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smartfinalGrocery chain Smart & Final Stores Inc. reported financial results for the 13-week and 53-week periods ended Jan. 3, 2016.

 

Full Year Highlights:

* Net sales increased 12.4% to $3.97 billion

* Comparable store sales growth of 4.5%

* Net income of $38.3 million, or $0.50 per diluted share

* Adjusted net income increased 21.0% to $56.3 million, or $0.73 per diluted share

* Adjusted EBITDA increased 9.5% to $192.9 million

* 276 stores at year-end, including 127 Smart & Final Extra! stores

 

“2015 was an exceptional year for Smart & Final Stores,” said Mr. David Hirz, President and Chief Executive Officer. “Our focus on execution positioned us to deliver strong top-line sales growth and record bottom-line financial performance.  We completed our 2015 store development plan, which included expanding our Smart & Final Extra! store base by nearly 30% and adding two new Cash & Carry stores. Additionally, we continued the successful roll-out of key merchandising initiatives, which helped contribute to our 26th year of positive comparable store sales over the past 27 years.”

Mr. Hirz added, “We’ve set a new standard for growth at Smart & Final Stores and have made the necessary investments to support an accelerated pace of expansion in 2016. We plan to increase our Smart & Finalbanner store base by 15% this year, driven by the successful acquisition of 33 store leases and related assets in central and southern California previously operated under the Haggen banner.  In addition, we plan to open four to five new Cash & Carry stores in 2016.”

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.

 

Fourth Quarter Fiscal 2015 Financial Results

Net sales were $997.6 million, representing an 18.9% increase as compared to $839.3 million in the same period of 2014. An increase in net sales of $73.3 million was attributable to an additional week in the fourth quarter of 2015 as compared to the same period in 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 a 3.9% increase in comparable transaction count and a 0.4% decrease in comparable average transaction size, which was negatively impacted by deflation.

Net sales for Smart & Final banner stores were $780.6 million, a 21.1% increase as compared to $644.6 millionin the same period of 2014.  Comparable store sales growth for the Smart & Final banner was 4.1% in the fourth quarter.

Net sales for Cash & Carry banner stores were $217.0 million, an 11.5% increase as compared to $194.7 million in the same period of 2014.  Comparable store sales growth for the Cash & Carry banner was 1.7% in the fourth quarter.

Gross margin from operations was $147.9 million, an 18.3% increase as compared to $125.0 million in the same period of 2014. Gross margin rate in the fourth quarter was 14.8% as compared to 14.9% in the same period of 2014.

Operating and administrative expenses were $125.9 million, a 21.0% increase as compared to $104.0 million in the same period of 2014. This increase was primarily related to increased store development activities and increased public company costs.

Net income was $10.0 million, as compared to $9.3 million in the same period of 2014. Net income per diluted share was $0.13 as compared to $0.12 in the same period of 2014, and reflects an increase of approximately 1.3 million fully diluted shares.

Adjusted net income was $14.7 million, an increase of 19.5% as compared to $12.3 million for the same period of 2014. Adjusted net income per diluted share was $0.19 as compared to $0.16 in the same period of 2014, and reflects an increase of approximately 1.3 million fully diluted shares.

Adjusted EBITDA was $47.4 million, an increase of 14.7% as compared to $41.3 million in the same period of 2014.

 

Full Year Fiscal 2015 Financial Results

Net sales were $3,971.0 million for the 53 weeks ended January 3, 2016, representing a 12.4% increase as compared to $3,534.2 million in fiscal 2014.  An increase in net sales of $73.3 million was attributable to an additional week in fiscal 2015 as compared to 2014. Net sales growth was driven by a 4.5% increase in comparable store sales and from the net sales contribution of 22 new store openings in 2015. The growth in comparable store sales was comprised of a 4.4% increase in comparable transaction count and a 0.1% increase in comparable average transaction size.

Net sales for Smart & Final banner stores were $3,036.9 million, a 13.8% increase as compared to $2,668.9 million in fiscal 2014. Fiscal 2015 comparable store sales growth for the Smart & Final banner was 4.4%.

