% increase as compared to $133.1 million in the first quarter of 2017. Gross margin rate was 14.4% as compared to 13.8% for the same period of 2017.  Gross margin rate in the quarter was supported by our strategic sourcing, merchandising and pricing initiatives.

Operating and administrative expenses were $147.4 million, an 8.7% increase as compared to $135.7 million for the same period of 2017. This increase was related to expenses associated with the effect of higher minimum wages, the 15 new stores that opened following the first quarter of 2017 through the end of the first quarter of 2018 and related support costs.

Net loss was $7.1 million, or $0.10 per share, as compared to a net loss of $4.6 million, or $0.06 per share, for the same period of 2017.

Adjusted net loss was $2.8 million, or $0.04 per share, as compared to an adjusted net loss of $1.5 million, or $0.02 per share, for the same period of 2017.   

Adjusted EBITDA was $28.6 million, an increase of 17.3% as compared to $24.4 million for the same period of 2017.

Growth and Development
During the fiscal first quarter of 2018, the Company did not open any new stores.  Similar to 2017, store openings in 2018 are scheduled for the latter half of the year.  As of March 25, 2018, the Company operated a total of 323 stores, including 194 Smart & Final Extra! stores, 66 legacy format Smart & Final stores and 63 Cash & Carry Smart Foodservice stores.

Leverage and Liquidity
As of March 25, 2018, the Company's debt, net of debt issuance costs, was $687.8 million and cash and cash equivalents were $55.8 million.

For the twelve weeks ended March 25, 2018, the Company generated cash from operations of $18.2 million and invested $29.0 million in capital expenditures, primarily related to the improvement of existing assets.

Outlook
The Company is maintaining the previously issued guidance for the full year ending December 30, 2018:

Net sales growth

4.0% - 5.0%

Comparable store sales growth

1.0% - 2.0%

Unit growth (new stores)

3-5 Smart & Final Extra! stores 

3-5 Smart Foodservice Warehouse stores

Relocations of existing stores to Extra! format

2-3 Smart & Final stores

Expansions or conversions of legacy stores to Extra! format

1-2 Smart & Final stores

Adjusted EBITDA

$180 - $190 million

Adjusted net income

$31 - $35 million

Adjusted diluted EPS

$0.42 - $0.47

Capital expenditures (net)

$80 - $90 million

Fully diluted weighted average shares

74 to 75 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 $3.8 million, non-cash rent related to stores of approximately $2.9 million, share-based compensation expense of approximately $15.5 million, and $3.9 million of store closure expenses. 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.

Fiscal First Quarter 2018 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 2018 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 "For Investors" section of the Company's web site at www.smartandfinal.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: 13678813. The telephonic replay will be available until 11:59 p.m. Eastern Time, May 16, 2018.

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 25, 2018, the Company operated 323 grocery and foodservice stores under the "Smart & Final," "Smart & Final Extra!" and "Smart Foodservice Warehouse Stores" 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 146 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 25, 2018


March 26, 2017





Net sales 

$ 1,016,237


$        967,017

Cost of sales, buying and occupancy 

869,975


833,906

Gross margin 

146,262


133,111





Operating and administrative expenses 

147,430


135,674

Loss from operations 

(1,168)


(2,563)





Interest expense, net 

9,251


8,174

Equity in earnings of joint venture 

577


167

Loss before income taxes 

(9,842)


(10,570)





Income tax benefit 

2,748


5,978

Net loss

$      (7,094)


$           (4,592)





Net loss per share:




      Basic 

$        (0.10)


$             (0.06)

      Diluted 

$        (0.10)


$             (0.06)





Weighted average shares outstanding:




       Basic

72,231,171


72,287,891

       Diluted

72,231,171


72,287,891

 

Smart & Final Stores, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Amounts)










 March 25, 2018 


 December 31, 2017 


 (Unaudited) 



Assets 




Current assets: 




