99 Cents Only Stores® Reports Fourth Quarter And Full-Year Fiscal 2013 Results

CITY OF COMMERCE, Calif., July 17, 2013 /PRNewswire/ -- 99¢ Only Stores® (the "Company") announced its financial results for the fourth quarter and full-year fiscal 2013 ended March 30, 2013.

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The Company's net sales increased $38.4 million, or 9.7%, to $434.8 million for the fourth quarter of fiscal 2013 compared to $396.4 million for the fourth quarter of fiscal 2012.  Same-store sales, calculated on a comparable 13-week period, increased 4.4%.  The Company's pro forma Adjusted EBITDA[1] was $40.9 million in the fourth quarter of fiscal 2013, compared to $40.6 million in the fourth quarter of fiscal 2012, and the Company's pro forma Adjusted EBITDA margin was 9.4% compared to 10.2% over the same period.

The Company's net sales increased $137.0 million, or 8.9%, to $1.67 billion for the full-year of fiscal 2013 compared to $1.53 billion for fiscal 2012.  Same-store sales, calculated on a comparable 52-week period, increased 4.3%.  The Company's pro forma Adjusted EBITDA was $162.9 million in fiscal 2013, an increase of $6.9 million, or 4.4%, compared to $156.0 million in fiscal 2012, and the Company's pro forma Adjusted EBITDA margin was 9.8% compared to 10.2% over the same period. Easter, a holiday that drives the Company's busiest selling week, occurred in calendar year 2012 on April 8 and in calendar year 2013 on March 31. As a result, the Company's fiscal 2013 included two Easter seasons compared to one Easter season in fiscal 2012, which the Company estimates accounted for approximately 50 basis points of same-store sales for fiscal 2013 and approximately 190 basis points of same-store sales in the fourth quarter of fiscal 2013.

As of the end of the fourth quarter of fiscal 2013, the Company's cash holdings were $45.5 million and total debt was $758.3 million, consisting of net borrowings of $508.3 million under the Company's first lien term loan facility and $250 million of the Company's 11% senior notes. There were no outstanding borrowings under the Company's revolving credit facility. 

During the fourth quarter of fiscal 2013, the Company opened seven stores in California.  As of March 30, 2013, the Company operated 316 stores, an increase of 6.0% in store count over last year. The gross and saleable retail square footage at the end of the fourth quarter were 6.63 million and 5.21 million, respectively.  This represents an increase of 5.4% and 5.3% for gross and saleable square footage, respectively, over last year.

For fiscal 2013, average annual sales per store for all stores open for at least 12 months, on a comparable 52-week period, were $5.3 million, compared to $5.2 million for fiscal 2012.  Fiscal 2013 average annual sales per estimated saleable square foot for all stores open for at least 12 months, on a comparable 52-week period, increased to $321, compared to fiscal 2012 average annual sales per estimated saleable square foot of $309 for all stores open for at least 12 months as of March 31, 2012.

In fiscal 2014, the Company currently intends to increase its store count by approximately 10%, all of which are expected to be opened in existing markets.

Previously Announced Accounting Items

As reported in the Company's Form 10-K for fiscal 2013, the Company is in the process of upgrading its systems for accounting for merchandise inventories.  Among other things, the Company is preparing to implement an SAP system that will enable the Company, for the first time, to track inventory at each of its retail stores on a perpetual basis by stock keeping unit (or SKU). The SAP implementation process will begin in fiscal 2014, with all stores expected to be included by the end of fiscal 2015.  In anticipation of the implementation of this system, during the second half of fiscal 2013 the Company performed physical counts and established inventory cost and retail by SKU at 81 of its more than 300 retail stores. In prior periods, the Company had originally determined the value of store level inventory by performing physical counts for each price point category and then converted those retail values to cost basis by applying a year-to-date cost percentage per store. For the 81 stores where the counts were taken by SKU, the Company determined total retail values by merchandise category and applied each category's cost percentage to determine the value of the inventory.  As a result of this analysis, the Company determined that single average cost percentage by store was not consistent with the inventory on hand at the applicable balance sheet date based on the higher turnover of low margin product.  As of March 30, 2013 and for all prior periods since Merger, the Company revised the calculation to include a year-to-date cost percentage per merchandise category applied to the estimated retail value for all stores by merchandise category. The result of the foregoing evaluation indicated an overstatement in total inventory of $13.3 million at the Merger date, and represents an amount that has accumulated over prior periods.

