99 Cents Only Stores Reports Strong Fourth Quarter And Full Year Fiscal 2017 Results

Apr 20, 2017

CITY OF COMMERCE, Calif., April 20, 2017 /PRNewswire/ --

99 Cents Only Stores LLC.

Fourth Quarter Fiscal 2017 Overview:

  • Net sales increased 6.7% to $552.5 million compared to the prior year
  • Same-store sales increased by 6.4% compared to the prior year
  • Gross margin, as a percentage of net sales, increased to 30.1%, up from 26.7% in the prior year
  • Net loss was $20.9 million compared to net loss of $18.4 million in the prior year
  • Adjusted EBITDA1 was $23.4 million compared to $2.4 million in the prior year

Full-Year Fiscal 2017 Overview:

  • Net sales increased 2.9% to $2,062.0 million compared to the prior year
  • Same-store sales increased by 2.1% compared to the prior year
  • Gross margin, as a percentage of net sales, increased to 29.2%, up from 28.1% in the prior year
  • Net loss was $118.2 million compared to $248.0 million in the prior year
  • Adjusted EBITDA increased 28% to $50.6 million compared to the prior year

99 Cents Only Stores LLC (the "Company") announced its financial results for the fourth quarter and full fiscal year of 2017 ended January 27, 2017 ("fiscal 2017").

Geoffrey Covert, President and Chief Executive Officer, stated, "We concluded fiscal 2017 with a strong fourth quarter driven by growth in same store sales, expanding margins and lower inventory levels. As a result, we continued to solidify 99 Cents Only Stores' liquidity position while generating significant year-over-year growth in adjusted EBITDA."

Mr. Covert continued, "Net sales for the fourth quarter were $552.5 million, up 6.7% over the prior year period. On a same-store basis, sales were up an impressive 6.4%, resulting from a 4.4% increase in basket, coupled with a 1.9% increase in transaction count. In addition, fourth quarter gross margin of 30.1% improved 340 basis points year-over-year, primarily due to our concerted efforts to improve shrink and scrap and execution in our logistics network. I am also pleased with our continued success in inventory management as total inventory declined on both a year-over-year and sequential quarter basis.  Importantly, adjusted EBITDA was $23.4 million for the fourth quarter compared to $2.4 million in the fourth quarter of last year.  For the full year, adjusted EBITDA of $50.6 million was up 28% compared to the prior year. We are encouraged by this result, which represents the reversal of a two-year decline in adjusted EBITDA."

Mr. Covert concluded, "Overall, fiscal 2017 was a very productive and transformative year for 99 Cents Only Stores and we head into fiscal 2018 as a financially stronger and more customer-focused enterprise. I am confident we can continue to build on the foundational strengths of our business to achieve our longer-term goal of sustained profitable growth."

Fourth Quarter Financial Results

For the fourth quarter of fiscal 2017, the Company's net sales increased 6.7% to $552.5 million, compared to $517.8 million in the fourth quarter of fiscal 2016. Same-store sales increased 6.4% compared to the fourth quarter of fiscal 2016, with higher average ticket of 4.4% in addition to higher customer traffic of 1.9%. The increase in same-store sales was primarily due to higher sales from seasonal merchandise, driven by improvements in product assortment and replenishment processes, as well as general merchandise, including strong sell-through of above $1 merchandise. In addition, sales of fresh offerings improved due to better product availability, improved in-stock levels and the expansion of the Company's third party distributor partnership. These improvements were partially offset by the ongoing deflationary environment in milk and eggs.

Gross margin, as a percentage of net sales, was 30.1% in the fourth quarter of fiscal 2017, an increase of 340 basis points from the fourth quarter of fiscal 2016. Gross margin increased primarily due to lower inventory shrinkage as well as lower distribution and transportation costs. Selling, general and administrative expenses were $172.6 million, or 31.2%, as a percentage of net sales, representing a decrease of 10 basis points from the fourth quarter of fiscal 2016. The improvement was primarily driven by a decrease in workers' compensation accrual partially offset by higher performance-based compensation expense and increases in the California minimum wage.

