Third Quarter Fiscal 2016 Overview:
* Net sales increased 2.8% to $491.5 million in prior year
* Same-store sales decreased by 3.9%
* Adjusted EBITDA was $5.1 million compared to $27.1 million in prior year
* Net loss was $152.6 million compared to $3.8 million in prior year
* Felicia Thornton named permanent Chief Financial Officer & Treasurer
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99 Cents Only Stores LLC (the “Company”) announced its financial results for each of the quarter and nine months ended October 30, 2015.
Geoffrey Covert, President and Chief Executive Officer, stated, “With a new senior executive team now in place, we are aggressively identifying the issues that have led to our disappointing results in recent quarters. I see great possibilities for 99 Cents Only Stores and look forward to building on the foundational strengths of our business while providing the direction and discipline to return the organization to profitable growth. Our new leadership team is energized and working with a sense of urgency to address the challenges that we face and the opportunities that lie ahead. To this end, we are focused on improving the customer experience, reducing shrink and scrap, enhancing inventory management practices and getting the right products to the right stores at the right time. These priorities are designed to focus the organization and drive improvement in our financial and operational performance.”
Third Quarter Financial Results
For the third quarter of fiscal 2016, the Company’s net sales increased 2.8% to $491.5 million, compared to$478.3 million in the third quarter of fiscal 2015. Same-store sales decreased 3.9% due to lower customer traffic of 5.1%, partially offset by higher average ticket of 1.2%. Same store sales decline was primarily driven by challenges in produce and consumables sales, cannibalization impact of recent new store openings as well as ongoing initiatives to clear excess seasonal inventory.
Gross margin, as a percentage of net sales, was 26.8% in the third quarter of fiscal 2016, a decline of 460 basis points from the third quarter of fiscal 2015. Gross margin was negatively impacted by an increase in cost of goods sold, partially as a result of the Company’s ongoing initiatives to clear excess seasonal inventory, higher shrink & scrap as well as higher distribution costs. Selling, general and administrative expenses were $147.1 million, or 29.9% as a percentage of net sales, an increase of 60 basis points from the third quarter of fiscal 2015. The increase in selling, general and administrative expenses as a percentage of net sales was primarily driven by store level payroll and occupancy expenses, outside professional fees, depreciation and amortization and executive-related expenses, offset by a one-time impact of a $5.5 million gain on sale of excess warehousing capacity, which benefitted SG&A by approximately 110 basis points.
During the third quarter of fiscal 2016, the Company recorded a $120.0 million non-cash goodwill impairment charge relating to the retail reporting unit. The impairment determination was based primarily on significant declines in profitability in recent quarters and only a modest recovery to restore expected future operating results to historical levels, as well as a significant increase in the fair value of the Company’s tangible assets since the Merger. This is a preliminary estimate of the non-cash impairment charge and adjustments to the estimate may be recorded in the fourth quarter of fiscal 2016 as the Company finalizes the impairment review. The goodwill impairment charge did not adversely affect the Company’s debt position, cash flow, liquidity or compliance with financial covenants.
Net loss was $152.6 million in the third quarter of fiscal 2016 compared to $3.8 million for the third quarter of fiscal 2015. Net loss as a percentage of net sales was (31.1)% for the third quarter of fiscal 2016, compared to (0.8)% for the third quarter of fiscal 2015. Adjusted EBITDA was $5.1 million in the third quarter of fiscal 2016, compared to $27.1 million in the third quarter of fiscal 2015. Adjusted EBITDA margin was 1.0% compared to 5.7% over the same period.
Year-to-Date Financial Results
For the first nine months of fiscal 2016, the Company’s net sales increased 5.1% to $1,486.2 million, compared to $1,414.4 million in the first nine of fiscal 2015. Same-store sales decreased 2.5% due to lower customer traffic of 4.4%, partially offset by higher average ticket of 2.0%. Net loss was $229.6 million in the first nine months of fiscal 2016, compared to net income of $7.8 million for the first nine months of fiscal 2015. Net loss as a percentage of total sales was (15.4)% for the first nine months of fiscal 2016, compared to net income as a percentage of total sales of 0.6% for the first nine months of fiscal 2015. Adjusted EBITDA was $37.1 million in the first nine months of fiscal 2016, compared to $109.1 million for the first nine months of fiscal 2015. Adjusted EBITDA margin was 2.4% for the first nine months of fiscal 2016, compared to 7.7% over the same period in fiscal 2015.
Store Openings
During the third quarter of fiscal 2016, the Company did not open any new stores. As of the end of the third quarter of fiscal 2016, the Company operated 389 stores, an increase of 7.5% in store count over the end of the third quarter last year. Subsequent to the end of the quarter, two new stores were opened in California, bringing the total store count to 391.
Executive Appointment
Subsequent to the end of the third quarter, the Company appointed Felicia Thornton as Chief Financial Officer and Treasurer, responsible for overseeing finance, accounting, treasury, risk management, legal and IT functions. Ms. Thornton has extensive executive experience in retail, and particularly in the grocery store industry, having served in senior leadership positions at DSM, Inc., Albertsons, and The Kroger Company.
Merger and Conversion to LLC
On January 13, 2012, 99¢ Only Stores was acquired by affiliates of Ares Management LLC, Canada Pension Plan Investment Board and the Gold-Schiffer family. The acquisition is referred to as the “Merger.” Effective October 18, 2013, 99¢ Only Stores converted from a California corporation to a California limited liability company, 99 Cents Only Stores LLC. The term the “Company” refers to 99¢ Only Stores and its consolidated subsidiaries prior to the conversion date and to 99 Cents Only Stores LLC and its consolidated subsidiaries on or after the conversion date.
About 99 Cents Only Stores
Founded in 1982, the Company operates 391 extreme value retail stores with 283 in California, 49 in Texas, 38 in Arizona and 21 in Nevada as of December 14, 2015. The Company is an extreme value retailer of consumable and general merchandise and seasonal products. For more information, visit www.99only.com.
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4 Comments
Bye bye….soon to be 1.99 store
I wish they would change their name because it seems there are a lot more items that are more than 99.9 cents than not.
They need to remove the “only” in their name. I go to Dollar Tree because I don’t have to look for pricing. 99cent store does not price their shelf items that are more than 99 cents.
It’s because we havent gone together anymore Carissa Reyes Delahunty