UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

 

Date of report (Date of earliest event reported) March 13, 2019

 

SMART & FINAL STORES, INC.

(Exact Name of Registrant as Specified in Charter)

 

Delaware

 

001-36626

 

80-0862253

(State or Other Jurisdiction
of Incorporation)

 

(Commission
File Number)

 

(IRS Employer
Identification No.)

 

 

 

600 Citadel Drive, Commerce, CA

 

90040

 

 

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code (323) 869-7500

 

N/A

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

o        Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o        Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o        Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o        Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company   o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

 

 


 

Item 2.02                                           Results of Operations and Financial Condition.

 

On March 13, 2019, Smart & Final Stores, Inc. issued a press release announcing its financial results for the quarter and full year ended December 30, 2018.  The text of the press release is included as Exhibit 99.1 to this Form 8-K.

 

The information disclosed under this Item 2.02, including Exhibit 99.1 hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 and shall not be deemed incorporated by reference into any filing made under the Securities Act of 1933, except as expressly set forth by specific reference in such filing.

 

Item 9.01.                                        Financial Statements and Exhibits.

 

(d)                                                                                 Exhibits:

 

Exhibit Number

 

Description

 

 

 

99.1

 

Press Release, dated March 13, 2019

 

2


 

Exhibit Index

 

Exhibit Number

 

Description

99.1

 

Press Release, dated March 13, 2019

 

3


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

SMART & FINAL STORES, INC.

Date: March 13, 2019

 

 

 

 

By:

/s/ Richard N. Phegley

 

Name:

Richard N. Phegley

 

Title:

Executive Vice President and Chief Financial Officer

 

4


Exhibit 99.1

 

 

Smart & Final Stores, Inc. Reports Fourth Quarter and Full Year 2018 Financial Results

 

COMMERCE, Calif. (March 13, 2019) — Smart & Final Stores, Inc. (the “Company”) (NYSE:SFS), the value-oriented food and everyday staples retailer, today reported financial results for the fiscal fourth quarter and full year ended December 30, 2018.

 

Fourth Quarter Highlights:

 

·                  Net sales increased 3.2% to $1,102.4 million with a comparable store sales increase of 1.9%

·                  Gross margin increased 2.9% to $169.2 million

·                  Adjusted EBITDA of $41.5 million

·                  Net loss of $121.8 million or $1.66 per share, reflects non-cash valuation charges including goodwill impairment

·                  Adjusted net income of $6.0 million or $0.08 per share

 

“Our fiscal 2018 performance was solid, with 3.7% year-over-year sales growth, while facing an environment with low rates of product price inflation and rising operating costs that created significant headwinds to earnings growth.  In the fourth quarter we delivered our seventh consecutive quarter of positive comparable store sales, led by growth in both average transaction size and comparable transaction count, reflecting our unique assortment of business and club-pack items, our high-quality private label offerings, and convenient e-commerce options,” said David Hirz, president and chief executive officer of the Company.

 

Mr. Hirz, continued, “In 2019 we will continue to aggressively expand online options for both our small business and household customers, by introducing new e-commerce channels and order fulfillment options. Our vision will offer even greater levels of value and convenience to our target customers, at attractive economics, to capitalize on the significant growth in e-commerce that we continue to experience.”

 

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 results below are first presented on a GAAP basis and then on a non-GAAP adjusted basis.

 

Fiscal Fourth Quarter 2018 Financial Results

 

Net sales were $1,102.4 million in the 12-week quarter ended December 30, 2018, representing a 3.2% increase as compared to $1,067.9 million for the same period of 2017. Net sales growth was driven by a 1.9% increase in comparable store sales and from the net sales contribution of new stores. Comparable store sales growth was comprised of a 1.7% increase in comparable average transaction size and a 0.2% increase in comparable transaction count.

 

1


 

Net sales for Smart & Final banner stores were $864.4 million, a 2.7% increase as compared to $841.4 million for the same period of 2017. Comparable store sales growth for the Smart & Final banner was 1.3% in the fourth quarter.

 

Net sales for Smart Foodservice Warehouse banner stores were $238.0 million, a 5.0% increase as compared to $226.6 million for the same period of 2017. Comparable store sales growth for the Smart Foodservice Warehouse banner was 4.3% in the fourth quarter.

 

Gross margin was $169.2 million, a 2.9% increase as compared to $164.4 million in the fourth quarter of 2017. Gross margin rate was 15.3% as compared to 15.4% for the same period of 2017.

