Smart & Final Reports Sixth Consecutive Quarter Of Comp Sales Growth

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Smart & Final Stores Inc. has released its financial results for the fiscal third quarter ended Oct. 7, 2018. Among the highlights of the report, Smart & Final reported a net sales increase of 2.8 percent to $1.497 billion; a comparable store sales increase of 0.6 percent; and gross margin increase of 8.7 percent to $232.4 million. In addition, adjusted EBITDA was $62.3 million, and debt was reduced by $23 million ($46 million year-to-date).

“Our third quarter performance was solid with 2.8 percent year-over-year growth in overall sales. We also delivered our sixth consecutive quarter of positive comparable store sales, with growth in both average transaction size and merchandise margins despite greater pressure from deflation in product prices,” said David Hirz, Smart & Final president and CEO.  “We also continue to allocate our strong free cash flow from operations to reduce outstanding debt with a year-to-date reduction of $46 million. 

“Our focus on our key customer segments, including small business customers, is growing sales despite deflation, as we build on our core strengths in value pricing and unique merchandising. We continue to support our value proposition through targeted investments in digital commerce and infrastructure, which are helping to drive strong online sales gains in both our Smart & Final and Smart Foodservice Warehouse banners.”

During the third quarter, the company opened three new Smart & Final Extra! stores, relocated one legacy Smart & Final store to an Extra! format store and closed one legacy Smart & Final store. As of Oct. 7, the company operated a total of 324 stores, including 199 Smart & Final Extra! stores, 61 legacy format Smart & Final stores and 64 Smart Foodservice Warehouse stores, in California, Oregon, Washington, Arizona, Nevada, Idaho, Montana, and Utah.

Year-to-date, the company has closed three legacy Smart & Final banner stores where leases were expiring and the store economic performance was marginal.  The company expects to close one additional legacy store in the fourth quarter of fiscal 2018.

Fiscal third quarter results

In the 16-week quarter ended Oct. 7, 2018, the 2.8 percent net sales increase to $1.497 billion—vs. $1.457 billion for the same period of 2017—was driven by a 0.6 percent increase in comparable store sales and from the net sales contribution of new stores, according to Smart & Final. Comparable store sales growth comprised a 1.9 percent increase in comparable average transaction size, partially offset by a 1.3 percent decrease in comparable transaction count. The company estimates that the year-to-year deflation rate in product pricing was -0.7 percent in the third quarter.

Net sales for Smart & Final banner stores were $1.14 billion, a 2.6 percent increase as compared to $1.12 billion for the same period of 2017. Comparable store sales growth for the Smart & Final banner was 0.2 percent in the third quarter.

Net sales for Smart Foodservice Warehouse banner stores were $353.6 million, a 3.3 percent increase vs. $342.1 million for the same period of 2017. Comparable store sales growth for the Smart Foodservice Warehouse banner was 2 percent in the third quarter.

Gross margin was $232.4 million, an 8.7 percent increase compared to $213.9 million in the third quarter of 2017. Gross margin rate was 15.5 percent as compared to 14.7 percent for the same period of 2017. Gross margin rate in the quarter was supported by the company’s strategic sourcing, merchandising and pricing initiatives.

Operating and administrative expenses were $209.9 million, a 7.5 percent increase as compared to $195.3 million for the same period of 2017. This increase was related to expenses associated with the effect of higher minimum wage rates, as well as new stores opened during the prior twelve months and their related support costs.

The third quarter results reflect an effective tax rate benefit of approximately 2 percent, which includes a $2.9 million discrete tax benefit related to accelerated depreciation deductions included in the company’s 2017 income tax return and the effect of the 2017 Tax Cuts and Jobs Act. 

Net income was $10.2 million, or $0.14 per share, as compared to net income of $5.1 million, or $0.07 per share, for the same period of 2017. Adjusted net income was $16.9 million, or $0.23 per share, as compared to adjusted net income of $12.9 million, or $0.17 per share, for the same period of 2017.   

Adjusted EBITDA was $62.3 million, a slight decrease of 1 percent as compared to $62.9 million for the same period of 2017.


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About The Author

A word nerd, grocery geek and three-year member of The Shelby Report. She is a proud new homeowner and a great lover of avocado toast.