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CST: 15/10/2019 16:10:19   

Grocery Outlet Holding Corp. Announces Second Quarter Fiscal 2019 Financial Results

63 Days ago

Net sales increased 12.2% to $645.3 million
Comparable store sales increased 5.8%
Net loss of $10.6 million; Adjusted net income increased 12.1% to $14.5 million
Adjusted EBITDA increased 15.0% to $45.0 million
Initiates Fiscal 2019 Guidance

EMERYVILLE, Calif., Aug. 13, 2019 (GLOBE NEWSWIRE) -- Grocery Outlet Holding Corp. (“Grocery Outlet”) today announced financial results for the second quarter of fiscal 2019 ended June 29, 2019.

For the second quarter ended June 29, 2019:

  • Net sales increased by 12.2% to $645.3 million from $575.1 million in the second quarter of fiscal 2018; comparable store sales increased by 5.8% over a 2.7% increase last year.

  • The Company opened 8 new stores and closed 1, ending the quarter with 330 stores in 6 states.

  • Net loss was $10.6 million, or $(0.15) per diluted share, compared to net income of $7.3 million, or $0.11 per diluted share in the second quarter of fiscal 2018.

  • Adjusted EBITDA (1) increased 15.0% to $45.0 million compared to $39.1 million in the second quarter of fiscal 2018.

  • Adjusted net income (1) increased 12.1% to $14.5 million, or $0.20 per diluted share, compared to $12.9 million, or $0.19 per diluted share last year.

Eric Lindberg, CEO of Grocery Outlet, stated, “We are pleased with our second quarter financial performance which reflects consistent comparable sales growth, strong new store performance and gross margin expansion. Our comparable store sales growth was broad-based across product categories, regions, and store vintages. We attribute the consistency of our performance to our unique business model that provides customers unbeatable value in a fun, treasure hunt experience along with great customer service through our local independent operators.”

Mr. Lindberg continued, “We continue to identify ways to further support our network of independent operators, broaden our reach with existing and new suppliers, and more effectively engage with our customers. We remain focused on driving sales growth by delivering incredible savings on name-brand products and creating a WOW! experience for our customers.  At the same time, we look to continue expanding our store base and reinvesting in our people, systems and infrastructure to support our long-term growth objectives.”

(1) Adjusted EBITDA, adjusted net income and adjusted diluted earnings per share are non-GAAP financial measures which exclude the impact of certain special items. See the Non-GAAP Financial Measures section of this release for additional information about these items.

For the 26-weeks ended June 29, 2019:

  • Net sales increased by 11.2% to $1.25 billion from $1.13 billion in the first half of fiscal 2018; comparable store sales increased by 5.0% over a 3.5% increase last year.

  • Net loss was $6.9 million, or $(0.10) per share, compared to net income of $12.8 million, or $0.19 per diluted share in the same period in 2018.

  • Adjusted EBITDA (1) increased 11.8% to $84.1 million compared to $75.2 million in the same period in 2018.

  • Adjusted net income (1) decreased 0.2% to $24.4 million, or $0.35 per diluted share, compared to $24.4 million, or $0.36 per diluted share last year.

Recent Developments:

  • On June 24, 2019, the Company consummated its IPO at an offering price to the public of $22.00 per share. The Company sold 19.8 million shares of its common stock in the IPO, including the additional 2.6 million shares purchased by the underwriters in the exercise of their overallotment option, resulting in total net proceeds of $400.5 million after deducting underwriters' discounts, commissions and offering costs.

  • The Company used the net proceeds from the IPO to repay in full the $150.0 million principal amount of indebtedness plus $3.6 million of accrued and unpaid interest on its second lien term loan. In addition, using the remainder of net proceeds, together with excess cash on hand, the Company prepaid $248.0 million of its outstanding first lien term loan plus accrued interest of $3.8 million.

  • On July 23, 2019, the Company completed the repricing of its remaining $475.2 million first lien term loan.

