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

COMMERCE, Calif., July 25, 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 second quarter ended June 18, 2017.

Second Quarter Highlights:

• Net sales increase of 3.9% to $1,078.3 million
• Comparable store sales increase of 1.3%
• Net income of $7.1 million, or $0.09 per diluted share
• Adjusted net income of $11.0 million, or $0.14 per diluted share
• Adjusted EBITDA of $48.0 million

"The second quarter marked a return to positive comparable store sales growth, reflecting the expected lessening of pressures from deflation and growth-related sales cannibalization, as well as from customer growth attributable to our strong competitive position," said David Hirz, President and Chief Executive Officer.  "We expect sales growth will continue to be supported by the maturation of new stores opened over the past two years, as well as marketing and promotional initiatives aimed at increasing store traffic and building basket size."

Mr. Hirz added, "Smart & Final is well known for meeting the needs of both business and household customers with quality warehouse-club sized and private label products, plus a unique assortment of items for small businesses.  We have a differentiated position in our value-priced and convenient stores with strong digital capabilities.  With a broad range of online and delivery options to serve our customers, Smart & Final is well positioned for continued success in an evolving marketplace."

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 EBITDA, adjusted EBITDA, adjusted net income, adjusted net income per share, and adjusted net income per diluted share,  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 a non-GAAP adjusted basis.

Fiscal Second Quarter 2017 Financial Results
Net sales were $1,078.3 million in the 12-week quarter ended June 18, 2017, representing a 3.9% increase as compared to $1,038.3 million for the same period of 2016. Net sales growth was driven by a 1.3% increase in comparable store sales and from the net sales contribution of new stores. The increase in comparable store sales was attributable to a 1.9% increase in comparable transaction count, partially offset by a 0.6% decrease in comparable average transaction size, including the effect of cannibalization from new stores.

Net sales for Smart & Final banner stores were $836.1 million, a 3.0% increase as compared to $811.8 million for the same period of 2016. Comparable store sales growth for the Smart & Final banner was 1.2% in the second quarter.

Net sales for Cash & Carry banner stores were $242.2 million, a 6.9% increase as compared to $226.5 million for the same period of 2016. Comparable store sales growth for the Cash & Carry banner was 1.8% in the second quarter.

Gross margin was $162.3 million, a 3.2% increase as compared to $157.2 million in the second quarter of 2016. Gross margin rate was 15.0% as compared to 15.1% for the same period of 2016.

Operating and administrative expenses were $143.1 million, a 3.1% increase as compared to $138.8 million for the same period of 2016. This increase was primarily related to expenses associated with the 31 new stores that opened beginning in the second quarter of 2016 through the end of the second quarter of 2017 and related support costs.

Net income was $7.1 million, including the effect of store development expenses, as compared to $7.8 million for the same period of 2016. Net income per diluted share was $0.09 as compared to $0.10 for the same period of 2016.

Adjusted net income was $11.0 million, as compared to $15.5 million for the same period of 2016. Adjusted net income per diluted share was $0.14 as compared to $0.20 for the same period of 2016.

Adjusted EBITDA was $48.0 million as compared to $50.7 million for the same period of 2016.

Fiscal Year-to-date Financial Results
In the twenty-four weeks ended June 18, 2017, net sales were $2,045.3 million, an increase of 5.1% as compared to $1,946.7 million in the same period of 2016.  Net sales growth was driven by the net sales contribution of new stores, partially offset by a 0.5% decline in comparable store sales.  The decline in comparable store sales was attributable to a 0.8% increase in comparable transaction count and a 1.3% decrease in comparable average transaction size. 

Net sales for Smart & Final banner stores were $1,601.1 million, an increase of 5.3% as compared to $1,521.1 million in the first half of 2016. Year-to-date comparable store sales for the Smart & Final banner decreased 0.6%.

Net sales for Cash & Carry banner stores were $444.2 million, a 4.4% increase as compared to $425.7 million in the same period of 2016.  Year-to-date comparable store sales for the Cash & Carry banner decreased 0.2%.

Net income was $2.5 million, as compared to $6.2 million in the first half of 2016. Net income per diluted share was $0.03 as compared to $0.08 for the same period of 2016.

Adjusted net income was $9.5 million, as compared to $22.1 million in the first half of 2016. Adjusted net income per diluted share was $0.12 as compared to $0.28 in the same period of 2016.

Adjusted EBITDA was $72.4 million, as compared to $85.7 million in the same period of 2016.

Growth and Development
During the fiscal second quarter of 2017, the Company opened four new Smart & Final Extra! stores, completed one conversion of a legacy Smart & Final store to the Extra! format, and one relocation. The Company opened one new Cash & Carry store. As of June 18, 2017, the Company operated a total of 313 stores, including 180 Smart & Final Extra! stores, 72 legacy Smart & Final stores and 61 Cash & Carry stores.

Leverage and Liquidity
As of June 18, 2017, the Company's debt, net of debt issuance costs, was $665.7 million and cash and cash equivalents were $63.2 million.

As of June 18, 2017, the Company generated cash from operations of $95.1 million and invested $69.5 million in capital expenditures, primarily related to the development of Extra! format stores and to improvements of existing assets.

Outlook
The Company is maintaining its previously issued guidance framework for the full year ending December 31, 2017, while narrowing the guidance range for certain elements (as noted in bold type):

The above guidance includes certain non-GAAP financial measures (namely adjusted EBITDA, adjusted net income and adjusted net income per diluted share), 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 third quarter of fiscal year 2017, the Company expects to open 3 new Smart & Final Extra! stores and 2 new Cash & Carry stores.

Fiscal Second 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 second quarter 2017 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 8:00 p.m. Eastern Time, by dialing (844) 512-2921 (U.S.) or (412) 317-6671 (International) and entering the replay pin number: 13665867. The telephonic replay will be available until 11:59 p.m. Eastern Time, August 8, 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. The Company operates 314 grocery and foodservice stores under the "Smart & Final," "Smart & Final Extra!" and "Cash & Carry Smart Foodservice" banners in California, Oregon, Washington, Arizona, Nevada, Idaho, Montana 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 EBITDA and adjusted EBITDA, adjusted net income, adjusted net income per share, and adjusted net income per diluted share) 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 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.  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.

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 net income to EBITDA, adjusted EBITDA and adjusted net income, and net income per share to adjusted net income per share and adjusted net income per diluted share, for the twelve-week and twenty-four week periods ended June 18, 2017 and June 19, 2016.

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SOURCE Smart & Final Stores, Inc.