99 Cents Only Stores Reports Strong First Quarter Fiscal 2018 Results

Jun 8, 2017

CITY OF COMMERCE, Calif., June 8, 2017 /PRNewswire/ --

99 Cents Only Stores LLC.

First Quarter Fiscal 2018 Overview:

  • Net sales increased 6.7% to $547.5 million compared to the prior year
  • Same-store sales increased by 6.9% compared to the prior year
  • Gross margin, as a percentage of net sales, increased to 29.7%, up from 29.0% in the prior year
  • Net loss was $8.8 million compared to net loss of $25.2 million in the prior year
  • Adjusted EBITDA1 increased 22.3% to $16.3 million compared to the prior year

99 Cents Only Stores LLC (the "Company") announced its financial results for the first quarter ended April 28, 2017.

Geoffrey Covert, President and Chief Executive Officer, stated, "The ongoing execution of our turnaround plan that began to produce operating momentum last year has continued in the first quarter of fiscal 2018 and helped generate solid first quarter results."

Mr. Covert continued, "Net sales for the first quarter were $547.5 million, up 6.7% over the prior year period. On a same-store basis, sales increased 6.9%, resulting from a 2.5% increase in basket, along with a 4.2% increase in transaction count. This increase was primarily driven by our emphasis on improving the customer shopping experience through improvements to merchandising and in-stock levels, particularly in our fresh categories, general merchandise and seasonal merchandise. We also continue to benefit from our concerted effort to improve operational efficiencies.  First quarter gross margin improved 70 basis points year-over-year, driven primarily by our success in reducing shrink and scrap and improved execution in our logistics network. In addition, inventory levels are more than 30% lower than they were when the current management team arrived and we have significantly reduced our warehouse footprint."

Mr. Covert concluded, "Our improved operational performance has also helped the Company to continue to improve its overall liquidity position.  Cash borrowings under our ABL facility as of the end of the first quarter were $33.1 million, down $6.2 million from the prior quarter and down $6.9 million from a year ago.  Importantly, adjusted EBITDA was $16.3 million for the first quarter, up 22.3% compared to the prior year. We are encouraged by this result and we continue to expect to achieve meaningful adjusted EBITDA growth during fiscal 2018."

First Quarter Financial Results

For the first quarter of fiscal 2018, the Company's net sales increased 6.7% to $547.5 million, compared to $512.9 million in the first quarter of fiscal 2017. Same-store sales increased 6.9% compared to the first quarter of fiscal 2017, with higher customer traffic of 4.2% in addition to higher average ticket of 2.5%. The increase in same-store sales was primarily driven by higher sales from general and seasonal merchandise, in part due to better product assortment and improved store execution, as well as improved sales from fresh offerings driven by better product availability, improved in-stock levels and improved execution of the partnerships with the Company's third party produce distributors.

Gross margin, as a percentage of net sales, was 29.7% in the first quarter of fiscal 2018, an increase of 70 basis points from the first quarter of fiscal 2017. Gross margin increased primarily due to lower inventory shrinkage as well as lower distribution and transportation costs, partially offset by lower product margin. Selling, general and administrative expenses were $153.8 million, or 28.1%, as a percentage of net sales, representing a decrease of 260 basis points from the first quarter of fiscal 2017. The improvement was primarily driven by a realized gain on sale of a warehouse facility of $18.5 million and lower workers' compensation expenses, partially offset by increases in the California and Arizona minimum wages and higher performance-based compensation.

Net loss was $8.8 million in the first quarter of fiscal 2018 compared to net loss of $25.2 million in the first quarter of fiscal 2017. Net loss as a percentage of net sales was (1.6)% for the first quarter of fiscal 2018, compared to net loss as a percentage of net sales of (4.9)% for the first quarter of fiscal 2017.  Adjusted EBITDA was $16.3 million in the first quarter of fiscal 2018, compared to $13.3 million in the first quarter of fiscal 2017. Adjusted EBITDA margin was 3.0% compared to 2.6% in the first quarter of fiscal 2017.

Sale-Leaseback Transactions

As previously disclosed, in July 2016, the Company sold and concurrently licensed through March 31, 2017 a warehouse facility in the City of Commerce, California.  The Company exited the warehouse facility in March 2017 and recorded a realized gain on sale of $18.5 million in the first quarter of fiscal 2018.

During the first quarter of fiscal 2018, the Company sold and concurrently leased back a future store site and received net proceeds of $6.8 million, which will be applied towards the construction of the future store.  Additionally, during the first quarter of fiscal 2018, the Company sold and concurrently leased back a store and received net proceeds from this transaction of $4.0 million

In May 2017, the Company completed two additional sale-leaseback transactions on existing stores and received proceeds of $13.3 million, of which approximately $2.0 million was used to pay down the Company's first lien term loan facility in accordance with the terms thereof.

Store Openings

The Company relocated one store in California during the first quarter of fiscal 2018.  As of the end of the first quarter of fiscal 2018, the Company operated 390 stores.