Fiscal 2019 Outlook:

The Company expects the following results for the fiscal year 2019:

    Full-Year 2019 Guidance
Net Sales   $2.50 billion to $2.53 billion
Unit Growth (1)   Approximately 29 stores
Comparable store sales growth   3% to 4%
Adjusted EBITDA   $162.0 million to $165.5 million
Adjusted diluted earnings per share (2)   $0.68 to $0.71
Effective tax rate (3)   Approximately 28%
Capital expenditures (net of tenant improvement allowances)   $85 million to $90 million

Footnotes:

(1) Unit growth guidance represents 32 new store openings and is inclusive of three expected closures.
   
(2) Estimated year-end 2019 diluted share count is 94.5 million shares. This estimate does not include potential future dilution associated with approximately 5.8 million performance-based options issued primarily under our 2014 Stock Incentive Plan as the ultimate vesting of the performance-based options is uncertain. If and when vesting occurs, any vested performance-based options will be included in the diluted share count at that time.
   
(3) Effective tax rate does not include the potential impact of future stock option exercises or the expense associated with performance options.

Conference Call Information:

A conference call to discuss the second quarter fiscal 2019 financial results is scheduled for today, August 13, 2019, at 4:30 p.m. Eastern Time. Investors and analysts interested in participating in the call are invited to dial 877-407-9208 approximately 10 minutes prior to the start of the call. A live audio webcast of the conference call will be available online at https://investors.groceryoutlet.com.

A taped replay of the conference call will be available within two hours of the conclusion of the call and can be accessed both online and by dialing 412-317-6671. The pin number to access the telephone replay is 13692076. The replay will be available for approximately two weeks after the call.

Non-GAAP Financial Information:

In addition to reporting financial results in accordance with accounting principles generally accepted in the United States (“GAAP”), the Company uses EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted earnings per share measures of performance to evaluate the effectiveness of its business strategies, to make budgeting decisions and to compare its performance against that of other peer companies using similar measures. In addition, the company uses EBITDA to supplement GAAP measures of performance to evaluate its performance in connection with compensation decisions. Management believes it is useful to investors and analysts to evaluate these non-GAAP measures on the same basis as management uses to evaluate our operating results.

Adjusted EBITDA is defined as net income (loss) before interest expense, taxes, depreciation and amortization (“EBITDA”) and other adjustments noted in table “Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA” below. Adjusted net income is defined as net income (loss) before the adjustments noted in table “Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income” below.

EBITDA, adjusted EBITDA and adjusted net income are non-GAAP measures and may not be comparable to similar measures reported by other companies. EBITDA, adjusted EBITDA and adjusted net income have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP.

The Company has not reconciled the non-GAAP adjusted EBITDA and adjusted diluted earnings per share forward-looking guidance included in this news release to the most directly comparable GAAP measure because this cannot be done without unreasonable effort due to the variability and low visibility with respect to taxes and non-recurring items, which are potential adjustments to future earnings. We expect the variability of these items to have a potentially unpredictable, and a potentially significant, impact on our future GAAP financial results.

Forward-Looking Statements:

