2014

99 Cents Only Stores Reports Second Quarter And The First Half Of Fiscal 2014 Results

CITY OF COMMERCE, Calif., Nov. 6, 2013 /PRNewswire/ -- 99 Cents Only Stores LLC (the "Company") announced its financial results for the second quarter and the first half ended September 28, 2013.

The Company's net sales increased $50.5 million, or 12.9%, to $443.9 million for the second quarter of fiscal 2014 compared to $393.4 million for the second quarter of fiscal 2013.  Same-store sales, calculated on a comparable 13-week period, increased 5.9%.  The Company's Adjusted EBITDA[1] was $25.6 million in the second quarter of fiscal 2014, compared to $31.7 million in the second quarter of fiscal 2013, and the Company's Adjusted EBITDA margin was 5.8% compared to 8.1% over the same period.

The Company's net sales increased $83.5 million, or 10.5%, to $877.8 million for the first half of fiscal 2014 compared to $794.3 million for the first half of fiscal 2013.  Same-store sales, calculated on a comparable 26-week period, increased 4.5%.  The Company's Adjusted EBITDA was $61.0 million for the first half of fiscal 2014, compared to $70.9 million for the first half of fiscal 2013, and the Company's Adjusted EBITDA margin was 7.0% compared to 8.9% over the same period.

During the second quarter of fiscal 2014, the Company opened seven net new stores.  As of the end of the second quarter of fiscal 2014, the Company operated 329 stores, an increase of 8.6% in store count over last year. The gross and saleable retail square footage at the end of the second quarter were 6.87 million and 5.40 million, respectively.  This represents an increase of 7.7% and 7.6% for gross and saleable square footage, respectively, over last year.

In fiscal 2014, the Company expects to open 26 to 30 new stores, exclusively in existing markets. The Company to date has opened 13 net new stores in the first half of fiscal 2014.

CONFERENCE CALL DETAILS

The Company's conference call to discuss its second quarter and first half of fiscal 2014 ended September 28, 2013 and the other matters described in this release is scheduled for Thursday, November 7, 2013 at 11:00 a.m. Pacific time (2:00 p.m. Eastern time). 

The live Second Quarter Fiscal 2014 Earnings call can be accessed by dialing (888) 895-5479 from the U.S.A., or (847) 619-6250 from international locations, and entering confirmation code 36014968.  Please phone in approximately 9 minutes before the call is scheduled to begin and hold for a ConferencePlus operator to assist you.  Please inform the operator that you are calling in for 99 Cents Only Stores' Second Quarter Fiscal 2014 Earnings Release conference call, and be prepared to provide the operator with your name, company name, and position, if requested.  A telephone replay will be available approximately two hours after the call concludes and will be available through Thursday, November 21, 2013, by dialing (888) 843-7419 from the U.S.A., or (630) 652-3042 from international locations, and entering confirmation code 36014968#.

A copy of this earnings release and any other financial and statistical information about the period to be presented in the conference call will be available prior to the call at the section of the Company's website entitled "Investor Relations" at www.99only.com

Non-GAAP Financial Measures

The Company defines EBITDA as net income before interest expense (income) and other financial costs, income taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA for the relevant period as adjusted by the following amounts: non-cash  adjustments to reserve balances, stock-based compensation, fees and expenses related to the Merger, legal settlements, non-ordinary course store closures, and other non-cash or one-time items.  Adjusted EBITDA as presented herein, is a supplemental measure of the Company's performance that is not required by, or presented in accordance with, generally accepted accounting principles in the United States of America ("GAAP"). The Company's management uses EBITDA and Adjusted EBITDA to assess its performance and that of its competitors. In addition, Adjusted EBITDA is used to determine the Company's compliance and ability to take certain actions under the covenants contained in the Company's debt instruments. EBITDA and Adjusted EBITDA are not measures of our financial performance under GAAP and should not be considered in isolation or as alternatives to net income, operating income or any other performance measures derived in accordance with GAAP, as measures of operating performance or operating cash flows or as measures of liquidity.

Merger and Conversion to LLC

On January 13, 2012, 99¢ Only Stores was acquired by affiliates of Ares Management LLC and Canada Pension Plan Investment Board and the Gold-Schiffer family.  The acquisition is referred to as the "Merger." Effective October 18, 2013, 99¢ Only Stores converted from a California corporation to a California limited liability company, 99 Cents Only Stores LLC.  The term the "Company" refers to 99¢ Only Stores and its consolidated subsidiaries prior to the conversion date and to 99 Cents Only Stores LLC and its consolidated subsidiaries on or after the conversion date.

The following tables reconcile EBITDA and Adjusted EBITDA to net income for the periods indicated:


For the Second Quarter Ended


September 28,

2013

September 29,

2012


(In thousands)


(Unaudited)




Net income

$              5,467

$               210

Interest expense, net

15,174

15,502

(Benefit) provision for income taxes

(8,874)

214

Depreciation and amortization

16,127

14,373




EBITDA

$            27,894

$           30,299

Accrual adjustments (a)

(799)

(355)

Stock-based compensation (b)

(3,747)

801

Merger expenses (c)

355

Texas lease termination costs (d)

105

Purchase accounting effect on leases (e)

394

371

Executive related expenses (f)

1,449

Other (g)

389

123




Adjusted EBITDA

$            25,580

$          31,699




(a)

Represents non-cash adjustments to reserve balances related to merchandise accruals.