 

Operating and administrative expenses were $174.4 million, or $158.6 million excluding a store valuation impairment charge, a 7.8% increase as compared to $147.1 million for the same period of 2017. This increase was related to expenses associated with the effect of increased sales and higher wage rates, as well as new stores opened during the prior twelve months and their related support costs.

 

Interest expense in the fourth quarter was $10.7 million, a 23.0% increase as compared to $8.7 million in the prior year quarter, primarily driven by higher interest rates as well as interest expense related to accounting for build-to-suit store developments.

 

Net loss was $121.8 million, or $1.66 per diluted share, as compared to a net loss of $146.6 million, or $2.03 per diluted share, for the same period of 2017. These results include a goodwill impairment charge of $94.0 million related to the Company’s Smart & Final banner, store impairment charges of $12.5 million and valuation charges related to deferred tax assets of $13.1 million on an after-tax basis. This compares to a goodwill impairment charge of $180.0 million in the same period of 2017.

 

Adjusted net income was $6.0 million, or $0.08 per diluted share, as compared to adjusted net income of $11.3 million, or $0.15 per diluted share, for the same period of 2017.

 

Adjusted EBITDA was $41.5 million as compared to $49.1 million for the same period of 2017.

 

Fiscal 2018 Financial Results

 

In the fifty-two weeks ended December 30, 2018, net sales were $4,741.8 million, an increase of 3.7% as compared to $4,570.6 million in 2017. Net sales growth was driven in part by the net sales contribution of new stores and a 1.2% increase in comparable store sales. The increase in comparable store sales was attributable to a 2.3% increase in comparable average transaction size, partially offset by a 1.1% decrease in comparable transaction count.

 

Net sales for Smart & Final banner stores were $3,672.2 million, an increase of 3.2% as compared to $3,557.7 million in 2017. Full year 2018 comparable store sales for the Smart & Final banner increased 0.5%.

 

2


 

Net sales for Smart Foodservice Warehouse banner stores were $1,069.6 million, a 5.6% increase as compared to $1,012.9 million in 2017. Full year 2018 comparable store sales for the Smart Foodservice Warehouse banner increased 3.6%.

 

Net loss was $112.2 million, which included non-cash impairment and valuation charges of $119.6 million on an after-tax basis. This compares to a net loss of $138.9 million, which included a goodwill impairment charge of $180.0 million, in 2017. In fiscal 2017, the results included a non-cash net benefit of $27.0 million, as a result of the Tax Cuts and Jobs Act and other one-time items, primarily due to a lower valuation of net deferred tax liabilities. Net loss per share was $1.54 in 2018, as compared to $1.92 for 2017.

 

Adjusted net income was $31.4 million, as compared to $33.7 million in 2017. Adjusted net income per diluted share was $0.42, compared to $0.45 per diluted share in 2017.

 

Adjusted EBITDA was $181.8 million, as compared to $184.4 million in 2017.

 

Impairment and Valuation Charges

 

In the fourth quarter of 2018, the Company conducted an annual assessment of its goodwill as required under accounting standard ASC 350 resulting in an impairment of the Smart & Final banner goodwill in the amount of $94.0 million.  The Company also recorded impairment and other valuation charges of $25.6 million related to the recoverability of certain store fixed assets and deferred tax assets on an after-tax basis.

 

Growth and Development

 

During the fourth quarter of 2018, the Company opened one new Smart & Final Extra! store, relocated one legacy Smart & Final store to an Extra! format store and closed one legacy Smart & Final store whose lease was expiring. The Company also opened two new Smart Foodservice Warehouse stores during the fourth quarter. As of December 30, 2018, the Company operated a total of 326 stores, including 201 Smart & Final Extra! stores, 59 legacy format Smart & Final stores and 66 Smart Foodservice Warehouse stores.

 

Operating Stores at Fiscal Year End (December 30, 2018)

 

 

 

 Smart & Final Banner Stores

 

Smart
Foodservice
Warehouse

 

 

 

 

 

Extra!
format

 

Legacy
format

 

Total

 

Banner
Stores

 

Total
Company

 

End of Fiscal Year 2017

 

194

 

66

 

260

 

63

 

323

 

New stores

 

4

 

 

4

 

3

 

7

 

Relocations, net

 

3

 

(3

)

 

 

 

Conversions

 

 

 

 

 

 

Store closures

 

 

(4

)

(4

)

 

(4

)

End of Fiscal Year 2018

 

201

 

59

 

260

 

66

 

326

 

 

3


 

Leverage and Liquidity

 

As of December 30, 2018, the Company’s debt, net of debt issuance costs, was $648.3 million and cash and cash equivalents were $67.2 million.

