Market Overview

Smart & Final Stores, Inc. Reports Second Quarter 2015 Financial Results

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COMMERCE, Calif., July 22, 2015 /PRNewswire/ -- Smart & Final Stores, Inc. (the "Company") (NYSE: SFS) today reported financial results for the fiscal second quarter ended June 14, 2015.

Second Quarter Highlights:

  • Net sales increased 9.3% to $905.1 million
  • Comparable store sales growth of 3.5%
  • Net income of $11.0 million, or $0.14 per diluted share
  • Adjusted net income increased 14.2% to $16.9 million, or $0.22 per diluted share
  • Adjusted EBITDA increased 6.7% to $50.7 million
  • 263 stores at quarter-end, including 111 Smart & Final Extra! stores

"Smart & Final Stores had strong total sales growth of over 9% in the second quarter, led by solid growth in comparable store sales and the contribution from new stores," said Dave Hirz, President and Chief Executive Officer.  "While our average transaction size was impacted by deflation in a few product categories during the second quarter, gross margin rates remained strong and comparable transaction counts grew in both our Smart & Final and Cash & Carry store banners.  We continued our robust store growth with 13 Extra! format stores opened through the second quarter of 2015."   

Mr. Hirz continued, "As we expand, we have maintained a consistent focus on value – convenience – and quality – themes that continue to resonate with both our household and business customers.  We are on track to deliver our planned store growth for 2015 and advance our exciting merchandising and branding initiatives in the Smart & Final banner, and continue new store growth in the Cash & Carry banner." 

In order to aid understanding of the Company's business performance, it has presented results in conformity with accounting principles generally accepted in the United States ("GAAP") and has also presented adjusted net income, adjusted net income per share, adjusted net income per diluted share, EBITDA and adjusted EBITDA, which are non-GAAP measures that are explained and reconciled to the comparable GAAP measures in the tables included in this release. Where applicable, the numbers below are first presented on a GAAP basis and then on an adjusted basis.

Second Quarter Fiscal 2015 Financial Results
Net sales were $905.1 million, a 9.3% increase as compared to $828.1 million in the same period of 2014. Net sales growth was driven by a 3.5% increase in comparable store sales and from the net sales contribution of new stores. The growth in comparable store sales was comprised of approximately a 4.2% increase in comparable transaction count and a 0.6% decrease in comparable average transaction size.

Net sales for Smart & Final banner stores were $687.4 million, a 10.3% increase as compared to $623.1 million in the same period of 2014.  Comparable store sales growth for the Smart & Final banner was 3.2% in the second quarter.

Net sales for Cash & Carry banner stores were $217.8 million, a 6.2% increase as compared to $205.0 million in the same period of 2014.  Comparable store sales growth for the Cash & Carry banner was 4.7% in the second quarter.

Gross margin from operations was $141.6 million, a 10.5% increase as compared to $128.2 million in the same period of 2014. Gross margin rate in the second quarter was 15.6% as compared to 15.5% in the same period of 2014.

Operating and administrative expenses were $114.1 million, a 12.5% increase as compared to $101.5 million in the same period of 2014. This increase was primarily related to higher sales volumes, increased store support costs, additional marketing expense, and public company costs.

Net income was $11.0 million, as compared to $11.1 million in the same period of 2014. Net income per diluted share was $0.14 as compared to $0.19 in the same period of 2014, and reflects an increase of approximately 17.6 million fully diluted shares, including shares issued in the Company's September 2014 initial public offering.

Adjusted net income was $16.9 million, an increase of 14.2% as compared to $14.8 million for the same period of 2014. Adjusted net income per diluted share was $0.22 as compared to $0.25 in the same period of 2014, and reflects an increase of approximately 17.6 million fully diluted shares, including shares issued in the Company's September 2014 initial public offering.

Adjusted EBITDA was $50.7 million, an increase of 6.7% as compared to $47.5 million in the same period of 2014.

Fiscal Year-to-date Financial Results
Net sales were $1,727.3 million in the 24 weeks (two fiscal quarters) ended June 14, 2015, an increase of 10.5% as compared to $1,563.1 million in the same period of 2014.  Net sales growth was driven by a 4.8% increase in comparable store sales and from the net sales contribution of new stores.  The growth in comparable store sales was comprised of a 4.2% increase in comparable transaction count and a 0.6% increase in comparable average transaction size. 

