Smart & Final Stores, Inc. Reports First Quarter 2017 Financial Results

COMMERCE, Calif., May 3, 2017 /PRNewswire/ -- Smart & Final Stores, Inc. (the "Company") (NYSE:SFS), the value-oriented food and everyday staples retailer, today reported financial results for the fiscal first quarter ended March 26, 2017.

First Quarter Highlights:

• Net sales increase of 6.4% to $967.0 million
• Comparable store sales decrease of 2.5%, including impacts of deflation, cannibalization and adverse weather
• Net loss of $4.6 million, or $0.06 per diluted share
• Adjusted net loss of $1.5 million, or $0.02 per diluted share
• Adjusted EBITDA of $24.4 million

"The operating environment in the first quarter remained challenging, with lingering effects of deflation and cannibalization weighing on our sales performance and results of operations," said David Hirz, President and Chief Executive Officer. "Our ability to deliver first quarter net sales growth of 6% year-over-year, despite market conditions and severe weather in our market areas, highlights the effectiveness of our differentiated model, as a one-stop shop for our household and business customers, and our unique product assortment of private label, club sizes and high quality perishables.   In the second half of 2017, we expect deflationary and cannibalization pressures to alleviate, and with severe weather behind us, anticipate positive comparable store sales growth and improved financial comparisons."

Mr. Hirz added, "As we look beyond the current environment, we remain excited about the opportunity to grow and strengthen our two well-positioned store banners. During the first quarter, we opened two new Smart & Final Extra! stores and one new Cash & Carry store, and we are on track to open a total of 19 new stores in 2017.  Our pipeline of 2017 new stores provides us the opportunity to strengthen our presence in existing market areas, as well as introduce our brands to household and business customers in new communities."

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 (loss), adjusted net income (loss) per share, adjusted net income (loss) 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.

Fiscal First Quarter 2017 Financial Results
Net sales were $967.0 million in the 12-week quarter ended March 26, 2017, representing a 6.4% increase as compared to $908.5 million for the same period of 2016. Net sales growth was driven by the net sales contribution of new stores, partially offset by a 2.5% decrease in comparable store sales. The decrease in comparable store sales was attributable to a 0.4% decrease in comparable transaction count, including the effect of cannibalization from new stores, and a 2.1% decrease in comparable average transaction size, including the impact of deflation in key product categories in both store banners.

Net sales for Smart & Final banner stores were $765.0 million, a 7.8% increase as compared to $709.3 million for the same period of 2016. Comparable store sales for the Smart & Final banner decreased 2.5% in the first quarter.

Net sales for Cash & Carry banner stores were $202.0 million, a 1.5% increase as compared to $199.1 million for the same period of 2016. Comparable store sales for the Cash & Carry banner decreased 2.4% in the first quarter.

Gross margin from operations was $133.1 million, a 3.7% increase as compared to $128.4 million in the first quarter of 2016. Gross margin rate was 13.8% as compared to 14.1% for the same period of 2016.

Operating and administrative expenses were $135.7 million, an 8.5% increase as compared to $125.1 million for the same period of 2016. This increase was primarily related to expenses associated with 26 new stores opened over the prior 12 months and related support costs.

Net loss was $4.6 million, including the effect of store development expenses and an income tax benefit of $6.0 million, as compared to net loss of $1.6 million and an income tax benefit of $2.0 million for the same period of 2016. Net loss per diluted share was $0.06 as compared to $0.02 for the same period of 2016.

Adjusted net loss was $1.5 million as compared to adjusted net income of $6.6 million for the same period of 2016. Adjusted net loss per diluted share was $0.02 as compared to adjusted net income per diluted share of $0.08 for the same period of 2016.

Adjusted EBITDA was $24.4 million as compared to $35.0 million for the same period of 2016.

Growth and Development
During the fiscal first quarter of 2017, the Company opened two new Smart & Final Extra! stores and one new Cash & Carry store. As of March 26, 2017, the Company operated a total of 308 stores, including 174 Smart & Final Extra! stores, 74 legacy Smart & Final stores and 60 Cash & Carry stores.

Leverage and Liquidity
As of March 26, 2017, the Company's debt, net of debt issuance costs, was $685.4 million and cash and cash equivalents were $50.4 million.

As of March 26, 2017, the Company generated cash from operations of $21.3 million and invested $29.1 million in capital expenditures, primarily related to the development of Extra! format stores and to improvements of existing assets.

Outlook
The Company is maintaining the previously issued guidance for the full year ending December 31, 2017:

The above guidance includes certain non-GAAP financial measures (namely adjusted net income, adjusted net income per diluted share and adjusted EBITDA), which exclude certain costs and non-cash costs and provide investors with additional financial measures of the expected operating performance of the Company's business. The primary factors in reconciling these non-GAAP financial measures to comparable GAAP measures include the following: pre-opening costs associated with new stores of approximately $6 million, non-cash rent related to stores of approximately $4 million and share-based compensation expense of approximately $10 million. The other amounts needed to reconcile these non-GAAP financial measures to comparable GAAP measures cannot be quantified and are not available without an unreasonable effort.

In the second quarter of fiscal year 2017, the Company expects to open four new Smart & Final Extra! stores and one new Cash & Carry store.

Fiscal First Quarter Conference Call
The Company will host a conference call today at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time to discuss its fiscal first quarter 2017 financial results. To participate in the call, please dial (877) 423-9813 (U.S.) or (201) 689-8573 (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 8:00 p.m. Eastern Time, by dialing (844) 512-2921 (U.S.) or (412) 317-6671 (International) and entering the replay pin number: 13659241. The telephonic replay will be available until 11:59 p.m. Eastern Time, on Wednesday, May 17, 2017.

About Smart & Final
Smart & Final Stores, Inc. (NYSE: SFS), is a value-oriented food and everyday staples retailer, headquartered in Commerce (near Los Angeles), California. The Company offers quality products in a variety of sizes, saving household, nonprofit and business customers time and money. As of March 26, 2017, the Company operated 308 grocery and foodservice stores under the "Smart & Final," "Smart & Final Extra!" and "Cash & Carry Smart Foodservice" banners in California, Oregon, Washington, Arizona, Nevada, Idaho and Utah, with an additional 15 stores in Northwestern Mexico operated through a joint venture. In business for over 145 years, the Company remains committed to giving back to local communities through employee volunteer opportunities and Company donations to local nonprofits.

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 special note concerning "Forward-Looking Statements," "Risk Factors," "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.

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 evaluate our operating and financial performance and to compare such performance to that of prior periods. We also use these non-GAAP financial measures in making operational and financial decisions and in establishing operational goals. We believe that providing these non-GAAP financial measures to investors, as a supplement to GAAP financial measures, helps investors to (i) evaluate our operating and financial performance and future prospects, (ii) compare financial results across accounting periods, (iii) better understand the long-term performance of our core business and (iv) evaluate trends in our business, all consistent with how management evaluates such performance and movements. The Company defines adjusted net income as net income adjusted for the items set forth in the table 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 table 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 (loss), EBITDA and adjusted EBITDA to net loss, and adjusted net income (loss) per share and adjusted net income (loss) per diluted share to net loss per share, for the twelve week fiscal quarters ended March 26, 2017 and March 27, 2016.

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SOURCE Smart & Final Stores, Inc.