Attached files
| file | filename |
|---|---|
| 8-K - 8-K - 99 CENTS ONLY STORES LLC | a14-20729_18k.htm |
Exhibit 99.1
99 CENTS ONLY STORES REPORTS SECOND QUARTER AND THE FIRST HALF OF FISCAL 2015 RESULTS
Second Quarter Fiscal 2015 Highlights:
· Net sales increased by 5.8% to $458.2 million
· Same-store sales increased by 0.1%
· Adjusted EBITDA(1) increased by 9.7% to $36.3 million
· Net income was $2.0 million versus $1.9 million in prior year
CITY OF COMMERCE, California — September 11, 2014 — 99 Cents Only Stores LLC (the “Company”) announced its financial results for the second quarter and first half of fiscal 2015 ended August 1, 2014. As previously announced, the Company changed its fiscal year from the Saturday closest to the end of March, to the Friday closest to the end of January, in order to be in line with its retail industry peers. As a result of the change in the Company’s fiscal year, the comparable interim prior year financial statements have been recast to conform to the new fiscal calendar.
Financial Results
For the second quarter of fiscal 2015, the Company’s net sales increased $25.1 million to $458.2 million, compared to $433.1 million in the second quarter of fiscal 2014. Same-store sales increased 0.1%, calculated on a comparable 13-week period of the prior year. Net income was $2.0 million in the second quarter of fiscal 2015, compared to net income of $1.9 million for the second quarter of fiscal 2014. Net income as a percentage of total sales was 0.4% for the second quarter of fiscal 2015 compared to net income of 0.4% for the second quarter of fiscal 2014. Adjusted EBITDA was $36.3 million in the second quarter of fiscal 2015, compared to $33.1 million in the second quarter of fiscal 2014. Adjusted EBITDA margin was 7.9%, compared to 7.6% over the same period.
For the first half of fiscal 2015, the Company’s net sales increased $57.7 million, to $936.1 million, compared to $878.4 million in the first half of fiscal 2014. Same-store sales decreased 0.3%, calculated on a comparable 26-week period of the prior year. Net income was $11.6 million in the first half of fiscal 2015, compared to net income of $2.8 million for the first half of fiscal 2014. Net income as a percentage of total sales was 1.2% for the first half of fiscal 2015, compared to net income of 0.3% for the first half of fiscal 2014. Adjusted EBITDA was $82.0 million in the first half of fiscal 2015, compared to $76.7 million in the first half of fiscal 2014. Adjusted EBITDA margin was 8.8%, compared to 8.7% over the same period.
(1) EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are financial measures that are considered “non-GAAP financial measures” under the Securities and Exchange Commission regulations. The definitions of, an explanation of how and why the Company uses, and a reconciliation to the most directly comparable GAAP measure of, these non-GAAP measures are included in this press release.
“We have been focusing over the past year to position 99 Cents Only Stores for sustainable, long term growth. We are encouraged by the early results of our global sourcing, Go Taller, and other business optimization initiatives,” said Stéphane Gonthier, CEO of the Company. “The short-term adverse impact of these initiatives, along with the impact of California’s drought on our ability to continually stock right-priced produce, has been a temporary drag on our overall results. However, we are pleased by our same store sales during the quarter — despite these disruptions — as well as the positive customer feedback we are receiving on these programs. We look forward to continuing to realize the benefits of the ongoing implementation of our strategic growth plan.”
Store Openings
During the second quarter of fiscal 2015, the Company opened four net new stores. As of the end of the second quarter of fiscal 2015, the Company operated 350 stores, an increase of 7.7% in store count over the end of the same period last year.
Change in Presentation of Financial Statements
In the first quarter of fiscal 2015, the Company changed the presentation of its financial statements to include receiving, distribution, warehouse costs and transportation to and from stores in its cost of sales. Previously, these costs were included in selling, general and administrative expenses. Depreciation expense related to these costs, which was historically included in selling, general and administrative expense, is now included in cost of sales. Also, depreciation and amortization expense included in selling, general and administrative expense will no longer be presented separately. Reclassifications of $24.4 million and $48.4 million from selling, general and administrative expense to cost of sales were made for the comparable second quarter of fiscal 2014 and first half of fiscal 2014, respectively, to conform to current year presentation. This change does not change previously reported operating income or net income.
This change in presentation of financial statements was made in order to be in line with the Company’s peers in the retail industry.
CONFERENCE CALL DETAILS
The Company’s conference call to discuss its second quarter and first half of fiscal 2015 ended August 1, 2014 and the other matters described in this release is scheduled for Thursday, September 11, 2014 at 8:00 a.m. Pacific time (11:00 a.m. Eastern time).