Net sales for Cash & Carry banner stores were $934.0 million, a 7.9% increase as compared to $865.3 millionin fiscal 2014.  Fiscal 2015 comparable store sales growth for the Cash & Carry banner was 4.5%.

Gross margin from operations was $598.9 million, an increase of $71.6 million, or 13.6%, as compared to$527.3 million in fiscal 2014. As a percentage of sales, gross margin rate for fiscal 2015 was 15.1% as compared to 14.9% in fiscal 2014.

Net income was $38.3 million, a 15.5% increase as compared to $33.1 million in fiscal 2014. Net income per diluted share was $0.50 as compared to $0.52 in fiscal 2014, and reflects an increase of approximately 13.3 million fully diluted shares, including shares issued in the Company’s September 2014 initial public offering (the “IPO”).

Adjusted net income was $56.3 million, an increase of 21.0% as compared to $46.5 million in fiscal 2014. Adjusted net income per diluted share was $0.73 in both fiscal 2015 and fiscal 2014, reflecting an increase of approximately 13.3 million fully diluted shares, including shares issued in the IPO.

Adjusted EBITDA was $192.9 million, an increase of 9.5% as compared to $176.1 million in fiscal 2014.

 

Growth and Development

During fiscal 2015, the Company opened 20 new Smart & Final Extra! stores and completed nine conversions of legacy Smart & Final stores to the Smart & Final Extra! format, including three store relocations. The Company also opened two new Cash & Carry stores. As of January 3, 2016, the Company operated a total of 127 Smart & Final Extra! and 94 legacy Smart & Final stores, and 55 Cash & Carry stores.

Operating Stores at Fiscal Year End

Smart & Final Banner Stores

Cash & Carry
Banner Stores

Total Company

Extra! format

Legacy format

Total

End of Fiscal 2014

98

103

201

53

254

New stores

20

20

2

22

Relocations, net

3

(3)

Conversions

6

(6)

End of Fiscal 2015

127

94

221

55

276

 

Leverage and Liquidity

At January 3, 2016, the Company’s debt, net of debt discount, was $595.1 million and cash and cash equivalents was $59.3 million.

In the 53-week period ended January 3, 2016, the Company generated cash from operations of $145.4 million. The Company invested $128.9 million in capital expenditures, primarily related to the development of Extra!format stores, and Cash & Carry stores and to improvements of existing assets. In the fourth quarter, the Company invested an additional $66.4 million in the acquisition of 33 store leases and related assets previously operated under the Haggen banner.

 

Outlook

Mr. Hirz added, “We look forward to building on our positive momentum in 2016. We have a strong team in place and the resources to execute our multi-year growth plan. As a result, we’re anticipating that 2016 will mark our 27th year of positive comparable store sales in the last 28 years.”

The Company is providing the following guidance for the 52 week, full year ending January 1, 2017:

Fiscal Year Ending January 1, 2017

Net sales growth

15% – 16%

Comparable store sales growth 

2.5% – 3.0%

Unit growth (net new stores)

33 Smart & Final Extra!

4 – 5 Cash & Carry

Relocations of existing stores to Extra! format

6 Smart & Final

Conversions of legacy stores to Extra! format

6 stores

Adjusted EBITDA

$205 – $210 million

Adjusted net income

$58 – $60 million  

Adjusted diluted EPS

$0.75 – $0.77

Capital expenditures 

$150 – $160 million

Basic weighted average shares

73.3 million

Fully diluted weighted average shares

77.6 million

In the first quarter of 2016, the Company expects to open 13 to 14 new Smart & Final Extra! stores and  complete two relocations of legacy Smart & Final stores to the Extra! format.  The Company additionally is providing first quarter 2016 guidance for comparable store sales growth of 2.00% to 2.25% and Adjusted EBITDA in the range of $34 to $36 million.

 

About Smart & Final

Smart & Final Stores, Inc. (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 145 years ago. As of January 3, 2016, the Company operated 276 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.

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