Net loss was $20.9 million in the fourth quarter of fiscal 2017 compared to net loss of $18.4 million in the fourth quarter of fiscal 2016. Net loss as a percentage of net sales was (3.8)% for the fourth quarter of fiscal 2017, compared to net loss as a percentage of net sales of (3.6)% for the fourth quarter of fiscal 2016.  Adjusted EBITDA was $23.4 million in the fourth quarter of fiscal 2017, compared to $2.4 million in the fourth quarter of fiscal 2016. Adjusted EBITDA margin was 4.2% compared to 0.5% in the fourth quarter of fiscal 2016.

Full Year Financial Results

For the full-year fiscal 2017, the Company's net sales increased 2.9% to $2,062.0 million, compared to $2,004.0 million in fiscal 2016. Same-store sales increased 2.1% driven by higher average ticket and traffic. Net loss was $118.2 million in fiscal 2017, compared to net loss of $248.0 million in fiscal 2016. Net loss as a percentage of net sales was (5.7)% in fiscal 2017, compared to net loss as a percentage of net sales of (12.4)% in fiscal 2016. Adjusted EBITDA was $50.6 million for the full-year fiscal 2017, compared to $39.5 million for fiscal 2016. Adjusted EBITDA margin was 2.5% for fiscal 2017, compared to 2.0% for fiscal 2016.

Average sales per store open at least 12 months, on a trailing 52-week period, were $5.2 million in fiscal 2017 compared to $5.1 million in fiscal 2016.  Average net sales per estimated saleable square foot (computed for stores open at least 12 months), on a trailing 52-week period, were $319 per square foot for fiscal 2017 compared to $314 per square foot for fiscal 2016.

Store Openings

The Company opened one store in the fourth quarter of fiscal 2017 and, as previously announced, closed five stores in California upon the expiration of their leases.  As of the end of the fourth quarter of fiscal 2017, the Company operated 390 stores.

Fiscal 2018 Outlook

For the fiscal year ended February 2, 2018 ("fiscal 2018"), the Company currently expects:

  • Positive same-store sales growth
  • Year-over-year decrease in net loss and an increase in adjusted EBITDA over the same period
  • 3 new store openings, all in the second half of the year
  • Capital expenditures of approximately $53-$58 million

Change of Prior Period Results

During the fourth quarter of fiscal 2017, the Company determined that deferred tax liabilities as of January 29, 2016 were overstated by $6.9 million and the deferred tax valuation allowance was understated by $6.9 million. The total net deferred tax balances as of January 29, 2016 and tax provision for fiscal 2017 were not affected by this error. The Company analyzed the impact of the $6.9 million deferred tax liability overstatement on the goodwill impairment charge recorded in fiscal 2016 and determined that the charge was understated by $6.7 million. The Company has included a correction in this release that decreased goodwill by $6.7 million as of January 29, 2016 and increased the goodwill impairment charge by the same amount for the fourth quarter and full-year fiscal 2016.

CONFERENCE CALL DETAILS
The Company's conference call to discuss its fiscal 2017 fourth quarter and full year results and the other matters described in this release is scheduled for Thursday, April 20, 2017 at 8:00 a.m. Pacific Time (11:00 a.m. Eastern Time).

The live call can be accessed by dialing 1-877-407-3982 (domestic) or 1-201-493-6780 (international). Please phone in approximately 10 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' Fiscal 2017 Fourth Quarter and Full Year Earnings Conference Call, and be prepared to provide the operator with your name, company name, position and the conference ID: 13658711. The call will also be broadcast live over the Internet, accessible through the Investor Relations section of the Company's website at www.99only.com/investor-relations.