 

During the fifty-two weeks ended December 30, 2018, the Company generated cash from operations of $141.2 million and invested $131.5 million in capital expenditures, primarily related to the improvement of existing assets and new stores.

 

As of December 30, 2018, the Company’s outstanding borrowings under its revolving credit facility were $30.0 million reflecting a reduction of $51.0 million for the fifty-two weeks ended December 30, 2018.

 

Outlook

 

The Company is providing the following guidance for the full year ending December 29, 2019:

 

 

 

Full Year 2019 Guidance

Net sales growth

 

2.5% - 3.5%

Comparable store sales growth

 

1.5% - 2.5%

Unit growth (new stores)

 

1 Smart & Final Extra! store
4 Smart Foodservice Warehouse stores

Relocations of legacy stores to Extra! format

 

1-2 Smart & Final stores

Adjusted EBITDA

 

$185 - $195 million

Adjusted net income

 

$32 - $36 million

Adjusted diluted EPS

 

$0.41 - $0.46

Capital expenditures (net)

 

$65 - $75 million

Fully diluted weighted average shares

 

77 to 78 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 $2.6 million, non-cash rent related to stores of approximately $1.5 million, share-based compensation expense of approximately $12.7 million, and $4.8 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.

 

Additionally, the Company is providing first quarter 2019 guidance for comparable store sales growth of 1.75% to 2.00% and adjusted EBITDA in the range of $25 to $28 million.

 

Fiscal Fourth 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 fourth quarter and full year 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.

 

4


 

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: 13687752. The telephonic replay will be available until 11:59 p.m. Eastern Time, March 27, 2019.

 

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 December 30, 2018, the Company operated 326 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 147 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.

 

INVESTOR CONTACTS:

Laura Bainbridge / Andrew Greenebaum

Addo Investor Relations

O: 310.829.5400

investors@smartandfinal.com

 

MEDIA CONTACT:

press@smartandfinal.com

 

5


 

Smart & Final Stores, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In Thousands, Except Share and Per Share Amounts)

 

 

 

Twelve Weeks Ended

 

Fifty-two Weeks Ended

 

 

 

December 30, 2018

 

December 31, 2017

 

December 30, 2018

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

1,102,382

 

$

1,067,908

 

$

4,741,772

 

$

4,570,565

 

Cost of sales, buying and occupancy

 

933,168

 

903,484

 

4,024,130

 

3,896,897

 

Gross margin

 

169,214

 

164,424

 

717,642

 

673,668

 

 

 

 

 

 

 

 

 

 

 

Operating and administrative expenses

 

174,414

 

147,057

 

682,306

 

621,078

 

Goodwill impairment

 

94,000

 

180,000

 

94,000

 

180,000

 

Loss from operations

 

(99,200

)

(162,633

)

(58,664

)

(127,410

)

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

10,738

 

8,732

 

42,903

 

36,470

 

Equity in earnings of joint venture

 

492

 

347

 

2,093

 

923

 

Loss before income taxes

 

(109,446

)

(171,018

)

(99,474

)

(162,957

)

 

 

 

 

 

 

 

 

 

 

Income tax (expense) benefit

 

(12,376

)

24,462

 

(12,681

)

24,043

 

Net loss

 

$

(121,822

)

$

(146,556

)

$

(112,155

)

$

(138,914

)

 

 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.66

)

$

(2.03

)

$

(1.54

)

$

(1.92

)

Diluted

 

$

(1.66

)

$

(2.03

)

$

(1.54

)

$

(1.92

)

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

73,479,152

 

72,068,998

 

72,890,501

 

72,352,102

 

Diluted

 

73,479,152

 

72,068,998

 

72,890,501

 

72,352,102

 

 

6


 

Smart & Final Stores, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Amounts)

 

 

 

December 30, 2018

 

December 31, 2017

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

67,217

 

$

71,671

 

Accounts receivable, less allowances of $100 and $177 at December 30, 2018 and December 31, 2017, respectively

 

36,771

 

33,019

 

Inventories

 

301,938

 

289,712

 

