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

Jul 22, 2015, 16:01 ET from Smart & Final Stores, Inc.

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.

 

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SOURCE Smart & Final Stores, Inc.