Net sales for Smart & Final banner stores were $1,316.2 million, an 11.1% increase as compared to $1,185.0 million in the same period of 2014. Year-to-date comparable store sales growth for the Smart & Final banner was 4.0%.

Net sales for Cash & Carry banner stores were $411.1 million, an 8.7% increase as compared to $378.0 million in the same period of 2014.  Year-to-date comparable store sales growth for the Cash & Carry banner was 7.2%.

Net income was $15.9 million, an increase of 16.9% as compared to $13.6 million in the same period of 2014. Net income per diluted share was $0.21 as compared to $0.23 for the same period of 2014.

Adjusted net income was $24.6 million, an increase of 26.8% as compared to $19.4 million in the same period of 2014. Adjusted net income per diluted share was $0.32 as compared to $0.33 in the same period of 2014.

Adjusted EBITDA was $85.7 million, an increase of 10.3% as compared to $77.7 million in the same period of 2014.

Growth and Development
During the second quarter of fiscal 2015, the Company opened five new Smart & Final Extra! stores and completed four conversions of legacy Smart & Final stores to the Smart & Final Extra! format, including one store relocation. The Company also relocated one Cash & Carry store. As of June 14, 2015, the Company operated a total of 111 Smart & Final Extra! and 99 legacy Smart & Final stores, and 53 Cash & Carry stores.

Operating Stores at Quarter End (June 14, 2015)



 Smart & Final Banner Stores 






  Extra! format 


Legacy format


 Total 


Cash & Carry
Banner Stores


Total Company

End of Fiscal 2014

98


103


201


53


254

  New stores

9


-


9


-


9

  Relocations

1


(1)


-


-


-

  Conversions

3


(3)


-


-


-

End of 1st Quarter 2015

111


99


210


53


263

Consistent with prior guidance, during the remainder of fiscal 2015, the Company expects:

  • In the third quarter - to open six new Smart & Final Extra! stores, complete three conversions of legacy Smart & Final stores to the Extra! format, including one store relocation, and open one new Cash & Carry store.
  • In the fourth quarter - to open five additional new Smart & Final Extra! stores, complete two additional conversions of legacy Smart & Final stores to the Extra! format, including one store relocation, and open one new Cash & Carry store.

Leverage and Liquidity
At June 14, 2015, the Company's debt, net of debt discount, was $589.4 million and cash and cash equivalents was $121.4 million.

During the second quarter of fiscal 2015, the Company amended its Term Loan Facility to reduce the interest rate margin over the base rate by 0.50% and to reduce the base rate by 0.25%.  The November 15, 2019 maturity date remained unchanged. The Company expects that the reduced rates will result in lower cash interest costs of $3 to 4 million annually.

In the 24 weeks ended June 14, 2015, the Company generated cash from operations of $71.0 million. The Company invested a net amount of $53.9 million in capital expenditures, primarily related to the development of Extra! format stores, the relocation of one Cash & Carry store, and to improvements of existing assets.

Outlook
The Company is maintaining its previously issued outlook for the 2015 Fiscal Year (ending January 3, 2016):


Fiscal Year Ended January 3, 2016

Net sales growth

11% - 12%

Comparable store sales growth 

3.5% - 4.5%

Unit growth (net new stores)

20 Smart & Final Extra!

2 Cash & Carry

Relocations of existing stores

3 Smart & Final

1 Cash & Carry

Conversions of legacy stores to the Extra! format

6 stores

Adjusted EBITDA

$185 - $190 million

Adjusted net income

$51 - $53 million  

Adjusted diluted EPS

$0.67- $0.70

Capital expenditures 

$135 - $145 million

Basic weighted average shares

73.1 million

Fully diluted weighted average shares

76.6 million

Second Quarter 2015 Conference Call
The Company will host a conference call today at 1:30 p.m. PT / 4:30 p.m. ET to discuss its fiscal second quarter 2015 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 7:30 p.m. Eastern Time, by dialing (877) 870-5176 (U.S.) or (858) 384-5517 (International) and entering the replay pin number: 13613511.  The telephonic replay will be available until 11:59 p.m. Eastern Time, on Wednesday, August 5, 2015.

