99 Cents Only Stores Reports Strong Fourth Quarter And Full Year Fiscal 2017 Results

CITY OF COMMERCE, Calif., April 20, 2017 /PRNewswire/ --

Fourth Quarter Fiscal 2017 Overview:

• Net sales increased 6.7% to $552.5 million compared to the prior year
• Same-store sales increased by 6.4% compared to the prior year
• Gross margin, as a percentage of net sales, increased to 30.1%, up from 26.7% in the prior year
• Net loss was $20.9 million compared to net loss of $18.4 million in the prior year
• Adjusted EBITDA¹ was $23.4 million compared to $2.4 million in the prior year

Full-Year Fiscal 2017 Overview:

• Net sales increased 2.9% to $2,062.0 million compared to the prior year
• Same-store sales increased by 2.1% compared to the prior year
• Gross margin, as a percentage of net sales, increased to 29.2%, up from 28.1% in the prior year
• Net loss was $118.2 million compared to $248.0 million in the prior year
• Adjusted EBITDA increased 28% to $50.6 million compared to the prior year

99 Cents Only Stores LLC (the "Company") announced its financial results for the fourth quarter and full fiscal year of 2017 ended January 27, 2017 ("fiscal 2017").

Geoffrey Covert, President and Chief Executive Officer, stated, "We concluded fiscal 2017 with a strong fourth quarter driven by growth in same store sales, expanding margins and lower inventory levels. As a result, we continued to solidify 99 Cents Only Stores' liquidity position while generating significant year-over-year growth in adjusted EBITDA."

Mr. Covert continued, "Net sales for the fourth quarter were $552.5 million, up 6.7% over the prior year period. On a same-store basis, sales were up an impressive 6.4%, resulting from a 4.4% increase in basket, coupled with a 1.9% increase in transaction count. In addition, fourth quarter gross margin of 30.1% improved 340 basis points year-over-year, primarily due to our concerted efforts to improve shrink and scrap and execution in our logistics network. I am also pleased with our continued success in inventory management as total inventory declined on both a year-over-year and sequential quarter basis.  Importantly, adjusted EBITDA was $23.4 million for the fourth quarter compared to $2.4 million in the fourth quarter of last year.  For the full year, adjusted EBITDA of $50.6 million was up 28% compared to the prior year. We are encouraged by this result, which represents the reversal of a two-year decline in adjusted EBITDA."

Mr. Covert concluded, "Overall, fiscal 2017 was a very productive and transformative year for 99 Cents Only Stores and we head into fiscal 2018 as a financially stronger and more customer-focused enterprise. I am confident we can continue to build on the foundational strengths of our business to achieve our longer-term goal of sustained profitable growth."

Fourth Quarter Financial Results

For the fourth quarter of fiscal 2017, the Company's net sales increased 6.7% to $552.5 million, compared to $517.8 million in the fourth quarter of fiscal 2016. Same-store sales increased 6.4% compared to the fourth quarter of fiscal 2016, with higher average ticket of 4.4% in addition to higher customer traffic of 1.9%. The increase in same-store sales was primarily due to higher sales from seasonal merchandise, driven by improvements in product assortment and replenishment processes, as well as general merchandise, including strong sell-through of above $1 merchandise. In addition, sales of fresh offerings improved due to better product availability, improved in-stock levels and the expansion of the Company's third party distributor partnership. These improvements were partially offset by the ongoing deflationary environment in milk and eggs.

Gross margin, as a percentage of net sales, was 30.1% in the fourth quarter of fiscal 2017, an increase of 340 basis points from the fourth quarter of fiscal 2016. Gross margin increased primarily due to lower inventory shrinkage as well as lower distribution and transportation costs. Selling, general and administrative expenses were $172.6 million, or 31.2%, as a percentage of net sales, representing a decrease of 10 basis points from the fourth quarter of fiscal 2016. The improvement was primarily driven by a decrease in workers' compensation accrual partially offset by higher performance-based compensation expense and increases in the California minimum wage.

Net loss was $20.9 million in the fourth quarter of fiscal 2017 compared to net loss of $18.4 million in the fourth quarter of fiscal 2016. Net loss as a percentage of net sales was (3.8)% for the fourth quarter of fiscal 2017, compared to net loss as a percentage of net sales of (3.6)% for the fourth quarter of fiscal 2016.  Adjusted EBITDA was $23.4 million in the fourth quarter of fiscal 2017, compared to $2.4 million in the fourth quarter of fiscal 2016. Adjusted EBITDA margin was 4.2% compared to 0.5% in the fourth quarter of fiscal 2016.