A telephonic replay of the call will be available beginning Thursday, April 20, 2017, at 2:00 p.m. Eastern Time, through Thursday, May 4, 2017, at 11:59 p.m. Eastern Time. To access the replay, dial 1-844-512-2921 (domestic) or 1-412-317-6671 (international) and enter the replay pin number: 13658711. A replay of the webcast will also be available for 60 days upon completion of the conference call, accessible through the Investor Relations section of the Company's website at www.99only.com/investor-relations.

A copy of this earnings release and supplemental slides will be available prior to the call, accessible through the Investor Relations section of the Company's website at www.99only.com/investor-relations.

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 various items set forth in the reconciliation tables below, including stock-based compensation, impairment of goodwill and other assets, expenses, charges and reserves related to strategic initiatives and executive recruitment and severance, amortization of gain on sale-leaseback transactions, and other non-cash or one-time or other items as permitted by the terms of the Company's debt instruments.  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 core operating 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.

About 99 Cents Only Stores
Founded in 1982, 99 Cents Only Stores LLC is the leading operator of extreme value stores in California and the Southwestern United States. The Company currently operates 390 stores located in California, Texas, Arizona and Nevada. 99 Cents Only Stores LLC offers a broad assortment of name brand and other attractively priced merchandise and compelling seasonal product offerings. For more information, visit www.99only.com

Investor Contact:
Addo Investor Relations
Lasse Glassen
(424) 238-6249
lglassen@addoir.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.

### Tables to Follow ###

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


For the Fourth Quarter Ended


January 27,

2017


January 29,

2016


(In thousands)


(Unaudited)





Net loss

$         (20,889)


$         (18,387)

Interest expense, net

18,532


16,350

(Benefit) provision for income taxes

(4,136)


(627)

Depreciation and amortization

18,093


17,681

EBITDA

$           11,600


$           15,017

Stock-based compensation (a)

149


83

Purchase accounting effect on leases (b)

1,051


558

Goodwill impairment (c)


(21,300)

Impairment of long-lived assets (d)

270


1,661

Cost of sales adjustments (e)


1,865

Inventory adjustments (f)


30

Employee related expenses (g)

3,886


1,753

Real-estate projects termination charges (h)

998


Professional and consultant fees (i)

1,790


1,206

Loss on sales of assets (j)

1,005


3

Promotional adjustments (k)


710

Other (l)

2,660


822

Adjusted EBITDA

$            23,409


$             2,408



(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 goodwill impairment charge related to the retail reporting unit.

(d)  

Represents impairment charges primarily related to liquor licenses in fiscal 2017 and impairment of underperforming stores, trademarks, favorable lease and equipment in fiscal 2016.

(e)  

Represents adjustments related primarily to lower of cost or market adjustments and close-out inventory write-offs.

(f)    

Represents charges related to excess and obsolescence reserve.

(g)   

Represents expenses related primarily to severance, signing and retention bonuses.

(h)  

Represents charges relating to previously capitalized store and distribution center real-estate development costs expensed upon termination of related projects.

(i)  

Represents professional and consultant fees primarily related to profitability improvement and other strategic initiatives.

(j)   

Represents amortization of gain related to sale-leaseback arrangements and net gain/loss on the sale/disposal of non-core assets.

(k)  

Represents promotions aimed at profitability improvement.

(l)     

Represents non-cash or other charges and income: for fiscal 2017, legal reserve adjustments, non-recurring professional fees, prior year property tax and sales tax assessment and other;  for fiscal 2016, legal reserve adjustments and other.

