99 Cents Only Stores Reports First Quarter Fiscal 2016 Results

First Quarter Fiscal 2016 Highlights:

- Net sales increased by 5.9% to $506.2 million

- Opened three net new stores

- Same-store sales decreased by 1.7%

- Adjusted EBITDA(1) was $25.0 million versus $45.7 million in prior year

- Net income was $1.2 million versus net income of $9.6 million in prior year

Jun 12, 2015

CITY OF COMMERCE, Calif., June 12, 2015 /PRNewswire/ -- 99 Cents Only Stores LLC (the "Company") announced its financial results for the first quarter of fiscal 2016 ended May 1, 2015.

99 Cents Only Stores LLC

Financial Results

For the first quarter of fiscal 2016, the Company's net sales increased $28.3 million, to $506.2 million, compared to $477.9 million in the first quarter of fiscal 2015. Same-store sales decreased 1.7%, from lower customer traffic partially offset by higher average ticket. Same store sales performance experienced continued strength in seasonal and general merchandise categories, offset by challenges in consumables.

Gross margin, as a percentage of net sales, was 30.9% in the first quarter of fiscal 2016, a decline of 200 basis points from the first quarter of fiscal 2015.  Gross margin was negatively impacted by greater levels of promotional activities, higher inventory shrinkage and scrap, and additional distribution expenses.  Selling, general and administrative expenses as a percentage of net sales was 29.7% in the first quarter of fiscal 2016, an increase of 340 basis points from the first quarter of fiscal 2015. Selling, general and administrative expenses as a percentage of net sales increase was primarily driven by store level payroll-related and occupancy expenses, depreciation and amortization and advertising costs.  Selling, general and administrative expenses as a percentage of net sales was negatively impacted by the recent opening of 40 net new stores since the same period of last year and an increase in minimum wage in California. 

Net income was $1.2 million in the first quarter of fiscal 2016 compared to net income of $9.6 million for the first quarter of fiscal 2015.  Net income as a percentage of net sales was 0.2% for the first quarter of fiscal 2016, compared to net income of 2.0% for the first quarter of fiscal 2015.  Adjusted EBITDA was $25.0 million in the first quarter of fiscal 2016, compared to $45.7 million in the first quarter of fiscal 2015.  Adjusted EBITDA margin was 4.9% compared to 9.6% over the same period. 

Commenting on the results, Andrew Giancamilli, Interim President and CEO stated, "While we are disappointed with the financial results of this past quarter, we remain confident that the core business strategy of 99 Cents Only Stores remains strong.  We have clearly identified the challenges underpinning our first quarter results and are taking specific actions that we expect to drive near-term performance improvements.  Over the past 18 months, we have undertaken some aggressive growth initiatives – including expanding our store network, enhancing our overall product offering, upgrading back office functions of the business by investing in technology and human capital, and the opening of new distribution centers.  Now, the Company is focused on operational execution in order to capitalize on these initiatives and the continued efforts of our dedicated employees and senior management team to expand the potential of our unique brand."

Store Openings

During the first quarter of fiscal 2016, the Company opened three net new stores.  As of the end of the first quarter of fiscal 2016, the Company operated 386 stores, an increase of 11.6% in store count over the same period last year.  Total net selling square footage was 6.2 million as of the end of first quarter of fiscal 2016, an increase of 9.7% over the same period last year.

CONFERENCE CALL DETAILS

The Company's conference call to discuss its first quarter of fiscal 2016 ended May 1, 2015 and the other matters described in this release is scheduled for Friday, June 12, 2015 at 8:00 a.m. Pacific time (11:00 a.m. Eastern time). 

The live First Quarter Fiscal 2016 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 39927127.  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' First Quarter Fiscal 2016 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 Friday, June 26, 2015, by dialing (888) 843-7419 from the U.S.A., or (630) 652-3042 from international locations, and entering confirmation code 39927127#.

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 387 extreme value retail stores with 280 in California, 49 in Texas, 37 in Arizona and 21 in Nevada as of June 11, 2015. The Company is an extreme value retailer of consumable and general merchandise and seasonal products.   For more information, visit www.99only.com.






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.

For further information:

Bradley Lukow, CPA, CA
Chief Financial Officer, Treasurer and Secretary
(323) 881-1208
brad.lukow@99only.com

The following tables reconcile EBITDA and Adjusted EBITDA to net income for the periods indicated:


For the First Quarter Ended


May 1,

2015

May 2,

2014


(In thousands)


(Unaudited)




Net income

$              1,171

$              9,575

Interest expense, net

16,269

15,429

(Benefit) provision (for income taxes

(10,989)

6,340

Depreciation and amortization

16,247

12,631




EBITDA

$            22,698

$            43,975

Stock-based compensation (a)

634

663

Purchase accounting effect on leases (b)

651

464

Executive related expenses (c)

303

Other (d)

720

563




Adjusted EBITDA

$           25,006

$           45,665






(a)

Represents stock-based compensation expense incurred in connection with various stock-based compensation plans in which certain Company employees have participated.

(b)

Represents purchase accounting effect on rent revenue and rent expense.