(b)

Represents stock-based compensation expense (credit) incurred in connection with various stock-based compensation plans in which certain Company employees have participated, and former executive put rights adjustment.

(c)

Represents professional fees incurred in connection with the Merger.

(d)

Represents expenses related to the non-ordinary course termination of leases for stores previously closed in Texas.

(e)

Represents purchase accounting effect on rent revenue and rent expense.

(f)

Represents CEO sign on bonus and other executive related expenses.

(g)

Represents the following non-cash or other charges and income: (a) for all periods, amortization of gains relates to sale-leaseback arrangements; (b) for all periods, net loss on the sale of non-core assets; (c) for fiscal 2013, charges related to an interest rate hedging loss; (d) for fiscal 2014, inventory project related expenses and real estate study fees; (e) for fiscal 2014, debt related expenses.

 

The following tables reconcile EBITDA and Adjusted EBITDA to net income for the periods indicated:


For the First Half Ended


September 28,

2013

September 29,

2012


(In thousands)


(Unaudited)




Net income (loss)

$              8,631

$          (4,681)

Interest expense, net

29,847

30,855

Benefit for income taxes

(7,124)

(2,574)

Depreciation and amortization

31,895

28,566




EBITDA

$            63,249

$          52,166

Accrual adjustments (a)

(781)

(1,050)

Stock-based compensation (b)

(5,318)

1,593

Merger expenses (c)

509

Texas lease termination costs (d)

(564)

210

Purchase accounting effect on leases (e)

747

781

Executive related expenses (f)

1,479

Loss on extinguishment of debt (g)

16,346

Other (h)

2,219

385




Adjusted EBITDA

$            61,031

$          70,940




(a)

Represents non-cash adjustments to reserve balances related to merchandise accruals.

(b)

Represents stock-based compensation expense (credit) incurred in connection with various stock-based compensation plans in which certain Company employees have participated, and former executive put rights adjustment.

(c)

Represents professional fees incurred in connection with the Merger.

(d)

Represents expenses (credits) related to the non-ordinary course termination of leases for stores previously closed in Texas.

(e)

Represents purchase accounting effect on rent revenue and rent expense.

(f)

Represents executive sign on bonus and other executive related expenses.

(g)

Represents loss on extinguishment of debt from the repricing of the first lien term loan facility in the first quarter of fiscal 2013.

(h)

Represents the following non-cash or other charges and income: (a) for all periods, amortization of gains relates to sale-leaseback arrangements; (b) for all periods, net loss on the sale of non-core assets; (c) for fiscal 2013, charges related to an interest rate hedging loss; (d) for fiscal 2014, inventory project related expenses and real estate study fees; (e) for fiscal 2014, debt related expenses.

 

99¢ ONLY STORES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)





September 28,

2013

March 30,

 2013


(Unaudited)


ASSETS



Current Assets:



Cash

$           77,378

$      45,476

Accounts receivable, net of allowance for doubtful accounts of $217 and $84 at September 28, 2013 and March 30, 2013, respectively

1,894

1,851

Income taxes receivable

3,775

3,969

Deferred income taxes

35,377

33,139

Inventories, net

197,464

201,601

Assets held for sale

2,106

2,106

Other

18,276

16,370




Total current assets

336,270

304,512

Property and equipment, net

481,476

476,051

Deferred financing costs, net

19,568

21,016

Intangible assets, net

468,322

471,359

Goodwill

479,745

479,745

Deposits and other assets

5,057

4,554




Total assets

$      1,790,438

$   1,757,237







LIABILITIES AND SHAREHOLDERS' EQUITY



Current Liabilities:



Accounts payable

$           73,280

$      50,011

Payroll and payroll-related

24,081

17,096

Sales tax

6,353

7,200

Other accrued expenses

40,391

29,695

Workers' compensation

37,215

39,498

Current portion of long-term debt

3,216

8,567

Current portion of capital lease obligation

86

83




Total current liabilities

184,622

152,150

Long-term debt, net of current portion

751,234

749,758

Unfavorable lease commitments, net

12,922

14,833

Deferred rent

9,649

4,823

Deferred compensation liability

1,070

1,153

Capital lease obligation, net of current portion

227

271

Long-term deferred income taxes

181,634

186,851

Other liabilities

6,660

8,428




Total liabilities

1,148,018

1,118,267




Commitments and contingencies 



Shareholders' Equity:



Preferred stock, no par value – authorized, 1,000 shares; no shares issued or outstanding

Common stock $0.01 par value – Class A authorized, 1,000 shares; issued and outstanding, 100 shares and Class B authorized, 1,000 shares; issued and outstanding, 100 shares at September 28, 2013 and March 30, 2013, respectively

Additional paid-in capital

649,106

654,424

Accumulated deficit

(5,571)

(14,202)