Full Year Financial Results

For the full-year fiscal 2017, the Company's net sales increased 2.9% to $2,062.0 million, compared to $2,004.0 million in fiscal 2016. Same-store sales increased 2.1% driven by higher average ticket and traffic. Net loss was $118.2 million in fiscal 2017, compared to net loss of $248.0 million in fiscal 2016. Net loss as a percentage of net sales was (5.7)% in fiscal 2017, compared to net loss as a percentage of net sales of (12.4)% in fiscal 2016. Adjusted EBITDA was $50.6 million for the full-year fiscal 2017, compared to $39.5 million for fiscal 2016. Adjusted EBITDA margin was 2.5% for fiscal 2017, compared to 2.0% for fiscal 2016.

Average sales per store open at least 12 months, on a trailing 52-week period, were $5.2 million in fiscal 2017 compared to $5.1 million in fiscal 2016.  Average net sales per estimated saleable square foot (computed for stores open at least 12 months), on a trailing 52-week period, were $319 per square foot for fiscal 2017 compared to $314 per square foot for fiscal 2016.

Store Openings

The Company opened one store in the fourth quarter of fiscal 2017 and, as previously announced, closed five stores in California upon the expiration of their leases.  As of the end of the fourth quarter of fiscal 2017, the Company operated 390 stores.

Fiscal 2018 Outlook

For the fiscal year ended February 2, 2018 ("fiscal 2018"), the Company currently expects:

• Positive same-store sales growth
• Year-over-year decrease in net loss and an increase in adjusted EBITDA over the same period
• 3 new store openings, all in the second half of the year
• Capital expenditures of approximately $53-$58 million

Change of Prior Period Results

During the fourth quarter of fiscal 2017, the Company determined that deferred tax liabilities as of January 29, 2016 were overstated by $6.9 million and the deferred tax valuation allowance was understated by $6.9 million. The total net deferred tax balances as of January 29, 2016 and tax provision for fiscal 2017 were not affected by this error. The Company analyzed the impact of the $6.9 million deferred tax liability overstatement on the goodwill impairment charge recorded in fiscal 2016 and determined that the charge was understated by $6.7 million. The Company has included a correction in this release that decreased goodwill by $6.7 million as of January 29, 2016 and increased the goodwill impairment charge by the same amount for the fourth quarter and full-year fiscal 2016.

CONFERENCE CALL DETAILS
The Company's conference call to discuss its fiscal 2017 fourth quarter and full year results and the other matters described in this release is scheduled for Thursday, April 20, 2017 at 8:00 a.m. Pacific Time (11:00 a.m. Eastern Time).

The live call can be accessed by dialing 1-877-407-3982 (domestic) or 1-201-493-6780 (international). Please phone in approximately 10 minutes before the call is scheduled to begin and hold for an operator to assist you.  Please inform the operator that you are calling in for 99 Cents Only Stores' Fiscal 2017 Fourth Quarter and Full Year Earnings Conference Call, and be prepared to provide the operator with your name, company name, position and the conference ID: 13658711. The call will also be broadcast live over the Internet, accessible through the Investor Relations section of the Company's website at www.99only.com/investor-relations.

A telephonic replay of the call will be available beginning Thursday, April 20, 2017, at 2:00 p.m. Eastern Time, through Thursday, May 4, 2017, at 11:59 p.m. Eastern Time. To access the replay, dial 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and enter the replay pin number: 13658711. A replay of the webcast will also be available for 60 days upon completion of the conference call, accessible through the Investor Relations section of the Company's website at www.99only.com/investor-relations.

A copy of this earnings release and supplemental slides will be available prior to the call, accessible through the Investor Relations section of the Company's website at www.99only.com/investor-relations.

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 various items set forth in the reconciliation tables below, including stock-based compensation, impairment of goodwill and other assets, expenses, charges and reserves related to strategic initiatives and executive recruitment and severance, amortization of gain on sale-leaseback transactions, and other non-cash or one-time or other items as permitted by the terms of the Company's debt instruments.  Adjusted EBITDA margin is Adjusted EBITDA divided by total sales.  Adjusted EBITDA and Adjusted EBITDA margin as presented herein, are supplemental measures of the Company's 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 Adjusted EBITDA margin to assess its core operating 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 Adjusted EBITDA margin are not measures of the Company's 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, 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.

About 99 Cents Only Stores
Founded in 1982, 99 Cents Only Stores LLC is the leading operator of extreme value stores in California and the Southwestern United States. The Company currently operates 390 stores located in California, Texas, Arizona and Nevada. 99 Cents Only Stores LLC offers a broad assortment of name brand and other attractively priced merchandise and compelling seasonal product offerings. For more information, visit www.99only.com. 

Investor Contact:
Addo Investor Relations
Lasse Glassen
(424) 238-6249
lglassen@addoir.com

### Tables to Follow ###

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

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

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 January 29, 2016. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

SOURCE 99 Cents Only Stores