This news release includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which reflect management's current views and estimates regarding the prospects of the industry and the Company’s prospects, plans, business, results of operations, financial position, future financial performance and business strategy. These forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “should,” “expect,” “intend,” “will,” “estimate,” “anticipate,” “believe,” “predict,” “potential” or “continue” or the negatives of these terms or variations of them or similar terminology. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, the Company cannot provide any assurance that these expectations will prove to be correct. The following factors are among those that may cause actual results to differ materially from the forward-looking statements: failure of suppliers to consistently supply us with opportunistic products at attractive pricing; inability to successfully identify trends and maintain a consistent level of opportunistic products; failure to maintain or increase comparable store sales; changes affecting the market prices of the products we sell; failure to open, relocate or remodel stores on schedule; risks associated with newly opened stores; risks associated with economic conditions; competition in the retail food industry; inability to retain the loyalty of our customers; costs and implementation difficulties associated with marketing, advertising and promotions; failure to maintain our reputation and the value of our brand, including protecting our intellectual property; any significant disruption to our distribution network, the operations of our distributions centers and our timely receipt of inventory; movement of consumer trends toward private labels and away from name-brand products; inability to maintain sufficient levels of cash flow from our operations; risks associated with leasing substantial amounts of space; failure to maintain the security of information we hold relating to personal information or payment card data of our customers, employees and suppliers; failure to participate effectively or at all in the growing online retail marketplace; material disruption to our information technology systems; risks associated with products we and our independent operators (“IOs”) sell; risks associated with laws and regulations generally applicable to retailers; legal proceedings from customers, suppliers, employees, governments or competitors; unexpected costs and negative effects associated with our insurance program; inability to attract, train and retain highly qualified employees; difficulties associated with labor relations; loss of our key personnel or inability to hire additional qualified personnel; changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters; impairment of goodwill and other intangible assets; any significant decline in our operating profit and taxable income; risks associated with tax matters; natural disasters and unusual weather conditions (whether or not caused by climate change), pandemic outbreaks, terrorist acts, global political events and other serious catastrophic events; economic downturns or natural or man-made disasters in geographies where our stores are located; management’s limited experience managing a public company; risks associated with IOs being consolidated into our financial statements; failure of our IOs to successfully manage their business; failure of our IOs to repay notes outstanding to us; inability to attract and retain qualified IOs; inability of our IOs to avoid excess inventory shrink; any loss or changeover of an IO; legal proceedings initiated against our IOs; legal challenges to the independent contractor business model; failure to maintain positive relationships with our IOs; risks associated with actions our IOs could take that could harm our business; the significant influence of certain significant investors over us; our ability to generate cash flow to service our substantial debt obligations; and the other factors discussed under “Risk Factors” in the Company’s prospectus filed with the Securities and Exchange Commission (the “SEC”) on June 20, 2019. For a more detailed discussion of the risks, uncertainties and other factors that could cause actual results to differ, please refer to the “Risk Factors” the Company previously disclosed in its prospectus filed with the SEC on June 20, 2019, and in its Quarterly Report on Form 10-Q for the quarterly period ended June 29, 2019, as such risk factors may be updated from time to time in the Company’s periodic filings with the SEC. The Company’s prospectus and periodic filings are accessible on the SEC’s website at www.sec.gov. You should not rely upon forward-looking statements as predictions of future events. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee that the future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or occur. Except as required by applicable law, the Company undertakes no obligation to update publicly any forward-looking statements for any reason after the date of this news release to conform these statements to actual results or to changes in our expectations.

About Grocery Outlet:

Based in Emeryville, California, Grocery Outlet is a high-growth, extreme value retailer of quality, name-brand consumables and fresh products sold through a network of independently operated stores. Grocery Outlet has more than 300 stores in California, Washington, Oregon, Pennsylvania, Idaho and Nevada.

GROCERY OUTLET HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(unaudited)

    13 Weeks Ended   26 Weeks Ended
    June 29, 2019   June 30, 2018   June 29, 2019   June 30, 2018
Net sales   $ 645,289     $ 575,058     $ 1,251,560     $ 1,125,616  
Cost of sales   446,569     399,943     865,823     781,932  
Gross profit   198,720     175,115     385,737     343,684  
                 
Operating expenses:                
Selling, general and administrative   157,641     139,743     310,495     276,479  
Depreciation and amortization   12,594     11,235     24,890     22,413  
Stock-based compensation   22,750     129     22,961     263  
Total operating expenses   192,985     151,107     358,346     299,155  
Income from operations   5,735     24,008     27,391     44,529  
                 
Other expense:                
Interest expense, net   15,452     13,974     31,890     26,886  
Debt extinguishment and modification costs   5,162         5,162      
Total other expense   20,614     13,974     37,052     26,886  
Income (loss) before income taxes   (14,879 )   10,034     (9,661 )   17,643  
Income tax expense (benefit)   (4,247 )   2,748     (2,803 )   4,832  
Net income (loss) and comprehensive income (loss)   $ (10,632 )   $ 7,286     $ (6,858 )   $ 12,811  
                 