Management evaluated the materiality of this error quantitatively and qualitatively, and concluded that it was not material, to any prior period annual and quarterly financial statements.  However, because the adjustment to correct the error in fiscal 2013, would have had a material effect on the fiscal 2013 financial statements, the correction was reflected retroactively within the March 31, 2012 balance sheet, and the purchase price allocation as of the Merger date, which resulted in a $8.0 million increase to goodwill, a $5.3 million increase to deferred tax assets, and a $13.3 million decrease to inventories. The adjustments had no effect on the Company's prior statements of cash flows or statements of operations. 

As reported in the Company's 10-K for fiscal 2013, in the fourth quarter of fiscal 2013, the Company revised its inventory merchandising and liquidation philosophies to significantly reduce and liquidate slow moving inventories prospectively as directed by the current management team.  Based on these changes, the Company adjusted its excess and obsolescence reserve to include items that are at least twelve months old and that the Company does not expect to sell above cost within the next twelve months.  As a result of this change, the Company recorded a charge to cost of sales and corresponding reduction in inventory of approximately $9.1 million in the fourth quarter of fiscal 2013. This charge had no impact on Adjusted EBITDA or pro forma Adjusted EBITDA. This is a prospective change and did not have an effect on prior periods.

Additionally, as reported in the Company's Form 10-K for fiscal 2013, the Company undertook a review of accounting for put rights for former executives. Three former executives have the right to put common shares in the Company's parent for total consideration of $37.5 million per their employment agreements. This put terminates in January 2014, subject to extension, and the Company is required to satisfy the put only to the extent that doing so does not violate certain contracts including the ABL, term loan agreements and the bond indenture. The Company recorded a non-cash stock-based compensation expense of approximately $6.5 million in the fourth quarter of fiscal 2013 related to these put rights. This charge had no impact on Adjusted EBITDA or pro forma Adjusted EBITDA.

Q1 FY14 Store Openings

During the first quarter of fiscal 2014 ended June 29, 2013, the Company opened six stores, including three in California, two in Texas and one in Nevada.

Merger

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." As a result of the Merger, the accompanying financial information is presented for the "Predecessor" and "Successor" periods relating to the periods preceding and succeeding the Merger, respectively. Our fiscal year 2012 is presented in the tables at the end of this press release as a Successor period from January 15, 2012 to March 31, 2012 consisting of 11 weeks, plus a Predecessor period from April 3, 2011 to January 14, 2012 consisting of 41 weeks, for a total of 52 weeks. Our fourth quarter of fiscal year 2012 is presented in the tables at the end of this press release as a Successor period from January 15, 2012 to March 31, 2012 consisting of 11 weeks, plus a Predecessor period from January 1, 2012 to January 14, 2012 consisting of 2 weeks, for a total of 13 weeks. For comparison purposes, the discussion of operating results is based on the mathematical combination of the Successor and Predecessor periods in the fourth quarter and fiscal years ended March 31, 2012 compared to the fourth quarter ended March 30, 2013 and fiscal year 2013, which we believe provides a meaningful understanding of the underlying business.

CONFERENCE CALL DETAILS

The Company's conference call to discuss its fourth quarter and full-year fiscal 2013 ended March 30, 2013 and the other matters described in this release is scheduled for Thursday, July 18, 2013 at 9:30 a.m. Pacific time (12:30 p.m. Eastern time). 

The live Fourth Quarter Fiscal 2013 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 35291768.  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¢ Only Stores' Fourth Quarter Fiscal 2013 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, August 1, 2013, by dialing (888) 843-7419 from the U.S.A., or (630) 652-3042 from international locations, and entering confirmation code 35291768#.

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. In calculating pro forma Adjusted EBITDA, the Company reflects the impact of the Merger on the Company's historical financial performance for the periods presented.  Adjusted EBITDA and pro forma Adjusted EBITDA, as presented herein, are supplemental measures of our performance that are 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, Adjusted EBITDA and pro forma 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, Adjusted EBITDA and pro forma 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.

[1] "EBITDA," "Adjusted EBITDA" and "pro forma 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.

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

Founded in 1982, 99¢ Only Stores® operates 323 extreme value retail stores with 236 in California, 41 in Texas, 29 in Arizona and 17 in Nevada as of July 17, 2013. 99¢ Only Stores® 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. 

Contact: 99¢ Only Stores, (323) 980-8145

SOURCE 99 Cents Only Stores