About Smart & Final
Smart & Final Stores, Inc. (NYSE: SFS), is a value-oriented food and everyday staples retailer that serves household and business customers. The Company is headquartered in Commerce (located in Los Angeles), CA, where it was founded over 140 years ago.  As of June 14, 2015, the Company operated 263 grocery and foodservice stores under the "Smart & Final", "Smart & Final Extra!" and "Cash & Carry Smart Foodservice" banners in California, Oregon, Washington, Arizona, Nevada, and Idaho, with an additional 15 stores in northern Mexico operated through a joint venture.

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 "Risk Factors," "Special Note Concerning Forward-Looking Statements," "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 14, 2015


June 15, 2014


June 14, 2015


June 15, 2014

















Net sales 

$     905,121


$     828,071


$   1,727,291


$   1,563,087

Cost of sales, buying and occupancy 

763,538


699,886


1,463,543


1,330,313

Gross margin 

141,583


128,185


263,748


232,774









Operating and administrative expenses 

114,131


101,491


221,082


193,849

Income from operations 

27,452


26,694


42,666


38,925









Interest expense, net 

7,676


8,922


15,674


17,758

Loss on early extinguishment of debt

2,192



2,192


Equity in earnings of joint venture 

392


262


907


714

Income before income taxes 

17,976


18,034


25,707


21,881









Income tax provision

(6,938)


(6,919)


(9,786)


(8,259)

Net income

$       11,038


$       11,115


$       15,921


$       13,622









Net income per share:








       Basic

$          0.15


$          0.19


$          0.22


$          0.24

       Diluted

$          0.14


$          0.19


$          0.21


$          0.23









Weighted average shares outstanding:








       Basic

73,090,917


57,259,361


73,087,600


57,215,276

       Diluted

76,893,066


59,312,773


76,773,674


59,303,031

 

Smart & Final Stores, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In Thousands, Except Share Amounts)










 June 14, 2015 


December 28, 2014


 (Unaudited) 



Assets 




Current assets: 




Cash and cash equivalents 

$        121,353


$              106,847

Accounts receivable, less allowances of $807 and $787 at 




June 14, 2015 and December 28, 2014, respectively 

21,366


23,666

Inventories 

214,566


223,404

Prepaid expenses and other current assets 

11,952


26,532

Deferred income taxes 

22,419


22,419

Total current assets 

391,656


402,868





Property, plant, and equipment: 




Land 

10,940


11,165

Buildings and improvements 

20,441


23,938

Leasehold improvements 

201,404


176,114

Fixtures and equipment 

232,316


203,473

Construction in progress 

12,133


7,344


477,234


422,034

Less accumulated depreciation and amortization 

141,502


115,350


335,732


306,684





Capitalized software, net of accumulated amortization of 




$10,936 and $9,486 at June 14, 2015 and 




December 28, 2014, respectively 

11,258


10,403

Other intangible assets, net 

323,586


325,289

Goodwill 

611,242


611,242

Deferred financing costs, net 

4,942


5,894

Equity investment in joint venture 

12,205


11,924

Other assets 

53,595


54,988

Total assets 

$     1,744,216


$            1,729,292









Liabilities and Stockholders' equity




Current liabilities: 




Accounts payable 

$        180,289


$              184,897

Accrued salaries and wages 

24,957


28,582

Accrued expenses 

74,624


72,667

Total current liabilities 

279,870


286,146





Long-term debt, less current portion and debt discount 

589,445


588,117

Deferred income taxes 

123,056


125,673

Postretirement and postemployment benefits 

125,145


127,004

Other long-term liabilities 

90,417


85,144





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 - 73,763,573 and 73,755,388 at June 14, 2015 and December 28, 2014, respectively

74


74

Additional paid-in capital 

494,604


489,550

Retained earnings

47,922


32,001

Accumulated other comprehensive loss

(6,317)


(4,417)

Total stockholders' equity 

536,283


517,208

Total liabilities and stockholders' equity 

$     1,744,216


$            1,729,292

 

Smart & Final Stores, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In Thousands)










 Twenty-four Weeks Ended 


 June 14, 2015 


 June 15, 2014 

Operating activities 




Net income 

$         15,921


$         13,622

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




Depreciation 

16,625


15,659

Amortization 

13,159


12,794

Amortization of deferred financing costs and debt discount 

1,293


1,534

Share-based compensation

4,903


1,740

Excess tax benefits related to share-based payments

(60)