(c)

Represents expenses related to executive retention bonus and severance.

(d)

Represents the following non-cash or other charges and income: (i) for all periods, amortization of gain related to sale-leaseback arrangements; (ii) for all periods, net gain/loss on the sale of non-core assets; and (iii) for all periods, severance charges, signing bonuses, professional fees and other.

 

99 CENTS ONLY STORES LLC
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)





May 1,

2015

January 30,

2015


(Unaudited)


ASSETS



Current Assets:



Cash

$            2,383

$       12,463

Accounts receivable, net of allowance for doubtful accounts of $34 and $58 at May 1, 2015 and January 30, 2015, respectively

2,251

 

1,954

Income taxes receivable

22,316

10,911

Deferred income taxes

41,583

41,583

Inventories, net

301,928

296,040

Assets held for sale

1,680

3,094

Other

18,113

19,039




Total current assets

390,254

385,084

Property and equipment, net

584,409

581,020

Deferred financing costs, net

14,645

15,463

Intangible assets, net

458,812

460,311

Goodwill

479,745

479,745

Deposits and other assets

7,958

7,543




Total assets

$      1,935,823

$   1,929,166







LIABILITIES AND MEMBER'S EQUITY



Current Liabilities:



Accounts payable

$         145,960

$    139,287

Payroll and payroll-related

20,035

20,004

Sales tax

6,779

14,087

Other accrued expenses

50,825

40,168

Workers' compensation

70,121

70,491

Current portion of long-term debt

6,138

6,138

Current portion of capital and financing lease obligation

599

380




Total current liabilities

300,457

290,555

Long-term debt, net of current portion

896,088

901,395

Unfavorable lease commitments, net

7,595

8,220

Deferred rent

24,512

23,293

Deferred compensation liability

764

724

Capital and financing lease obligation, net of current portion

24,841

24,681

Long-term deferred income taxes

170,789

170,678

Other liabilities

1,415

1,868




Total liabilities

1,426,461

1,421,414




Commitments and contingencies



Member's Equity:



Member units – 100 units issued and outstanding at May 1, 2015 and January 30, 2015

549,407

549,135

Investment in Number Holdings, Inc. preferred stock

(19,200)

(19,200)

Accumulated deficit

(20,014)

(21,185)

Other comprehensive loss

(831)

(998)




Total equity

509,362

507,752




Total liabilities and equity

$      1,935,823

$ 1,929,166




 


99 CENTS ONLY STORES LLC
CONSOLIDATED STATEMENTS OF INCOME
(In thousands)
(Unaudited)




For the First Quarter Ended


May 1,

2015

May 2,

2014




Net Sales:



99¢ Only Stores

$           494,808

$        465,269

Bargain Wholesale

11,361

12,628




Total sales

506,169

477,897

Cost of sales

349,546

320,771




Gross profit

156,623

157,126

Selling, general and administrative expenses

150,172

125,782




Operating income

6,451

31,344




Other (income) expense:



Interest income

(3)

Interest expense

16,272

15,429




Total other expense, net

16,269

15,429




(Loss) income before provision for income taxes

(9,818)

15,915

(Benefit) provision for income taxes

(10,989)

6,340




Net income

$             1,171

$             9,575




 

99 CENTS ONLY STORES LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)




For the First Quarter Ended


May 1,

2015


May 2,

2014





Cash flows from operating activities:




Net income

$              1,171


$               9,575

Adjustments to reconcile net income to net cash provided by operating activities:




Depreciation

15,803


12,184

Amortization of deferred financing costs and accretion of OID

1,146


1,083

Amortization of intangible assets

444


447

Amortization of favorable/unfavorable leases, net

435


175

Gain on disposal of fixed assets

(32)


(7)

Loss on interest rate hedge

359


282

Stock-based compensation

634


663

Changes in assets and liabilities associated with operating activities:




Accounts receivable

(297)


48

Inventories

(5,888)


(18,021)

Deposits and other assets

594


464

Accounts payable

13,054


7,397

Accrued expenses

3,380


3,871

Accrued workers' compensation

(370)


(1,235)

Income taxes

(11,405)


4,498

Deferred rent

1,219


1,296

Other long-term liabilities

(102)


(2,535)





 Net cash provided by operating activities

20,145


20,185









Cash flows from investing activities:




Purchases of property and equipment

(25,642)


(19,363)

Proceeds from sale of property and fixed assets

1,437


16





Net cash used in investing activities

(24,205)


(19,347)









Cash flows from financing activities:




Payment of long-term debt

(1,535)


(1,534)

Proceeds under revolving credit facility

126,300


Payments under revolving credit facility

(130,400)


Payments of capital lease obligation

(23)


(21)

Payments to repurchase stock options of Number Holdings, Inc

(362)






Net cash used in financing activities

(6,020)


(1,555)





Net decrease in cash

(10,080)


(717)

Cash - beginning of period

12,463


34,842





Cash - end of period

$                2,383


$             34,125





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 Annual Report on Form 10-K for the fiscal year ended January 30, 2015. 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