Other comprehensive loss

(1,115)

(1,252)




Total shareholders' equity

642,420

638,970




Total liabilities and shareholders' equity

$      1,790,438

$ 1,757,237




 

99¢ ONLY STORES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)





For the Second Quarter Ended

For the First Half Ended


September 28,

 2013

September 29,

2012

September 28,

 2013

September 29,

2012






Net Sales:





99¢ Only Stores

$           431,553

$         382,073

$           852,489

$        771,029

Bargain Wholesale

12,370

11,290

25,300

23,284






Total sales

443,923

393,363

877,789

794,313

Cost of sales (excluding depreciation and amortization expense shown separately below)

277,118

242,699

543,797

486,601






Gross profit

166,805

150,664

333,992

307,712

Selling, general and administrative expenses:





Operating expenses

138,911

120,362

270,743

239,133

Depreciation

15,685

13,931

31,011

27,683

Amortization of intangible assets

442

442

884

883






Total selling, general and administrative expenses

155,038

134,735

302,638

267,699






Operating income

11,767

15,929

31,354

40,013






Other (income) expense:





Interest income

(35)

(15)

(259)

Interest expense

15,174

15,537

29,862

31,114

Loss on extinguishment of debt

16,346

Other

3

67






Total other expense, net

15,174

15,505

29,847

47,268






(Loss) income before provision for income taxes

(3,407)

424

1,507

(7,255)

(Benefit) provision for income taxes

(8,874)

214

(7,124)

(2,574)






Net income (loss)

$              5,467

$               210

$           8,631

$           (4,681)






 

99¢ ONLY STORES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)




First Half Ended


September 28,

2013


September 29,

2012





Cash flows from operating activities:




Net income (loss)

$               8,631


$            (4,681)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:




Depreciation

31,011


27,683

Amortization of deferred financing costs and accretion of OID

2,212


2,059

Amortization of intangible assets

884


883

Amortization of favorable/unfavorable leases, net

242


91

Loss on extinguishment of debt


16,346

Loss on disposal of fixed assets

124


403

(Gain) loss on interest rate hedge

(114)


665

Deferred income taxes

(7,546)


Stock-based compensation

(5,318)


1,593





Changes in assets and liabilities associated with operating activities:




Accounts receivable

(43)


1,586

Inventories

4,137


(11,437)

Deposits and other assets

(2,492)


(3,874)

Accounts payable

18,874


9,047

Accrued expenses

16,834


6,358

Accrued workers' compensation

(2,283)


(1,186)

Income taxes

194


(13,347)

Deferred rent

4,826


2,362

Other long-term liabilities

(1,780)


(73)





 Net cash provided by operating activities

68,393


34,478









Cash flows from investing activities:




Purchases of property and equipment

(32,348)


(19,861)

Proceeds from sale of property and fixed assets

537


11,549

Purchases of investments


(449)

Proceeds from sale of investments


2,470





Net cash used in investing activities

(31,811)


(6,291)









Cash flows from financing activities:




Payment of debt

(4,639)


(2,618)

Payments of capital lease obligation

(41)


(38)

Payment of debt issuance costs


(11,230)





Net cash used in financing activities

(4,680)


(13,886)





Net increase in cash

31,902


14,301

Cash - beginning of period

45,476


27,766





Cash - end of period

$              77,378


$           42,067





 

Founded in 1982, the Company operates 333 extreme value retail stores with 239 in California, 44 in Texas, 33 in Arizona and 17 in Nevada as of November 6, 2013. The Company emphasizes quality name-brand consumables, priced at an excellent value, in convenient, attractively merchandised stores. Over half of the Company's sales come from food and beverages, including produce, dairy, deli and frozen foods, along with organic and gourmet foods. For more information, visit www.99only.com.

Safe Harbor Statement
The Company has included statements in this release that constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act, as amended, and Section 27A of the Securities Act of 1933, as amended. As a general matter, forward-looking statements are those focused on future or anticipated events or trends, expectations and beliefs including, among other things, (a) trends affecting the financial condition or results of operations of the Company and (b) the business and growth strategies of the Company (including the Company's store opening growth rate) that are not historical in nature. Such statements are intended to be identified by using words such as "believe," "expect," "intend," "estimate," "anticipate," "will," "project," "plan" and similar expressions in connection with any discussion of future operating or financial performance. Any forward-looking statements are and will be based upon the Company's then-current expectations, estimates and assumptions regarding future events and are applicable only as of the dates of such statements. Readers are cautioned not to put undue reliance on such forward-looking statements.  Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected in this release for the reasons, among others, discussed in the reports and other documents the Company files from time to time with the Securities and Exchange Commission, the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" sections contained in the Company's Annual Report on Form 10-K for the fiscal year ended March 30, 2013.  The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 


1

"EBITDA" and "Adjusted EBITDA" are financial measures that are considered "non-GAAP financial measures" under the Securities and Exchange Commission regulations.  The definitions of, an explanation of how and why the Company uses, and a reconciliation to the closest GAAP measure of these non-GAAP measures are included in this press release.

SOURCE 99 Cents Only Stores



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