Basic earnings (net loss) per share   $ (0.15 )   $ 0.11     $ (0.10 )   $ 0.19  
Diluted earnings (net loss) per share   $ (0.15 )   $ 0.11     $ (0.10 )   $ 0.19  
                 
Weighted average shares outstanding:                
Basic   70,475     68,475     69,494     68,471  
Diluted   70,475     68,512     69,494     68,499  
                         

GROCERY OUTLET HOLDING CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

    June 29, 2019   December 29, 2018
Assets        
Current assets:        
Cash and cash equivalents   $ 18,677     $ 21,063  
Independent operator receivables and current portion of independent operator notes, net of allowance   6,796     5,056  
Other accounts receivable, net of allowance   1,707     2,069  
Merchandise inventories   202,715     198,304  
Prepaid rent — related party   512     512  
Prepaid expenses and other current assets   17,212     13,368  
Total current assets   247,619     240,372  
Independent operator notes, net of allowance   15,671     13,646  
Property and equipment — net   322,472     304,032  
Operating lease right-of-use asset   676,191      
Intangible assets — net   65,400     68,824  
Goodwill   747,943     747,943  
Other assets   6,302     2,045  
Total assets   $ 2,081,598     $ 1,376,862  
         
Liabilities and Stockholders’ Equity        
Current liabilities:        
Trade accounts payable   $ 102,482     $ 98,123  
Accrued expenses   25,973     31,194  
Accrued compensation   9,189     10,795  
Current portion of long-term debt   267     7,349  
Current lease liability   36,149      
Income and other taxes payable   2,210     3,463  
Total current liabilities   176,270     150,924  
Long-term liabilities:        
Long-term debt — net   462,119     850,019  
Deferred income taxes   12,348     15,135  
Lease liability   714,173      
Deferred rent       60,833  
Total liabilities   1,364,910     1,076,911  
         
Stockholders’ equity:        
Capital stock:        
Common stock — voting   88     67  
Common stock — nonvoting       1  
Series A Preferred stock        
Additional capital   711,200     287,457  
Retained earnings   5,400     12,426  
Total stockholders’ equity   716,688     299,951  
Total liabilities and stockholders’ equity   $ 2,081,598     $ 1,376,862  
         

GROCERY OUTLET HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

    26 Weeks Ended
    June 29, 2019   June 30, 2018
Operating activities:        
Net income (loss)   $ (6,858 )   $ 12,811  
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Depreciation and amortization of property and equipment   20,936     18,322  
Amortization of intangible assets   5,069     4,877  
Amortization of debt issuance costs   1,295     2,185  
Amortization of bond discounts   220      
Debt extinguishment and modification costs   5,162      
Loss on disposal of assets   415     (28 )
Stock-based compensation   22,961     263  
Accounts receivable reserve   2,064     2,348  
Deferred lease liabilities       9,935  
Non-cash lease expense   17,329      
Deferred income taxes   (2,787 )   4,777  
Changes in operating assets and liabilities:        
Independent operator and other accounts receivable   3,210     1,380  
Merchandise inventories   (4,410 )   (1,173 )
Prepaid expenses and other current assets   (4,039 )   (561 )
Income and other taxes payable   (1,460 )   (1,645 )
Trade accounts payable   3,620     1,895  
Accrued expenses   (6,159 )   3,452  
Accrued compensation   (1,606 )   (3,621 )
Operating lease liability   (15,244 )    
Net cash provided by operating activities   39,718     55,217  
         
Investing activities:        
Cash advances to independent operators   (5,673 )   (3,255 )
Repayments of cash advances from independent operators   2,026     1,679  
Purchase of property and equipment   (39,806 )   (23,082 )
Proceeds from sales of assets   611     364  
Intangible assets, deposits and licenses   (1,681 )   (1,207 )
Net cash used in investing activities   (44,523 )   (25,501 )
         