Prepaid expenses and other current assets

 

32,346

 

54,241

 

Total current assets

 

438,272

 

448,643

 

 

 

 

 

 

 

Property, plant, and equipment:

 

 

 

 

 

Land

 

9,734

 

10,076

 

Buildings and improvements

 

60,637

 

53,965

 

Leasehold improvements

 

367,820

 

346,181

 

Fixtures and equipment

 

450,267

 

421,912

 

Construction in progress

 

21,784

 

8,242

 

 

 

910,242

 

840,376

 

Less accumulated depreciation and amortization

 

428,095

 

338,149

 

 

 

482,147

 

502,227

 

 

 

 

 

 

 

Assets under capital leases

 

16,862

 

 

Capitalized software, net of accumulated amortization of $20,294 and $17,325 at December 30, 2018 and December 31, 2017, respectively

 

33,725

 

21,984

 

Other intangible assets, net

 

355,554

 

362,536

 

Goodwill

 

291,918

 

385,918

 

Equity investment in joint venture

 

17,468

 

15,380

 

Other assets

 

75,972

 

73,249

 

Total assets

 

$

1,711,918

 

$

1,809,937

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

239,668

 

$

245,009

 

Accrued salaries and wages

 

36,757

 

36,216

 

Accrued expenses

 

99,317

 

100,639

 

Current portion of debt, less debt issuance costs

 

29,095

 

81,512

 

Total current liabilities

 

404,837

 

463,376

 

 

 

 

 

 

 

Obligations under capital leases

 

17,177

 

 

Long-term debt, less debt issuance costs

 

619,204

 

617,867

 

Deferred income taxes

 

50,365

 

38,095

 

Postretirement and postemployment benefits

 

115,402

 

127,649

 

Other long-term liabilities

 

196,778

 

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 - 76,524,061 and 74,120,113 at December 30, 2018 and December 31, 2017, respectively

 

77

 

74

 

Additional paid-in capital

 

521,183

 

506,098

 

Retained deficit

 

(190,315

)

(78,160

)

Accumulated other comprehensive loss

 

(22,790

)

(24,966

)

Total stockholders’ equity

 

308,155

 

403,046

 

Total liabilities and stockholders’ equity

 

$

1,711,918

 

$

1,809,937

 

 

7


 

Smart & Final Stores, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In Thousands)

 

 

 

Fiscal Year

 

Fiscal Year

 

 

 

2018

 

2017

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

Net loss

 

$

(112,155

)

$

(138,914

)

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

 

 

 

 

 

Depreciation

 

58,703

 

58,589

 

Amortization

 

40,825

 

39,783

 

Amortization of debt discount and debt issuance costs

 

2,040

 

1,908

 

Share-based compensation

 

12,350

 

11,560

 

Deferred income taxes

 

11,414

 

(20,283

)

Equity in earnings of joint venture

 

(2,093

)

(923

)

Loss (gain) on disposal of property, plant, and equipment

 

667

 

(51

)

Asset impairment

 

19,115

 

1,796

 

Goodwill impairment

 

94,000

 

180,000

 

Dividend from joint venture

 

900

 

455

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable, net

 

(3,752

)

(2,988

)

Inventories

 

(12,226

)

(10,994

)

Prepaid expenses and other assets

 

26,323

 

405

 

Accounts payable

 

(5,341

)

19,782

 

Accrued salaries and wages

 

541

 

4,283

 

Other accrued liabilities

 

9,906

 

25,087

 

Net cash provided by operating activities

 

141,217

 

169,495

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Purchases of property, plant, and equipment

 

(116,172

)

(149,347

)

Proceeds from disposal of property, plant, and equipment

 

3,448

 

1,858

 

Investment in capitalized software

 

(18,738

)

(14,316

)

Other

 

(45

)

(782

)

Net cash used in investing activities

 

(131,507

)

(162,587

)

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Proceeds from exercise of stock options

 

3,401

 

4,228

 

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

 

(665

)

(1,850

)

Fees paid in conjunction with debt financing

 

(274

)

(245

)

Borrowings on bank line of credit

 

69,000

 

88,000

 

Payments on bank line of credit

 

(120,000

)

(71,000

)

Payment on promissory note

 

(1,775

)

 

Cash received from landlord related to financing lease obligations

 

36,149

 

4,268

 

Stock repurchases

 

 

(12,873

)

Net cash (used in) provided by financing activities

 