Cash and cash equivalents 

$            55,790


$                   71,671

Accounts receivable, less allowances of $175 and $177 at 




March 25, 2018 and December 31, 2017, respectively 

29,567


33,019

Inventories 

287,740


289,712

Prepaid expenses and other current assets 

47,926


54,241

Total current assets 

421,023


448,643





Property, plant, and equipment: 




Land 

10,044


10,076

Buildings and improvements 

54,771


53,965

Leasehold improvements 

350,602


346,181

Fixtures and equipment 

428,539


421,912

Construction in progress 

15,428


8,242


859,384


840,376

Less accumulated depreciation and amortization 

359,988


338,149


499,396


502,227





Capitalized software, net of accumulated amortization of 




$17,991 and $17,325 at March 25, 2018 and 




December 31, 2017, respectively 

25,559


21,984

Other intangible assets, net 

360,927


362,536

Goodwill 

385,918


385,918

Equity investment in joint venture 

15,796


15,380

Other assets 

73,456


73,249

Total assets 

$        1,782,075


$              1,809,937









Liabilities and stockholders' equity




Current liabilities: 




Accounts payable 

$           220,690


$                 245,009

Accrued salaries and wages 

31,076


36,216

Accrued expenses 

107,801


100,639

Current portion of debt, less debt issuance costs

69,613


81,512

Total current liabilities 

429,180


463,376





Long-term debt, less debt issuance costs

618,194


617,867

Deferred income taxes 

37,793


38,095

Postretirement and postemployment benefits 

127,574


127,649

Other long-term liabilities 

170,235


159,904





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 - 74,212,215 and 74,120,113




  at March 25, 2018 and December 31, 2017, respectively

74


74

Additional paid-in capital 

509,654


506,098

Retained deficit

(85,254)


(78,160)

Accumulated other comprehensive loss

(25,375)


(24,966)

Total stockholders' equity 

399,099


403,046

Total liabilities and stockholders' equity 

$        1,782,075


$              1,809,937

 

Smart & Final Stores, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In Thousands)






Twelve Weeks Ended


March 25, 2018


March 26, 2017





Operating activities 




Net loss

$           (7,094)


$           (4,592)

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




Depreciation 

13,880


12,783

Amortization 

9,412


8,900

Amortization of debt discount and debt issuance costs 

459


445

Share-based compensation

3,285


1,814

Deferred income taxes

(257)


284

Equity in earnings of joint venture 

(577)


(167)

(Gain) loss on disposal of property, plant, and equipment 

(32)


21

Asset impairment 

1,425


325

Changes in operating assets and liabilities: 




Accounts receivable, net 

3,452


2,663

Inventories

1,972


12,020

Prepaid expenses and other assets 

7,520


(11,524)

Accounts payable 

(24,319)


(8,453)

Accrued salaries and wages 

(5,140)


(487)

Other accrued liabilities 

14,209


7,279

Net cash provided by operating activities 

18,195


21,311





Investing activities 




Purchases of property, plant, and equipment 

(25,478)


(24,570)

Proceeds from disposal of property, plant, and equipment 

33


1,785

Investment in capitalized software 

(3,523)


(4,524)

Other 

(19)


(55)

Net cash used in investing activities 

(28,987)


(27,364)





Financing activities




Proceeds from exercise of stock options

336


2,335

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

(65)


(106)

Fees paid in conjunction with debt financing

(31)


(31)

Borrowings on bank line of credit

27,000


28,000

Payments on bank line of credit

(39,000)


(22,000)

Cash received from landlord related to financing lease obligations

6,671


-

Stock repurchases

-


(5,995)

Net cash (used in) provided by financing activities

(5,089)


2,203





Net decrease in cash and cash equivalents

(15,881)


(3,850)

Cash and cash equivalents at beginning of period

71,671


54,235

Cash and cash equivalents at end of period

$           55,790


$           50,385





Cash paid during the period for:




Interest 

$             1,116


$             2,340





Non-cash investing and financing activities




Software development costs incurred but not paid

$             2,115


$                344

Construction in progress costs incurred but not paid

14,888


11,537

Property acquired through financing lease obligations

232


-

 