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


For the Year Ended


January 27,

2017


January 29,

2016


(In thousands)


(Unaudited)





Net loss

$       (118,159)


$      (247,953)

Interest expense, net

68,717


65,649

(Benefit) provision for income taxes

(3,990)


31,942

Depreciation and amortization

70,780


68,191

EBITDA

$           17,348


$        (82,171)

Stock-based compensation (a)

692


1,538

Purchase accounting effect on leases (b)

3,198


2,449

Goodwill impairment (c)


98,700

Impairment of long-lived assets (d)

761


2,171

Cost of sales adjustments (e)

824


2,770

Inventory adjustments (f)

1,827


627

Employee related expenses (g)

10,824


7,740

Real estate projects termination charges (h)

1,009


2,949

Professional and consultant fees (i)

4,525


1,713

Loss (gain) on sales of assets (j)

893


(5,596)

Promotional adjustments (k)


4,370

Loss on extinguishment (l)

335


Other (m)

8,321


2,233

Adjusted EBITDA

$           50,557


$          39,493



(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 goodwill impairment charge related to the retail reporting unit.

(d)   

Represents impairment charges primarily related to an asset held for sale, liquor licenses and stores to be closed in fiscal 2017 and impairment of underperforming stores, trademarks, favorable lease and equipment in fiscal 2016.

(e)   

Represents adjustments related primarily to lower of cost or market adjustments for all periods and close-out inventory write-offs and return fee in fiscal 2016.

(f)    

Represents charges related to excess and obsolescence reserve and other.

(g)  

Represents expenses related primarily to severance, signing and retention bonuses.

(h)  

Represents charges relating to previously capitalized store and distribution /corporate center real-estate development costs expensed upon termination of related projects.

(i)  

Represents professional and consultant fees primarily aimed at profitability improvement and strategic initiatives.

(j)   

Represents amortization of gain related to sale-leaseback arrangements and net gain/loss on the sale/disposal of non-core assets.

(k)   

Represents promotions aimed at profitability improvement.

(l)    

Represents loss on extinguishment of debt from amendment of the asset based lending facility in the first quarter of fiscal 2017.

(m) 

Represents non-cash or other charges and income: for fiscal 2017, prior year property tax and sales tax assessment, non-recurring professional fees, legal reserve adjustments, insurance reimbursements and other;  for fiscal 2016, legal reserve adjustments and other.

 

99 CENTS ONLY STORES LLC

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)





January 27,

2017


January 29,

2016


(Unaudited)



ASSETS




Current Assets:




Cash

$            2,448


$         2,312

Accounts receivable, net of allowance for doubtful accounts of $122 and $140 at January 27, 2017 and January 29, 2016, respectively

3,510


1,674

Income taxes receivable

3,876


3,665

Inventories, net

175,892


196,651

Assets held for sale

4,903


2,308

Other

10,307


18,570

Total current assets

200,936


225,180

Property and equipment, net

507,620


542,570

Deferred financing costs, net

3,488


916

Intangible assets, net

447,027


453,242

Goodwill

381,045


381,045

Deposits and other assets

8,592


7,352

Total assets

$      1,548,708


$   1,610,305





LIABILITIES AND MEMBER'S EQUITY




Current Liabilities:




Accounts payable

$           86,588


$         79,197

Payroll and payroll-related

24,110


18,421

Sales tax

19,389


13,314

Other accrued expenses

46,082


39,520

Workers' compensation

69,169


76,389

Current portion of long-term debt

6,138


6,138

Current portion of capital and financing lease obligations

31,330


989

Total current liabilities

282,806


233,968

Long-term debt, net of current portion

865,375


875,843

Unfavorable lease commitments, net

3,988


5,746

Deferred rent

30,360


29,333

Deferred compensation liability

816


709

Capital and financing lease obligation, net of current portion

47,195


34,817

Long-term deferred income taxes

161,450


163,045

Other liabilities

12,297


5,118

Total liabilities

1,404,287


1,348,579

Commitments and contingencies




Member's Equity:




Member units – 100 units issued and outstanding at January 27, 2017 and  January 29, 2016

550,918


550,226

Investment in Number Holdings, Inc. preferred stock

(19,200)


(19,200)

Accumulated deficit

(387,297)


(269,138)

Other comprehensive loss

-


(162)

Total equity

144,421


261,726

Total liabilities and equity

$      1,548,708


$ 1,610,305



(1)

The Consolidated Balance Sheet as of January 29, 2016  was retrospectively adjusted to reflect the adoption of Accounting Standards Update ("ASU") No. 2015-03, "Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs" and ASU No. 2015-17, "Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes" in the first quarter of fiscal 2017.