(14,164

)

10,528

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

(4,454

)

17,436

 

Cash and cash equivalents at beginning of period

 

71,671

 

54,235

 

Cash and cash equivalents at end of period

 

$

67,217

 

$

71,671

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

39,334

 

$

33,957

 

Income taxes

 

$

 

$

2

 

 

 

 

 

 

 

Non-cash investing and financing activities

 

 

 

 

 

Software development costs incurred but not paid

 

$

2,029

 

$

1,397

 

Construction in progress costs incurred but not paid

 

12,752

 

18,834

 

Property acquired through capital and financing lease obligations

 

18,030

 

7,135

 

 

8


 

Smart & Final Stores, Inc. and Subsidiaries

Segment Reporting

(In Thousands)

 

Twelve Weeks Ended December 30, 2018

 

Smart & Final

 

Smart
Foodservice

 

Corporate / Other

 

Consolidated

 

Net sales

 

$

864,413

 

$

237,969

 

$

 

$

1,102,382

 

Cost of sales, distribution and store occupancy

 

729,534

 

201,793

 

1,841

 

933,168

 

Operating and administrative expenses

 

132,563

 

20,596

 

21,255

 

174,414

 

Goodwill impairment

 

94,000

 

 

 

94,000

 

Income (loss) from operations

 

$

(91,684

)

$

15,580

 

$

(23,096

)

$

(99,200

)

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

10,758

 

$

8,636

 

$

7,920

 

$

27,314

 

 

Twelve Weeks Ended December 31, 2017

 

 

 

 

 

 

 

 

 

Net sales

 

$

841,354

 

$

226,554

 

$

 

$

1,067,908

 

Cost of sales, distribution and store occupancy

 

708,326

 

193,537

 

1,621

 

903,484

 

Operating and administrative expenses

 

111,834

 

17,212

 

18,011

 

147,057

 

Goodwill impairment

 

180,000

 

 

 

180,000

 

Income (loss) from operations

 

$

(158,806

)

$

15,805

 

$

(19,632

)

$

(162,633

)

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

40,814

 

$

1,269

 

$

3,996

 

$

46,079

 

 

Fifty-two Weeks Ended December 30, 2018

 

Smart & Final

 

Smart
Foodservice

 

Corporate / Other

 

Consolidated

 

Net sales

 

$

3,672,152

 

$

1,069,620

 

$

 

$

4,741,772

 

Cost of sales, distribution and store occupancy

 

3,103,847

 

911,809

 

8,474

 

4,024,130

 

Operating and administrative expenses

 

517,742

 

82,925

 

81,639

 

682,306

 

Goodwill impairment

 

94,000

 

 

 

94,000

 

Income (loss) from operations

 

$

(43,437

)

$

74,886

 

$

(90,113

)

$

(58,664

)

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

88,777

 

$

23,626

 

$

22,507

 

$

134,910

 

 

Fifty-two Weeks Ended December 31, 2017

 

 

 

 

 

 

 

 

 

Net sales

 

$

3,557,691

 

$

1,012,874

 

$

 

$

4,570,565

 

Cost of sales, distribution and store occupancy

 

3,020,204

 

868,544

 

8,149

 

3,896,897

 

Operating and administrative expenses

 

468,946

 

74,791

 

77,341

 

621,078

 

Goodwill impairment

 

180,000

 

 

 

180,000

 

Income (loss) from operations

 

$

(111,459

)

$

69,539

 

$

(85,490

)

$

(127,410

)

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

134,317

 

$

12,844

 

$

16,502

 

$

163,663

 

 

9


 

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 (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 as net income (loss) 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 loss to EBITDA, adjusted EBITDA and adjusted net income, and net loss per share to adjusted net income per share and adjusted net income per diluted share, for the twelve-week and fifty-two week periods ended December 30, 2018 and December 31, 2017.