 Smart & Final Stores, Inc. and Subsidiaries 

 Segment Reporting 

 (In Thousands) 












 Smart & Final 


 Smart
Foodservice
Warehouse 


 Corporate /
Other 


 Consolidated 

Twelve Weeks Ended March 25, 2018 









Net sales 


$         795,192


$                  221,045


$                             -


$     1,016,237

Cost of sales, distribution and store occupancy 


678,615


189,471


1,889


869,975

Operating and administrative expenses 


109,569


17,796


20,065


147,430

Income (loss) from operations 


$             7,008


$                    13,778


$                 (21,954)


$          (1,168)



















Capital expenditures 


$           23,859


$                      1,270


$                     3,872


$          29,001





































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

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 (loss) before depreciation and amortization, interest expense and provision (benefit) for income tax, and adjusted EBITDA as EBITDA adjusted for the items set forth in the table below.  The Company defines adjusted net income (loss) as net income (loss) adjusted for the items set forth in the table below. The Company defines adjusted net income (loss) per share as adjusted net income (loss) divided by the weighted average basic shares outstanding. The Company defines adjusted net income (loss) per diluted share as adjusted net income (loss) 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 loss to EBITDA, adjusted EBITDA and adjusted net loss, and net loss per share to adjusted net income per share and adjusted net loss per diluted share, for the twelve-week period ended March 25, 2018.

 Smart & Final  Stores, Inc. and Subsidiaries 

 Reconciliation of Net Loss to Non-GAAP Adjusted Net Loss 

 (Unaudited) 

 (In Thousands, Except Share and Per Share Amounts) 






Twelve Weeks
Ended March 25,
2018


Twelve Weeks
Ended March 26,
2017

 Net loss 

$             (7,094)


$             (4,592)

 Income tax benefit 

(2,748)


(5,978)

 Loss before income taxes 

(9,842)


(10,570)





 Adjustments to net loss 




 Net loss from closed stores and exit costs (a) 

91


390

 Loss from asset dispositions (b) 

1,418


328

 Share-based compensation expense (c) 

3,285


1,815

 Non-cash rent (d) 

1,203


1,555

 Pre-opening costs (e) 

(69)


977

 Other items (f) 

-


56

 Adjusted income tax benefit 

1,092


3,935

 Adjusted net loss 

$             (2,822)


$             (1,514)





Adjusted Net Loss Per Share








Net loss per share - basic

$               (0.10)


$               (0.06)

Per share impact of net loss adjustments

0.06


0.04

Adjusted net loss per share - basic

$               (0.04)


$               (0.02)

Net loss per share - diluted

$               (0.10)


$               (0.06)

Per share impact of net loss adjustments

0.06


0.04

Adjusted net loss per share - diluted

$               (0.04)


$               (0.02)





Weighted average shares - basic

72,231,171


72,287,891

Weighted average shares - diluted

72,231,171


72,287,891

 

 Smart & Final  Stores, Inc. and Subsidiaries 

 Reconciliation of EBITDA to Adjusted EBITDA 

 (Unaudited) 

 (In Thousands) 






Twelve Weeks
Ended March 25,
2018


Twelve Weeks
Ended March 26,
2017

 Net loss 

$             (7,094)


$             (4,592)

 Depreciation and amortization  

23,292


21,683

 Interest expense, net 

9,251


8,174

 Income tax benefit 

(2,748)


(5,978)

 EBITDA 

22,701


19,287





 Adjustments to EBITDA 




 Net loss from closed stores and exit costs (a) 

91


390

 Loss from asset dispositions (b) 

1,418


328

 Share-based compensation expense (c) 

3,285


1,815

 Non-cash rent (d) 

1,203


1,555

 Pre-opening costs (e) 

(69)


977

 Other items (f) 

-


56

 Adjusted EBITDA 

$            28,629


$            24,408



(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 severance costs in the twelve week fiscal quarter ended March 26, 2017.

 

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SOURCE Smart & Final Stores, Inc.