The live Second Quarter Fiscal 2015 Earnings call can be accessed by dialing (888) 895-5479 from the U.S.A., or (847) 619-6250 from international locations, and entering confirmation code 38046965. Please phone in approximately 9 minutes before the call is scheduled to begin and hold for an operator to assist you. Please inform the operator that you are calling in for 99 Cents Only Stores’ Second Quarter Fiscal 2015 Earnings conference call, and be prepared to provide the operator with your name, company name, and position, if requested. A telephone replay will be available approximately two hours after the call concludes and will be available through Thursday, September 25, 2014, by dialing (888) 843-7419 from the U.S.A., or (630) 652-3042 from international locations, and entering confirmation code 38046965#.
A copy of this earnings release and any other financial and statistical information about the period to be presented in the conference call will be available prior to the call at the section of the Company’s website entitled “Investor Relations” at www.99only.com.
Non-GAAP Financial Measures
The Company defines EBITDA as net income before interest expense (income) and other financial costs, income taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA for the relevant period as adjusted by the following amounts: non-cash adjustments to reserve balances, stock-based compensation, fees and expenses related to the Merger (as defined below), legal settlements, non-ordinary course store closures, and other non-cash or one-time items. Adjusted EBITDA margin is Adjusted EBITDA divided by total sales. Adjusted EBITDA and Adjusted EBITDA margin as presented herein, are supplemental measures of the Company’s performance that are not required by, or presented in accordance with, generally accepted accounting principles in the United States of America (“GAAP”). The Company’s management uses EBITDA, Adjusted EBITDA and Adjusted EBITDA margin to assess its performance and that of its competitors. In addition, Adjusted EBITDA is used to determine the Company’s compliance and ability to take certain actions under the covenants contained in the Company’s debt instruments. EBITDA, Adjusted EBITDA and Adjusted EBITDA margin are not measures of the Company’s financial performance under GAAP and should not be considered in isolation or as alternatives to net income, operating income or any other performance measures derived in accordance with GAAP, as measures of operating performance or operating cash flows or as measures of liquidity.
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.
Founded in 1982, the Company operates 354 extreme value retail stores with 252 in California, 48 in Texas, 35 in Arizona and 19 in Nevada as of September 11, 2014. The Company is an extreme value retailer of consumable and general merchandise and seasonal products. For more information, visit www.99only.com.
For further information:
Christopher A. Laurence
Interim Chief Financial Officer, Treasurer and Secretary
(323) 881-1293
chris.laurence@99only.com
The following tables reconcile EBITDA and Adjusted EBITDA to net income for the periods indicated:
|
|
|
For the Second Quarter Ended |
| ||||
|
|
|
August 1, |
|
July 27, |
| ||
|
|
|
(In thousands) |
| ||||
|
|
|
(Unaudited) |
| ||||
|
|
|
|
|
|
| ||
|
Net income |
|
$ |
2,039 |
|
$ |
1,870 |
|
|
Interest expense, net |
|
15,467 |
|
14,748 |
| ||
|
Provision for income taxes |
|
1,151 |
|
1,067 |
| ||
|
Depreciation and amortization |
|
13,109 |
|
15,872 |
| ||
|
EBITDA |
|
$ |
31,766 |
|
$ |
33,557 |
|
|
Accrual adjustments (a) |
|
— |
|
(188 |
) | ||
|
Stock-based compensation (b) |
|
739 |
|
(1,670 |
) | ||
|
Texas lease termination costs (c) |
|
— |
|
(564 |
) | ||
|
Purchase accounting effect on leases (d) |
|
406 |
|
373 |
| ||
|
Executive related expenses (e) |
|
— |
|
31 |
| ||
|
Other (f) |
|
3,401 |
|
1,557 |
| ||
|
Adjusted EBITDA |
|
$ |
36,312 |
|
$ |
33,096 |
|
(a) Represents non-cash adjustments to reserve balances related to merchandise accruals.
(b) Represents stock-based compensation expense (credit) incurred in connection with various stock-based compensation plans in which certain Company employees have participated.
(c) Represents expenses (credits) related to the non-ordinary course termination of leases for stores previously closed in Texas.
(d) Represents purchase accounting effect on rent revenue and rent expense.
(e) Represents executive relocation and other expenses.
