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

Sep 11, 2014

CITY OF COMMERCE, Calif., Sept. 11, 2014 /PRNewswire/ -- 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. 

99 Cents Only Stores LLC.

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 Stephane 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,

2014


July 27,

2013


(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,

2014


July 27,

2013


(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,

2014


January 31,

2014


(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,

 2014


July 27,

2013


August 1,

 2014


July 27,

2013









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.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,

2014


July 27,

2013





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. 

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SOURCE 99 Cents Only Stores