Fiscal 2018 Outlook

The Company is reiterating the following previously issued outlook for fiscal 2018:

  • 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

CONFERENCE CALL DETAILS
The Company's conference call to discuss its fiscal 2018 first quarter and the other matters described in this release is scheduled for Thursday, June 8, 2017 at 11:00 a.m. Pacific Time (2:00 p.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 2018 First Quarter Earnings Conference Call, and be prepared to provide the operator with your name, company name and the conference ID: 13662237. 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, June 8, 2017, at 5:00 p.m. Eastern Time, through Thursday, June 22, 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: 13662237. 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 First Quarter Ended


April 28,
2017


April 29,
2016


(In thousands)


(Unaudited)





Net loss

$           (8,753)


$         (25,194)

Interest expense, net

17,340


16,524

Provision for income taxes

15


73

Depreciation and amortization

17,377


16,739

EBITDA

$           25,979


$             8,142

Stock-based compensation (a)

136


164

Purchase accounting effect on leases (b)

743


707

Inventory adjustments (c)


963

Employee related expenses (d)

3,247


1,432

Professional and consultant fees (e)

734


321

Gain on sales of assets (f)

(18,043)


(143)

Loss on extinguishment (g)


335

Other (h)

3,478


1,387

Adjusted EBITDA

$           16,274


$           13,308







(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 charges related to excess and obsolescence reserve.

(d)   

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

(e)   

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

(f)    

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

(g)   

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

(h)   

Represents non-cash or other charges and income for all periods: legal reserve adjustments, non-recurring professional fees, and other.


 

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



April 28,
2017


January 27,
2017


(Unaudited)



ASSETS




Current Assets:




Cash

$            2,420


$         2,448

Accounts receivable, net of allowance for doubtful accounts of $73 and $122 at April 28, 2017 and January 27, 2017, respectively

 

3,353


 

3,510

Income taxes receivable

3,861


3,876

Inventories, net

184,663


175,892

Assets held for sale

4,903


4,903

Other

18,878


10,307

Total current assets

218,078


200,936

Property and equipment, net

485,854


507,620

Deferred financing costs, net

2,984


3,488

Intangible assets, net

445,622


447,027

Goodwill

380,643


380,643

Deposits and other assets

8,607


8,592

Total assets

$      1,541,788


$   1,548,306





LIABILITIES AND MEMBER'S EQUITY




Current Liabilities:




Accounts payable

$         111,565


$      86,588

Payroll and payroll-related

25,571


24,110

Sales tax

16,574


19,389

Other accrued expenses

55,513


46,082

Workers' compensation

69,408


69,169

Current portion of long-term debt

6,138


6,138

Current portion of capital and financing lease obligations

1,214


31,330

Total current liabilities

285,983


282,806

Long-term debt, net of current portion

858,850


865,375

Unfavorable lease commitments, net

3,674


3,988

Deferred rent

30,791


30,360

Deferred compensation liability

868


816

Capital and financing lease obligation, net of current portions

53,775


47,195

Deferred income taxes

161,450


161,450

Other liabilities

10,995


12,297

Total liabilities

1,406,386


1,404,287

Commitments and contingencies




Member's Equity:




Member units – 100 units issued and outstanding at April 28, 2017 and January 27, 2017

551,054


550,918

Investment in Number Holdings, Inc. preferred stock

(19,200)


(19,200)

Accumulated deficit

(396,452)


(387,699)

Total equity

135,402


144,019

Total liabilities and equity

$      1,541,788


$ 1,548,306





 

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




For the First Quarter Ended


April 28,
2017


April 29,
2016





Net Sales:




99¢ Only Stores

$           537,992


$       501,766

Bargain Wholesale

9,520


11,163

Total sales

547,512


512,929

Cost of sales

385,159


363,962

Gross profit

162,353


148,967

Selling, general and administrative expenses

153,751


157,229

Operating income (loss)

8,602


(8,262)

Other (income) expense:




Interest income

(2)


(2)

Interest expense

17,342


16,526

Loss on extinguishment


335

  Total other expense, net

17,340


16,859

Loss before provision for income taxes

(8,738)


(25,121)

Provision for income taxes

15


73

Net loss

$          (8,753)


$          (25,194)





 

99 CENTS ONLY STORES LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



For the First Quarter Ended


April 28,
2017


April 29,
2016





Cash flows from operating activities:




Net loss

$           (8,753)


$         (25,194)

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




Depreciation

16,939


16,302

Amortization of deferred financing costs and accretion of OID

1,714


1,304

Amortization of intangible assets

438


437

Amortization of favorable/unfavorable leases, net

661


587

Loss on extinguishment of debt


335

Gain on disposal of fixed assets

(17,896)


(34)

Loss on interest rate hedge


409

Stock-based compensation

136


164

Changes in assets and liabilities associated with operating activities:




Accounts receivable

157


13

Inventories

(8,771)


29,686

Deposits and other assets

(8,508)


1,758

Accounts payable

22,298


(5,170)

Accrued expenses

8,077


3,403

Accrued workers' compensation

239


117

Income taxes

15


1,443

Deferred rent

431


176

Other long-term liabilities

(2,719)


(166)

 Net cash provided by operating activities

4,458


25,570





Cash flows from investing activities:




Purchases of property and equipment

(7,367)


(13,373)

Proceeds from sale of property and fixed assets

4,064


4

Net cash used in investing activities

(3,303)


(13,369)





Cash flows from financing activities:




Payment of long-term debt

(1,535)


(1,535)

Proceeds under revolving credit facility

46,400


64,800

Payments under revolving credit facility

(52,600)


(72,600)

Payments of debt issuance costs


(4,594)

Proceeds from financing lease obligations

6,840


2,031

Payments of capital and financing lease obligations

(288)


(239)

Net cash used in financing activities

(1,183)


(12,137)

Net (decrease) increase in cash

(28)


64

Cash - beginning of period

2,448


2,312

Cash - end of period

$               2,420


$               2,376









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 27, 2017. 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