(f) Represents the following non-cash or other charges and income: (a) for all periods, amortization of gain related to sale-leaseback arrangements; (b) for all periods, net gain/loss on the sale of non-core assets; (d) for fiscal 2015, severance charges, signing and retention bonuses, legal reserve adjustments and other; and (e) for fiscal 2014, inventory project related expenses.
The following tables reconcile EBITDA and Adjusted EBITDA to net income for the periods indicated:
|
|
|
For the First Half Ended |
| ||||
|
|
|
August 1, |
|
July 27, |
| ||
|
|
|
(In thousands) |
| ||||
|
|
|
(Unaudited) |
| ||||
|
|
|
|
|
|
| ||
|
Net income |
|
$ |
11,614 |
|
$ |
2,767 |
|
|
Interest expense, net |
|
30,896 |
|
29,730 |
| ||
|
Provision (benefit) for income taxes |
|
7,491 |
|
(2,288 |
) | ||
|
Depreciation and amortization |
|
25,740 |
|
31,346 |
| ||
|
EBITDA |
|
$ |
75,741 |
|
$ |
61,555 |
|
|
Accrual adjustments (a) |
|
— |
|
51 |
| ||
|
Stock-based compensation (b) |
|
1,402 |
|
(1,724 |
) | ||
|
Workers’ compensation adjustments (c) |
|
— |
|
4,675 |
| ||
|
Texas lease termination costs (d) |
|
— |
|
(513 |
) | ||
|
Purchase accounting effect on leases (e) |
|
870 |
|
710 |
| ||
|
CEO and other executive related expenses (f) |
|
— |
|
(1,638 |
) | ||
|
Impairment of asset held for sale (g) |
|
— |
|
515 |
| ||
|
Inventory adjustments (h) |
|
— |
|
10,671 |
| ||
|
Other (i) |
|
3,964 |
|
2,434 |
| ||
|
Adjusted EBITDA |
|
$ |
81,977 |
|
$ |
76,736 |
|
(a) Represents non-cash adjustments to reserve balances related to merchandise accruals.
(b) Represents stock-based compensation expense (credit) incurred in connection with various stock-based compensation plans in which certain Company employees have participated.
(c) Represents workers’ compensation accrual adjustments.
(d) Represents expenses (credits) related to the non-ordinary course termination of leases for stores previously closed in Texas.
(e) Represents purchase accounting effect on rent revenue and rent expense.
(f) Represents expenses (credits) related to severance for former executives, legal fees related to separation agreements and other executive related expenses.
(g) Represents charges related to impairment of an asset held for sale.
(h) Represents charges related to excess and obsolescence reserve and first-in, first-out price adjustment.
(i) Represents the following non-cash or other charges and income: (a) for all periods, amortization of gain related to sale-leaseback arrangements; (b) for all periods, net gain/loss on the sale of non-core assets; (c) for all periods, real estate related fees; (d) for fiscal 2015, severance charges, signing and retention bonuses, legal reserve adjustments and other; and (e) for fiscal 2014, restatement fees and inventory project related expenses.
99 CENTS ONLY STORES LLC
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
|
|
|
August 1, |
|
January 31, |
| ||
|
|
|
(Unaudited) |
|
|
| ||
|
ASSETS |
|
|
|
|
| ||
|
Current Assets: |
|
|
|
|
| ||
|
Cash |
|
$ |
15,644 |
|
$ |
34,842 |
|
|
Accounts receivable, net of allowance for doubtful accounts of $128 and $107 at August 1, 2014 and January 31, 2014, respectively |
|
1,691 |
|
1,793 |
| ||
|
Income taxes receivable |
|
2,794 |
|
4,498 |
| ||
|
Deferred income taxes |
|
46,953 |
|
46,953 |
| ||
|
Inventories, net |
|
251,800 |
|
206,244 |
| ||
|
Assets held for sale |
|
1,680 |
|
1,680 |
| ||
|
Other |
|
16,403 |
|
18,190 |
| ||
|
|
|
|
|
|
| ||
|
Total current assets |
|
336,965 |
|
314,200 |
| ||
|
Property and equipment, net |
|
529,864 |
|
485,046 |
| ||
|
Deferred financing costs, net |
|
16,982 |
|
18,526 |
| ||
|
Intangible assets, net |
