Smart & Final Stores Inc., a value-oriented food and everyday staples retailer, has released its financial results for the fiscal third quarter ended Oct. 8, and the news is largely positive. Highlights include: net sales increase of 4.5 percent to $1,457.4 million; comparable store sales increase of 1.5 percent; net income of $5.1 million, or $0.07 per diluted share; adjusted net income of $12.9 million, or $0.17 per diluted share; adjusted EBITDA of $62.9 million, an increase of 10 percent.
“Our third quarter financial performance demonstrates improving fundamentals despite a challenging industry environment,” said David Hirz, president and CEO. “We are encouraged by our 4.5 percent increase in net sales and 1.5 percent growth in comparable store sales, the second consecutive quarter of positive comparable store sales in 2017. Our stable gross margin rate and low-cost operating model helped to deliver a 10 percent increase in adjusted EBITDA over the prior year quarter.
“Smart & Final has a long history of business evolution, and we’re well positioned to support our customers’ needs today and in the future. We’ve invested to provide customers with digital ordering and delivery platforms to allow for greater flexibility in shopping from our unique, value-oriented assortment. Looking forward to 2018, we are planning a disciplined approach to capital investment, with more modest unit growth to realize the benefits of the significant investments made in new stores in the last couple of years. As a result, we expect that our debt-to-EBITDA leverage ratio will continue to improve.”
3Q 2017 financial results
Net sales were $1,457.4 million in the 16-week quarter ended Oct. 8, representing a 4.5 percent increase as compared to $1,394.4 million for the same period of 2016. Net sales growth was driven by a 1.5 percent increase in comparable store sales and from the net sales contribution of new stores. Comparable store sales growth was comprised of a 1.5 percent increase in comparable average transaction size and a 0.1 percent increase in comparable transaction count, including the effect of cannibalization from new stores.
Net sales for Smart & Final banner stores were $1,115.2 million, a 2.9 percent increase as compared to $1,083.4 million for the same period of 2016. Comparable store sales growth for the Smart & Final banner was 1 percent in the third quarter.
Net sales for Cash & Carry banner stores were $342.1 million, a 10 percent increase as compared to $311.0 million for the same period of 2016. Comparable store sales growth for the Cash & Carry banner was 3.4 percent in the third quarter.
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Gross margin was $213.8 million, a 5.3 percent increase as compared to $203.0 million in the third quarter of 2016. Gross margin rate was 14.7 percent as compared to 14.6 percent for the same period of 2016.
Operating and administrative expenses were $195.3 million, a 6.5 percent increase as compared to $183.4 million for the same period of 2016. This increase was primarily related to expenses associated with the 15 new stores that opened following the third quarter of 2016 through the end of the third quarter of 2017 and related support costs.
Net income was $5.1 million, including the effect of store development expenses, as compared to $7 million for the same period of 2016. Net income per diluted share was $0.07 as compared to $0.09 for the same period of 2016.
Adjusted net income was $12.9 million, as compared to $15 million for the same period of 2016. Adjusted net income per diluted share was $0.17 as compared to $0.19 for the same period of 2016.
Adjusted EBITDA was $62.9 million as compared to $57.2 million for the same period of 2016.
Growth and development
During the fiscal third quarter of 2017, the company opened one new Smart & Final Extra! store, and completed two conversions of legacy Smart & Final stores to the Extra! store format, including one store relocation. The company also opened two new Cash & Carry banner stores during the quarter. As of Oct. 8, Smart & Final operated a total of 316 stores, including 183 Smart & Final Extra! stores, 70 legacy format Smart & Final stores and 63 Cash & Carry stores.
Leverage and liquidity
As of Oct. 8, the company’s debt, net of debt issuance costs, was $683.1 million and cash and cash equivalents were $60.9 million.
For the forty weeks ended Oct. 8, the company generated cash from operations of $128.0 million and invested $117.6 million in capital expenditures, primarily related to the development of Extra! format stores and to improvements of existing assets.