Financing activities:        
Proceeds from initial public offering, net of underwriting discounts paid   407,666      
Proceeds from issuance of shares under stock incentive plans   314     29  
Deferred offering costs paid   (4,950 )    
Principal payments on 2014 loans       (2,645 )
Principal payments on 2018 loans   (399,813 )    
Payments on other financing   (450 )   (47 )
Dividends paid   (337 )   (93 )
Debt issuance costs paid   (11 )    
Net cash provided by (used in) financing activities   2,419     (2,756 )
Net increase (decrease) in cash and cash equivalents   (2,386 )   26,960  
Cash and cash equivalents—Beginning of the period   21,063     5,801  
Cash and cash equivalents—End of the period   $ 18,677     $ 32,761  
         

GROCERY OUTLET HOLDING CORP.

RECONCILIATION OF GAAP NET INCOME (LOSS) TO ADJUSTED EBITDA
(in thousands)
(unaudited)

    13 Weeks Ended   26 Weeks Ended
    June 29, 2019   June 30, 2018   June 29, 2019   June 30, 2018
Net income (loss)   $ (10,632 )   $ 7,286     $ (6,858 )   $ 12,811  
Interest expense, net   15,452     13,974     31,890     26,886  
Income tax expense   (4,247 )   2,748     (2,803 )   4,832  
Depreciation and amortization expenses   13,156     11,662     26,005     23,197  
EBITDA   13,729     35,670     48,234     67,726  
Stock-based compensation expenses   22,750     129     22,961     263  
Debt extinguishment and modification costs   5,162         5,162      
Non-cash rent   1,816     1,683     3,678     3,523  
Asset impairment and gain or loss on disposition   233     24     415     (28 )
New store pre-opening expenses   321     431     742     701  
Provision for accounts receivable reserves   581     810     2,064     2,348  
Other   415     375     874     701  
Adjusted EBITDA   $ 45,007     $ 39,122     $ 84,130     $ 75,234  
                 

GROCERY OUTLET HOLDING CORP.

RECONCILIATION OF GAAP NET INCOME (LOSS) TO ADJUSTED NET INCOME
(in thousands, except per share data)
(unaudited)

    13 Weeks Ended   26 Weeks Ended
    June 29, 2019   June 30, 2018   June 29, 2019   June 30, 2018
Net income (loss)   $ (10,632 )   $ 7,286     $ (6,858 )   $ 12,811  
Stock-based compensation expenses   22,750     129     22,961     263  
Debt extinguishment and modification costs   5,162         5,162      
Non-cash rent   1,816     1,683     3,678     3,523  
Asset impairment and gain or loss on disposition   233     24     415     (28 )
New store pre-opening expenses   321     431     742     701  
Provision for accounts receivable reserves   581     810     2,064     2,348  
Other   415     375     874     701  
Amortization of purchase accounting assets and deferred financing costs   3,835     4,274     7,751     8,517  
Tax effect of total adjustments   (10,021 )   (2,115 )   (12,382 )   (4,388 )
Adjusted net income   $ 14,460     $ 12,897     $ 24,407     $ 24,448  
                 
GAAP earnings (net loss) per share                
Basic and diluted   $ (0.15 )   $ 0.11     $ (0.10 )   $ 0.19  
Non-GAAP adjusted earnings per share                
Basic   $ 0.21     $ 0.19     $ 0.35     $ 0.36  
Diluted   $ 0.20     $ 0.19     $ 0.35     $ 0.36  
                 
GAAP weighted average shares outstanding                
Basic   70,475     68,475     69,494     68,471  
Diluted   70,475     68,512     69,494     68,499  
Non-GAAP weighted average shares outstanding                
Basic   70,475     68,475     69,494     68,471  
Diluted   71,315     68,512     69,641     68,499  
                         

 

INVESTOR RELATIONS CONTACT:  
Jean Fontana
646-277-1214
Jean.Fontana@icrinc.com

MEDIA CONTACT:  
Layla Kasha
510-379-2176
lkasha@cfgo.com

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