|
463,323 |
|
466,311 |
| ||
|
Goodwill |
|
479,745 |
|
479,745 |
| ||
|
Deposits and other assets |
|
7,541 |
|
6,406 |
| ||
|
|
|
|
|
|
| ||
|
Total assets |
|
$ |
1,834,420 |
|
$ |
1,770,234 |
|
|
|
|
|
|
|
| ||
|
LIABILITIES AND MEMBER’S EQUITY |
|
|
|
|
| ||
|
Current Liabilities: |
|
|
|
|
| ||
|
Accounts payable |
|
$ |
106,494 |
|
$ |
71,057 |
|
|
Payroll and payroll-related |
|
19,313 |
|
24,461 |
| ||
|
Sales tax |
|
5,891 |
|
5,522 |
| ||
|
Other accrued expenses |
|
39,237 |
|
36,690 |
| ||
|
Workers’ compensation |
|
71,501 |
|
73,918 |
| ||
|
Current portion of long-term debt |
|
6,138 |
|
6,138 |
| ||
|
Current portion of capital lease obligation |
|
91 |
|
88 |
| ||
|
|
|
|
|
|
| ||
|
Total current liabilities |
|
248,665 |
|
217,874 |
| ||
|
Long-term debt, net of current portion |
|
846,817 |
|
849,252 |
| ||
|
Unfavorable lease commitments, net |
|
9,943 |
|
11,718 |
| ||
|
Deferred rent |
|
16,000 |
|
13,188 |
| ||
|
Deferred compensation liability |
|
1,195 |
|
1,142 |
| ||
|
Capital lease obligation, net of current portion |
|
150 |
|
197 |
| ||
|
Long-term deferred income taxes |
|
171,723 |
|
171,573 |
| ||
|
Other liabilities |
|
27,676 |
|
6,203 |
| ||
|
|
|
|
|
|
| ||
|
Total liabilities |
|
1,322,169 |
|
1,271,147 |
| ||
|
|
|
|
|
|
| ||
|
Commitments and contingencies |
|
|
|
|
| ||
|
Member’s Equity: |
|
|
|
|
| ||
|
Member units — 100 units issued and outstanding at August 1, 2014 and January 31, 2014 |
|
547,691 |
|
546,365 |
| ||
|
Investment in Number Holdings, Inc. preferred stock |
|
(19,200 |
) |
(19,200 |
) | ||
|
Accumulated deficit |
|
(15,073 |
) |
(26,687 |
) | ||
|
Other comprehensive loss |
|
(1,167 |
) |
(1,391 |
) | ||
|
|
|
|
|
|
| ||
|
Total equity |
|
512,251 |
|
499,087 |
| ||
|
|
|
|
|
|
| ||
|
Total liabilities and equity |
|
$ |
1,834,420 |
|
$ |
1,770,234 |
|
99 CENTS ONLY STORES LLC
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
(Unaudited)
|
|
|
For the Second Quarter Ended |
|
For the First Half Ended |
| ||||||||
|
|
|
August 1, |
|
July 27, |
|
August 1, |
|
July 27, |
| ||||
|
Net Sales: |
|
|
|
|
|
|
|
|
| ||||
|
99¢ Only Stores |
|
$ |
447,420 |
|
$ |
420,826 |
|
$ |
912,689 |
|
$ |
853,247 |
|
|
Bargain Wholesale |
|
10,787 |
|
12,321 |
|
23,415 |
|
25,115 |
| ||||
|
Total sales |
|
458,207 |
|
433,147 |
|
936,104 |
|
878,362 |
| ||||
|
Cost of sales |
|
310,453 |
|
290,237 |
|
631,224 |
|
598,702 |
| ||||
|
Gross profit |
|
147,754 |
|
142,910 |
|
304,880 |
|
279,660 |
| ||||
|
Selling, general and administrative expenses |
|
129,097 |
|
125,225 |
|
254,879 |
|
249,447 |
| ||||
|
Operating income |
|
18,657 |
|
17,685 |
|
50,001 |
|
30,213 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Other (income) expense: |
|
|
|
|
|
|
|
|
| ||||
|
Interest income |
|
— |
|
(10 |
) |
— |
|
(64 |
) | ||||
|
Interest expense |
|
15,467 |
|
14,758 |
|
30,896 |
|
29,794 |
| ||||
|
Other |
|
— |
|
— |
|
— |
|
4 |
| ||||
|
Total other expense, net |
|
15,467 |
|
14,748 |
|
30,896 |
|
29,734 |
| ||||
|
Income before provision for income taxes |
|
3,190 |
|
2,937 |
|
19,105 |
|
479 |
| ||||
|
Provision (benefit) for income taxes |
|
1,151 |
|
1,067 |
|
7,491 |
|
(2,288 |
) | ||||
|
Net income |
|
$ |
2,039 |
|
$ |
1,870 |
|
$ |
11,614 |
|
$ |
2,767 |
|
99 CENTS ONLY STORES LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
For the First Half Ended |
| ||||
|
|
|
August 1, |
|
July 27, |
| ||
|
|
|
|
|
|
| ||
|
Cash flows from operating activities: |
|
|
|
|
| ||
|
Net income |
|
$ |
11,614 |
|
$ |
2,767 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
|
Depreciation |
|
24,846 |
|
30,461 |
| ||
|
Amortization of deferred financing costs and accretion of OID |