 

99 CENTS ONLY STORES LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

(Unaudited)






For the Fourth Quarter Ended


For the Years Ended


January 27,

 2017


January 29,

 2016


January 27,

 2017


January 29,

2016









Net Sales:








99¢ Only Stores

$          543,908


$           508,368


$        2,023,034


$      1,961,050

Bargain Wholesale

8,568


9,471


38,973


42,945

Total sales

552,476


517,839


2,062,007


2,003,995

Cost of sales

386,393


379,642


1,460,595


1,441,631

Gross profit

166,083


138,197


601,412


562,364

Selling, general and administrative expenses

172,576


162,161


654,509


614,026

Goodwill impairment


(21,300)



98,700

Operating loss

(6,493)


(2,664)


(53,097)


(150,362)

Other (income) expense:








Interest income

(2)


(1)


(47)


(4)

Interest expense

18,534


16,351


68,764


65,653

Loss on extinguishment of debt



335


  Total other expense, net

18,532


16,350


69,052


65,649

Loss before provision for income taxes

(25,025)


(19,014)


(122,149)


(216,011)

(Benefit) provision for income taxes

(4,136)


(627)


(3,990)


31,942

Net loss

$           (20,889)


$          (18,387)


$     (118,159)


$     (247,953)









 

99 CENTS ONLY STORES LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)




For the Years Ended


January 27,

2017


January 29,

2016





Cash flows from operating activities:




Net loss

$         (118,159)


$         (247,953)

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




Depreciation

69,030


66,402

Amortization of deferred financing costs and accretion of OID

5,988


4,820

Amortization of intangible assets

1,750


1,789

Amortization of favorable/unfavorable leases, net

2,737


1,704

Loss on extinguishment of debt

335


Loss (gain) on disposal of fixed assets

532


(5,416)

Loss on interest rate hedge

514


1,402

Goodwill impairment


98,700

Long-lived and intangible assets impairment

761


2,171

Deferred income taxes

(1,595)


33,394

Stock-based compensation

692


1,538

Changes in assets and liabilities associated with operating activities:




Accounts receivable

(1,836)


280

Inventories

20,759


99,389

Deposits and other assets

6,506


1,228

Accounts payable

9,377


(44,407)

Accrued expenses

18,082


(2,081)

Accrued workers' compensation

(7,220)


5,898

Income taxes

(319)


7,246

Deferred rent

1,982


4,096

Other long-term liabilities

6,656


1,457

 Net cash provided by operating activities

16,572


31,657





Cash flows from investing activities:




Purchases of property and equipment

(45,791)


(65,950)

Proceeds from sale of property and fixed assets

6,234


31,436

Insurance recoveries for replacement assets

937


Net cash used in investing activities

(38,620)


(34,514)





Cash flows from financing activities:




Payments of long-term debt

(6,138)


(6,138)

Proceeds under revolving credit facility

264,800


471,350

Payments under revolving credit facility

(273,300)


(480,550)

Payments of debt issuance costs

(4,725)


(487)

Proceeds from financing lease obligations

42,592


9,359

Payments of capital and financing lease obligations

(1,045)


(381)

Payments to repurchase stock options of Number Holdings, Inc


(390)

Net settlement of stock options of Number Holdings, Inc. for tax withholdings


(57)

Net cash provided by (used in) financing activities

22,184


(7,294)

Net increase (decrease) in cash

136


(10,151)

Cash - beginning of period

2,312


12,463

Cash - end of period

$                2,448


$                2,312





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 29, 2016. The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

SOURCE 99 Cents Only Stores