Smart & Final Stores' Q4 Beat Overshadowed By Poor Guidance

Smart & Final Stores Inc (NYSE:SFS), a food retailer that sells fresh perishables and everyday grocery items, reported its fourth quarter results that exceeded Wall Street's expectations but a disappointing outlook prompted a downgrade.

The Analyst

Loop Capital Markets' Andrew Wolf downgraded Smart & Final Stores' stock from Buy to Hold with a price target lowered from $11 to $8.

The Thesis

Smart & Final's earnings report showed a sequential improvement in terms of earnings power as adjusted EBITDA and same-store sales exceeded the Street's estimates, Wolf said in the note. Specifically, adjusted EBITDA of $49.1 million was supported by a 75 percent year-over-year increase in cash provided by operations to $170 million. Same-store sales of 3.2 percent exceeded the 2.6 percent the Street was looking for and comparable transaction size gained 3.7 percent, which marks an improvement from 1.5 percent in the third quarter.

The report was overshadowed by management's 2018 adjusted EBITDA guidance of $180 million to $190 million, which implies no growth at the midpoint, the analyst wrote. The company guided for a 1 to 2 percent comparable-store sales growth as traffic worsened in the first quarter and inflation is moving lower.

This still implies a "relatively stable" outlook, but it also implies a "flat earnings growth" for 2018, the analyst said. As such, with limited visibility on the timing of any earnings growth int he future, a bullish stance is no longer justified at this time.

Price Action

Shares of Smart & Final Stores hit a new 52-week low of $5.75 Thursday and were trading glower by more than 16 percent on the day.

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