 

Smart & Final  Stores, Inc. and Subsidiaries

Reconciliation of Net Loss to Non-GAAP Adjusted EBITDA

(Unaudited)

(In Thousands)

 

 

 

Twelve Weeks
Ended December
30, 2018

 

Twelve Weeks
Ended December
31, 2017

 

Fifty-two Weeks
Ended December
30, 2018

 

Fifty-two Weeks
Ended December
31, 2017

 

Net loss

 

$

(121,822

)

$

(146,556

)

$

(112,155

)

$

(138,914

)

Depreciation and amortization

 

23,215

 

23,324

 

99,528

 

98,373

 

Interest expense, net

 

10,737

 

8,732

 

42,902

 

36,470

 

Income tax expense (benefit)

 

12,377

 

(24,462

)

12,681

 

(24,043

)

EBITDA

 

(75,493

)

(138,962

)

42,956

 

(28,114

)

 

 

 

 

 

 

 

 

 

 

Adjustments to EBITDA

 

 

 

 

 

 

 

 

 

Net loss from closed stores and exit costs (a)

 

2,588

 

1,262

 

5,139

 

3,818

 

Goodwill impairment (b)

 

94,000

 

180,000

 

94,000

 

180,000

 

Loss from asset dispositions and impairment charges (c)

 

16,053

 

369

 

19,750

 

1,827

 

Share-based compensation expense (d)

 

2,293

 

3,057

 

12,351

 

11,560

 

Non-cash rent (e)

 

907

 

1,492

 

5,100

 

6,535

 

Pre-opening costs (f)

 

638

 

1,914

 

2,210

 

5,433

 

Other items (g)

 

550

 

(45

)

250

 

3,390

 

Adjusted EBITDA

 

$

41,536

 

$

49,087

 

$

181,756

 

$

184,449

 

 

10


 

Smart & Final  Stores, Inc. and Subsidiaries

Reconciliation of Net Loss to Non-GAAP Adjusted Net Income

(Unaudited)

(In Thousands, Except Share and Per Share Amounts)

 

 

 

Twelve Weeks
Ended December
30, 2018

 

Twelve Weeks
Ended December
31, 2017

 

Fifty-two Weeks
Ended December
30, 2018

 

Fifty-two Weeks
Ended December
31, 2017

 

Net loss

 

$

(121,822

)

$

(146,556

)

$

(112,155

)

$

(138,914

)

Income tax expense (benefit)

 

12,377

 

(24,462

)

12,681

 

(24,043

)

Loss before income taxes

 

(109,445

)

(171,018

)

(99,474

)

(162,957

)

 

 

 

 

 

 

 

 

 

 

Adjustments to net loss

 

 

 

 

 

 

 

 

 

Net loss from closed stores and exit costs (a)

 

2,588

 

1,262

 

5,139

 

3,818

 

Goodwill impairment (b)

 

94,000

 

180,000

 

94,000

 

180,000

 

Loss from asset dispositions and impairment charges (c)

 

16,053

 

369

 

19,750

 

1,827

 

Share-based compensation expense (d)

 

2,293

 

3,057

 

12,351

 

11,560

 

Non-cash rent (e)

 

907

 

1,492

 

5,100

 

6,535

 

Pre-opening costs (f)

 

638

 

1,914

 

2,210

 

5,433

 

Other items (g)

 

550

 

(45

)

250

 

3,390

 

Adjusted income tax provision (h)

 

(1,616

)

(5,731

)

(7,888

)

(15,951

)

Adjusted net income

 

$

5,968

 

$

11,300

 

$

31,438

 

$

33,655

 

 

 

 

 

 

 

 

 

 

 

Adjusted Net Income Per Share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share - basic

 

$

(1.66

)

$

(2.03

)

$

(1.54

)

$

(1.92

)

Per share impact of net income adjustments

 

1.74

 

2.19

 

1.97

 

2.39

 

Adjusted net income per share - basic

 

$

0.08

 

$

0.16

 

$

0.43

 

$

0.47

 

Net loss per share - diluted

 

$

(1.63

)

$

(1.99

)

$

(1.51

)

$

(1.85

)

Per share impact of net income adjustments

 

1.71

 

2.14

 

1.93

 

2.30

 

Adjusted net income per share - diluted

 

$

0.08

 

$

0.15

 

$

0.42

 

$

0.45

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares - basic

 

73,479,152

 

72,068,998

 

72,890,501

 

72,352,102

 

Weighted average shares - diluted

 

74,513,458

 

73,828,639

 

74,173,647

 

75,182,134

 

 


(a)  Represents costs associated with store closure and exit costs.

(b)  Represents non-cash charge associated with goodwill impairment.

(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 severance and legal costs in the twelve and fifty-two weeks ended December 30, 2018 and December 31, 2017.

(h)  Reflects exclusion of deferred tax assets valuation charge in the twelve and fifty-two weeks ended December 30, 2018.

 

11


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