Smart & Final Stores, Inc. : Reports First Quarter 2018 Financial Results

COMMERCE, Calif., May 2, 2018 /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 25, 2018.

First Quarter Highlights:

• Net sales increased 5.1% to $1,016.2 million with a comparable store sales increase of 1.2%
• Gross margin increased 9.9%
• Adjusted EBITDA increased 17.3% to $28.6 million
• Net loss of $7.1 million or $0.10 per share
• Adjusted net loss of $2.8 million or $0.04 per share
• Expanded Smart & Final banner online channels by adding the Shop Smart & Final mobile app
• Launching transition of Cash & Carry banner to "Smart Foodservice Warehouse Stores"

"There are a number of performance highlights to note in the quarter, including a year-over-year net sales increase of 5.1% and over 17% growth in adjusted EBITDA" said David Hirz, president and chief executive officer. "Despite continuing promotional activity within the grocery landscape, we were able to improve our gross margin rate driven by maturing new stores, merchandising initiatives aimed at both household and business customers, and the expansion of our marketing channels.  We've also been successfully growing our business customer sales, a key differentiator for us in the market."    

Mr. Hirz continued, "E-commerce sales increased over 85%, off a small base, and we have a robust plan for growing our e-commerce capabilities in both banners in 2018, with first quarter accomplishments including the launch of our Shop Smart & Final mobile app. We expect the development of our e-commerce and related offerings will support customer traffic, through both customer acquisition and retention, as adoption of this channel accelerates.  Finally, we're excited to announce the transition of the Cash & Carry Smart Foodservice banner to "Smart Foodservice Warehouse Stores", which we believe better supports our brand messaging and value proposition, and reflects how our customers view us in the market."

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 loss, adjusted net loss per share, and adjusted net loss 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 results below are first presented on a GAAP basis and then on a non-GAAP adjusted basis.

Fiscal First Quarter 2018 Financial Results
Net sales were $1,016.2 million in the 12-week quarter ended March 25, 2018, representing a 5.1% increase as compared to $967.0 million for the same period of 2017. Net sales growth was driven by a 1.2% increase in comparable store sales and by the net sales contribution of new stores. Comparable store sales growth was comprised of a 2.9% increase in comparable average transaction size, partially offset by a 1.7% decrease in comparable transaction count.

Net sales for Smart & Final banner stores were $795.2 million, a 4.0% increase as compared to $765.0 million for the same period of 2017. Comparable store sales growth for the Smart & Final banner was flat in the first quarter.

Net sales for Smart Foodservice Warehouse banner stores were $221.0 million, a 9.4% increase as compared to $202.0 million for the same period of 2017. Comparable store sales growth for the Smart Foodservice Warehouse banner was 5.8% in the first quarter.

Gross margin was $146.3 million, a 9.9% increase as compared to $133.1 million in the first quarter of 2017. Gross margin rate was 14.4% as compared to 13.8% for the same period of 2017.  Gross margin rate in the quarter was supported by our strategic sourcing, merchandising and pricing initiatives.

Operating and administrative expenses were $147.4 million, an 8.7% increase as compared to $135.7 million for the same period of 2017. This increase was related to expenses associated with the effect of higher minimum wages, the 15 new stores that opened following the first quarter of 2017 through the end of the first quarter of 2018 and related support costs.

Net loss was $7.1 million, or $0.10 per share, as compared to a net loss of $4.6 million, or $0.06 per share, for the same period of 2017.

Adjusted net loss was $2.8 million, or $0.04 per share, as compared to an adjusted net loss of $1.5 million, or $0.02 per share, for the same period of 2017.   

Adjusted EBITDA was $28.6 million, an increase of 17.3% as compared to $24.4 million for the same period of 2017.

Growth and Development
During the fiscal first quarter of 2018, the Company did not open any new stores.  Similar to 2017, store openings in 2018 are scheduled for the latter half of the year.  As of March 25, 2018, the Company operated a total of 323 stores, including 194 Smart & Final Extra! stores, 66 legacy format Smart & Final stores and 63 Cash & Carry Smart Foodservice stores.

Leverage and Liquidity
As of March 25, 2018, the Company's debt, net of debt issuance costs, was $687.8 million and cash and cash equivalents were $55.8 million.

For the twelve weeks ended March 25, 2018, the Company generated cash from operations of $18.2 million and invested $29.0 million in capital expenditures, primarily related to the improvement of existing assets.

Outlook
The Company is maintaining the previously issued guidance for the full year ending December 30, 2018:

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 $3.8 million, non-cash rent related to stores of approximately $2.9 million, share-based compensation expense of approximately $15.5 million, and $3.9 million of store closure expenses. 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.

Fiscal First Quarter 2018 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 2018 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 "For Investors" section of the Company's web site at www.smartandfinal.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: 13678813. The telephonic replay will be available until 11:59 p.m. Eastern Time, May 16, 2018.

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 25, 2018, the Company operated 323 grocery and foodservice stores under the "Smart & Final," "Smart & Final Extra!" and "Smart Foodservice Warehouse Stores" 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 146 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 (loss) before depreciation and amortization, interest expense and provision (benefit) for income tax, and adjusted EBITDA as EBITDA adjusted for the items set forth in the table below.  The Company defines adjusted net income (loss) as net income (loss) adjusted for the items set forth in the table below. The Company defines adjusted net income (loss) per share as adjusted net income (loss) divided by the weighted average basic shares outstanding. The Company defines adjusted net income (loss) per diluted share as adjusted net income (loss) 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 loss to EBITDA, adjusted EBITDA and adjusted net loss, and net loss per share to adjusted net income per share and adjusted net loss per diluted share, for the twelve-week period ended March 25, 2018.

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SOURCE Smart & Final Stores, Inc.