|
2,178 |
|
2,205 |
| ||
|
Amortization of intangible assets |
|
894 |
|
885 |
| ||
|
Amortization of favorable/unfavorable leases, net |
|
329 |
|
198 |
| ||
|
(Gain) loss on disposal of fixed assets |
|
(32 |
) |
261 |
| ||
|
Loss (gain) on interest rate hedge |
|
683 |
|
(449 |
) | ||
|
Long-lived assets impairment |
|
— |
|
515 |
| ||
|
Deferred income taxes |
|
— |
|
(27,252 |
) | ||
|
Stock-based compensation |
|
1,402 |
|
(1,724 |
) | ||
|
|
|
|
|
|
| ||
|
Changes in assets and liabilities associated with operating activities: |
|
|
|
|
| ||
|
Accounts receivable |
|
102 |
|
(187 |
) | ||
|
Inventories |
|
(45,556 |
) |
25,206 |
| ||
|
Deposits and other assets |
|
795 |
|
(9,545 |
) | ||
|
Accounts payable |
|
33,663 |
|
2,925 |
| ||
|
Accrued expenses |
|
(2,232 |
) |
(7,873 |
) | ||
|
Accrued workers’ compensation |
|
(2,417 |
) |
1,425 |
| ||
|
Income taxes |
|
1,704 |
|
19,245 |
| ||
|
Deferred rent |
|
2,812 |
|
2,748 |
| ||
|
Other long-term liabilities |
|
(3,377 |
) |
3,578 |
| ||
|
|
|
|
|
|
| ||
|
Net cash provided by operating activities |
|
27,408 |
|
45,389 |
| ||
|
|
|
|
|
|
| ||
|
Cash flows from investing activities: |
|
|
|
|
| ||
|
Purchases of property and equipment |
|
(43,866 |
) |
(34,878 |
) | ||
|
Proceeds from sale of property and fixed assets |
|
27 |
|
15 |
| ||
|
|
|
|
|
|
| ||
|
Net cash used in investing activities |
|
(43,839 |
) |
(34,863 |
) | ||
|
|
|
|
|
|
| ||
|
Cash flows from financing activities: |
|
|
|
|
| ||
|
Payment of debt |
|
(3,069 |
) |
(5,948 |
) | ||
|
Payments of capital lease obligation |
|
(44 |
) |
(41 |
) | ||
|
Payments to repurchase stock options of Number Holdings, Inc. |
|
(76 |
) |
— |
| ||
|
Bank overdraft |
|
422 |
|
— |
| ||
|
|
|
|
|
|
| ||
|
Net cash used in financing activities |
|
(2,767 |
) |
(5,989 |
) | ||
|
|
|
|
|
|
| ||
|
Net (decrease) increase in cash |
|
(19,198 |
) |
4,537 |
| ||
|
Cash - beginning of period |
|
34,842 |
|
45,053 |
| ||
|
|
|
|
|
|
| ||
|
Cash - end of period |
|
$ |
15,644 |
|
$ |
49,590 |
|
* * * * *
Safe Harbor Statement
The Company has included statements in this release that constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act, as amended, and Section 27A of the Securities Act of 1933, as amended. As a general matter, forward-looking statements are those focused on future or anticipated events or trends, expectations and beliefs including, among other things, (a) trends affecting the financial condition or results of operations of the Company and (b) the business and growth strategies of the Company (including the Company’s store opening growth rate) that are not historical in nature. Such statements are intended to be identified by using words such as “believe,” “expect,” “intend,” “estimate,” “anticipate,” “will,” “project,” “plan” and similar expressions in connection with any discussion of future operating or financial performance. Any forward-looking statements are and will be based upon the Company’s then-current expectations, estimates and assumptions regarding future events and are applicable only as of the dates of such statements. Readers are cautioned not to put undue reliance on such forward-looking statements. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected in this release for the reasons, among others, discussed in the reports and other documents the Company files from time to time with the Securities and Exchange Commission, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections contained in the Company’s Transition Report on Form 10-K for the fiscal year ended January 31, 2014. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.