(730)

Deferred income taxes

(1,878)


(696)

Equity in earnings of joint venture 

(907)


(714)

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

(26)


32

Asset impairment 

513


229

Loss on early extinguishment of debt

2,192


Changes in operating assets and liabilities: 




Accounts receivable, net 

2,300


(2,448)

Inventories, net 

8,838


6,182

Prepaid expenses and other assets 

14,558


5,312

Accounts payable 

(4,608)


11,089

Accrued salaries and wages 

(3,625)


(644)

Other accrued liabilities 

1,813


2,789

Net cash provided by operating activities 

71,011


65,750





Investing activities 




Purchases of property, plant, and equipment 

(59,350)


(47,478)

Proceeds from disposal of property, plant, and equipment 

8,091


20

Investment in capitalized software 

(2,674)


(968)

Other 

(1,304)


(36)

Net cash used in investing activities 

(55,237)


(48,462)





Financing activities




Issuance of common stock


79

Proceeds from exercise of stock options

107


450

Payment of minimum withholding taxes on net share settlement of stock option exercise and vested restricted stock

(17)


(2,667)

Fees paid in conjunction with debt financing

(1,204)


(170)

Payments on bank debt


(3,600)

Payments of IPO issuance costs

(214)


Excess tax benefits related to share-based payments

60


730

Contingent consideration related to acquisition of  Smart & Final Holdings Corp.


(248)

Net cash used in financing activities

(1,268)


(5,426)





Net increase in cash and cash equivalents

14,506


11,862

Cash and cash equivalents at beginning of period

106,847


53,699

Cash and cash equivalents at end of period

$        121,353


$         65,561





Cash paid during the period for:




Interest 

$         11,443


$         15,789

Income taxes

$           6,252


$           5,222





Non-cash investing and financing activities




Software development costs incurred but not paid

$                49


$              206

Construction in progress costs incurred but not paid

$         12,053


$         12,047

 

 Smart & Final Stores, Inc. and Subsidiaries 

 Segment Reporting 

 (In Thousands) 












 Smart & Final 


 Cash & Carry 


 Corporate / Other 


 Consolidated 

 Twelve Weeks Ended June 14, 2015 









 Net sales 


$       687,353


$       217,768


$              -


$      905,121

 Cost of sales, distribution and store occupancy 


574,217


187,208


2,113


763,538

 Operating and administrative expenses 


82,399


14,632


17,100


114,131

 Income (loss) from operations 


$         30,737


$         15,928


$   (19,213)


$        27,452



















 Capital expenditures 


$         33,183


$           2,641


$      1,817


$        37,641




























 Twelve Weeks Ended June 15, 2014 









 Net sales 


$       623,107


$       204,964


$             -


$      828,071

 Cost of sales, distribution and store occupancy 


520,907


177,058


1,921


699,886

 Operating and administrative expenses 


73,373


13,528


14,590


101,491

 Income (loss) from operations 


$         28,827


$         14,378


$   (16,511)


$        26,694



















 Capital expenditures 


$         32,865


$             253


$      1,084


$        34,202










 Twenty-four Weeks Ended June 14, 2015 









 Net sales 


$     1,316,189


$       411,102


$              -


$   1,727,291

 Cost of sales, distribution and store occupancy 


1,104,837


354,515


4,191


1,463,543

 Operating and administrative expenses 


160,646


28,519


31,917


221,082

 Income (loss) from operations 


$         50,706


$         28,068


$   (36,108)


$        42,666



















 Capital expenditures 


$         54,050


$           4,319


$       3,655


$        62,024




























 Twenty-four Weeks Ended June 15, 2014 









 Net sales 


$     1,185,048


$       378,039


$             -


$   1,563,087

 Cost of sales, distribution and store occupancy 


999,266


327,331


3,716


1,330,313

 Operating and administrative expenses 


140,960


25,829


27,060


193,849

 Income (loss) from operations 


$         44,822


$         24,879


$   (30,776)


$        38,925



















 Capital expenditures 


$         45,060


$             381


$       3,005


$        48,446

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 clarify and enhance understanding of its past performance. The Company defines adjusted net income as net income adjusted for the items set forth in the tables 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 tables below.

Use of these non-GAAP measures may differ from similar measures reported by other companies. Each of these non-GAAP measures has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of the Company's results as reported under GAAP.

