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Smart & Final Stores Report First Quarter 2019 Financial Results

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Smart & Final Stores Inc. sales increased by 2.8 percent in the first quarter of 2019, according to financial results for the fiscal quarter ending March 24, 2019.

Net sales increased to $1,044.8 million with a comparable store sales increase of 2.2 percent. Gross margin increased 7.0 percent to $156.3 million, adjusted EBITDA increased 3.6 percent to $29.6 million and 2019 Guidance withdrawn due to a pending Apollo Global Management tender offer.

“We had a strong start to the year, with sales growth of 2.8 percent despite a challenging operating environment characterized by low product price inflation and severe weather in many of our market areas,” said David Hirz, president and CEO of the Los Angeles-based company. “Our comparable store sales growth of 2.2 percent highlights the value of our differentiated store banners focused on both business and household customers, growth of our private label offerings, our unique warehouse and club-pack assortments, and the success of our ongoing customer service initiatives. We remain dedicated to enhancing our customers’ shopping experience both in-store and online through our investment in innovative new technology and merchandising programs.”

“On April 16, 2019, we announced an agreement to be acquired by funds managed by affiliates of Apollo Global Management,” Hirz said. “The proposed transaction, which is supported by our majority shareholder, is a testament to the strength of our franchise and the talent and expertise of our associates. We look forward to closing the transaction and benefitting from Apollo’s strategic guidance to help accelerate our business strategy and the growth of our two distinct banners as we begin a new chapter in our almost 150 year-long history.”

In order to aid understanding of the company’s business performance, it has presented results in conformity with accounting principles generally accepted in the United States (GAAP) and also has presented EBITDA, adjusted EBITDA, adjusted net loss, adjusted net loss per share and adjusted net loss per diluted share, which are non-GAAP measures.

Fiscal first quarter 2019 financial results

Net sales were $1,044.8 million in the 12-week quarter ended March 24, 2019, representing a 2.8 percent increase as compared to $1,016.2 million for the same period of 2018. Net sales growth was driven by a 2.2 percent increase in comparable store sales and by the net sales contribution of new stores. Comparable store sales growth was comprised of a 1.7 percent increase in comparable average transaction size, and a 0.4 percent increase in comparable transaction count.

Net sales for Smart & Final banner stores were $815.9 million, a 2.6 percent increase as compared to $795.2 million for the same period of 2018. Comparable store sales growth for the Smart & Final banner was 2.4 percent in the first quarter.

Net sales for Smart Foodservice Warehouse banner stores were $228.9 million, a 3.6 percent increase as compared to $221.0 million for the same period of 2018. Comparable store sales growth for the Smart Foodservice Warehouse banner was 1.5 percent in the first quarter.

Gross margin was $156.3 million, a 7.0 percent increase as compared to $146.3 million in the first quarter of 2018. Gross margin rate was 15.0 percent as compared to 14.4 percent for the same period of 2018.

Operating and administrative expenses were $155.0 million, a 5.2 percent increase as compared to $147.4 million for the same period of 2018. This increase was related to expenses associated with the effect of higher minimum wages, the eight new stores that opened following the first quarter of 2018 through the end of the first quarter of 2019 and related support costs.

Net loss was $6.7 million, or $0.09 per share, as compared to a net loss of $7.1 million, or $0.10 per share, for the same period of 2018.

Adjusted net loss was $3.3 million, or $0.04 per share, as compared to an adjusted net loss of $2.8 million, or $0.04 per share, for the same period of 2018.

Adjusted EBITDA was $29.6 million, an increase of 3.6 percent as compared to $28.6 million for the same period of 2018.

Growth and development

During the fiscal first quarter of 2019, the company opened one new Smart Foodservice Warehouse store. As of March 24, 2019, the company operated a total of 327 stores, including 201 Smart & Final Extra! stores, 59 legacy format Smart & Final stores and 67 Smart Foodservice stores.

Leverage and liquidity

As of March 24, 2019, the company’s debt, net of debt issuance costs, was $653.7 million and cash and cash equivalents were $57.9 million.

For the 12 weeks ended March 24, 2019, the company generated cash from operations of $12.1 million and invested $26.1 million in capital expenditures, primarily related to the improvement of existing assets.

Subsequent events—pending transaction

On April 16, 2019, the company entered into a definitive merger agreement under which certain investment funds (Apollo Funds) managed by affiliates of Apollo Global Management LLC (together with its consolidated subsidiaries, “Apollo”) will acquire all of Smart & Final’s common stock for $6.50 per share. The transaction, which is expected to close by the third quarter of 2019, is conditioned upon satisfaction of the minimum tender condition which requires that shares representing more than 50 percent of the company’s common shares be tendered, the receipt of approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, Mexican competition law approval and other customary closing conditions. Upon completion of the transaction, the company will be a privately held portfolio company of the Apollo Funds, and Smart & Final’s common stock will no longer be listed on the New York Stock Exchange.

Outlook

In light of the pending transaction, the company is no longer providing guidance for its fiscal year ending Dec. 29, 2019.

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