The following tables present reconciliations of adjusted net income, EBITDA and adjusted EBITDA to net income, and adjusted net income per share and adjusted net income per diluted share to net income per share, for the twelve-week periods ended June 14, 2015 and June 15, 2014.

 Smart & Final Stores, Inc. and Subsidiaries 

 Reconciliation of EBITDA to Adjusted EBITDA 

 (Unaudited) 

 (In Thousands) 










 Twelve Weeks Ended 


 Twenty-four Weeks Ended 


June 14, 2015


June 15, 2014


June 14, 2015


June 15, 2014

 Net income 

$       11,038


$       11,115


$       15,921


$       13,622

 Depreciation and amortization  

15,282


14,434


29,783


28,453

 Interest expense, net 

7,676


8,922


15,674


17,758

 Income tax provision 

6,938


6,919


9,786


8,259

 EBITDA 

40,934


41,390


71,164


68,092









 Adjustments to EBITDA 








 Transaction costs (a) 

875


470


936


470

 Net loss from closed stores and exit costs (b) 

1,284


663


1,374


970

 Loss from asset dispositions (c) 

95


162


503


235

 Share-based compensation expense (d) 

2,519


1,741


4,903


1,741

 Non-cash rent (e) 

484


1,394


1,277


2,578

 Pre-opening costs (f) 

2,277


1,535


3,410


1,976

 Loss on extinguishment of debt (g) 

2,192


-


2,192


-

 Other items (h) 

25


145


(45)


1,672

 Adjusted EBITDA 

$       50,685


$       47,500


$       85,714


$       77,734

 

 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 


 Twenty-four Weeks Ended 


June 14, 2015


June 15, 2014


June 14, 2015


June 15, 2014

 Net income 

$       11,038


$       11,115


$       15,921


$       13,622

 Income tax provision 

6,938


6,919


9,786


8,259

 Net income before income taxes 

17,976


18,034


25,707


21,881









 Adjustments to Net Income 








 Transaction costs (a) 

875


470


936


470

 Net loss from closed stores and exit costs (b) 

1,284


663


1,374


970

 Loss from asset dispositions (c) 

95


162


503


235

 Share-based compensation expense (d) 

2,519


1,741


4,903


1,741

 Non-cash rent (e) 

484


1,394


1,277


2,578

 Pre-opening costs (f) 

2,277


1,535


3,410


1,976

 Loss on extinguishment of debt (g) 

2,192


-


2,192


-

 Other items (h) 

25


145


(45)


1,672

 Adjusted income tax provision 

(10,833)


(9,356)


(15,638)


(12,105)

 Adjusted net income 

$       16,894


$       14,788


$       24,619


$       19,418









Adjusted Net Income Per Share
















Net income per share - basic

$          0.15


$          0.19


$          0.22


$          0.24

Per share impact of net income adjustments

0.08


0.07


$          0.12


$          0.10

Adjusted net income per share - basic

$          0.23


$          0.26


$          0.34


$          0.34

Net income per share - diluted

$          0.14


$          0.19


$          0.21


$          0.23

Per share impact of net income adjustments

0.08


0.06


$          0.11


$          0.10

Adjusted net income per share - diluted

$          0.22


$          0.25


$          0.32


$          0.33









Weighted average shares - basic

73,090,917


57,259,361


73,087,600


57,215,276

Weighted average shares - fully diluted

76,893,066


59,312,773


76,773,674


59,303,031

 

(a) Represents costs primarily associated with the Company's secondary public offering that were charged to expense in the twelve and twenty-four weeks ended June 14, 2015 and the Company's initial public offering that were charged to expense in the twelve and twenty-four weeks ended June 15, 2014.

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

(c) Represents non-cash gain or 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 loss on the early extinguishment of debt in the twelve weeks ended June 14, 2015 in connection with an amendment to the Company's Term Loan Facility.

(h) Represents consulting expenses related to strategic growth initiatives for the twelve and twenty-four weeks ended June 15, 2014.

 

Smart & Final Stores, Inc. logo

Logo - http://photos.prnewswire.com/prnh/20140929/149066

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/smart--final-stores-inc-reports-second-quarter-2015-financial-results-300117289.html

SOURCE Smart & Final Stores, Inc.

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