LOS ANGELES, Oct. 31 /PRNewswire-FirstCall/ -- Smart & Final Inc. today reported sales for its sixteen-week third quarter ended October 8, 2006 of $672.6 million, an increase of $38.2 million, or 6.0 percent, over third quarter 2005 sales of $634.4 million. Income from continuing operations was $7.5 million for the third quarter 2006, or $0.23 per diluted share, compared with $1.0 million, or $0.03 per diluted share, for the third quarter 2005. Comparable store sales growth for the 2006 third quarter was 3.8 percent.
Included in the operating results for the 2006 third quarter were $0.7 million net of tax of costs associated with the company's assessment of strategic alternatives and $1.0 million net of tax of stock-based compensation expense. Together these represented an expense of $0.05 per diluted share in the 2006 third quarter. Included in the operating results for the 2005 third quarter were $11.4 million net of tax, or $0.35 per diluted share, of estimated costs associated with a litigation charge related to the settlement of a class action litigation matter.
Etienne Snollaerts, president and chief executive officer, stated "In the third quarter we made great strides in rebuilding our sales momentum and continuing progress in reducing distribution expense. Our comparable store sales rate, which was slightly negative in the 2006 second quarter, increased to a positive 3.8 percent rate in the third quarter while we maintained a steady gross margin rate. Additionally, our overall sales increased 6.0 percent from the 2005 third quarter, reflecting the continuation of our store growth program over the past year."
Snollaerts added, "In our distribution system, we are continuing to reduce overall costs and expense as a percent of sales has been steadily decreasing from our high point in the 2005 fourth quarter. While there is still progress to be made in distribution costs, our operational productivity rates in distribution are now consistently higher than prior to the third quarter 2005 implementation of our new supply chain software. Additionally, our operating and administrative expense rate reflects costs for strategic assessment and stock-based compensation which account for the majority of the increase from the prior year rate."
Gross margin from continuing operations increased $1.4 million, or 1.3 percent, to $110.7 million for the third quarter of 2006 as compared with $109.4 million for the prior year third quarter. As a percentage of sales, gross margin was 16.5 percent for third quarter 2006 and 17.2 percent for the third quarter 2005. The decrease in the year-to-year gross margin rate was primarily due to a lower profit rate on product sales and the impact of new stores, partially offset by lower distribution costs.
As a percentage of sales, operating and administrative expenses increased to 14.2 percent for the 2006 third quarter from 13.7 percent for the 2005 third quarter. Operating and administrative expenses from continuing operations increased $8.8 million, or 10.1 percent, to $95.7 million for the third quarter of 2006 as compared with $86.9 million for the prior year third quarter. The increase in dollars and as a percentage of sales was largely attributable to increased store operating costs, increased information systems costs, increased stock-based compensation costs, and costs associated with the company's assessment of strategic alternatives.
Interest expense increased to $3.1 million for the 2006 third quarter as compared with $2.9 million for the prior year quarter, as a result of higher average debt outstanding and higher interest rates. At the end of the third quarter 2006 the balance outstanding on the revolving credit facility was $30.0 million compared with $25.0 million at the end of the third quarter 2005.
Cash flow from operating activities reflected cash generation of $23.9 million for the forty weeks ended October 8, 2006 compared with cash generation of $59.4 million for the prior year forty week period. The reduction in net cash generated from the prior year forty week period was primarily due to cash utilized for a class-action litigation settlement, and from increased investment in store inventories including seasonal merchandise, and associated working capital.
The company opened two new stores during the 2006 third quarter and closed one store. The company operated 251 stores at the end of the third quarter 2006 compared with 241 stores at the end of the 2005 third quarter.
As previously announced, the company has engaged Goldman Sachs & Co. to act as financial advisor to the company in studying potential strategic alternatives, in light of an announcement by the company's majority shareholder, Casino Guichard-Perrachon S.A., that it is studying the potential sale of non-core portfolio assets. The company's assessment of strategic alternatives is ongoing and through the end of the 2006 third quarter $2.0 million of associated pre-tax costs, or $0.04 per diluted share, had been incurred. Also as previously stated, there can be no assurance as to the timing of this process, the future costs involved, or that any specific transaction will result.
Founded in 1871 in downtown Los Angeles, Smart & Final Inc. currently operates 251 non-membership warehouse stores for food and foodservice supplies in California, Oregon, Washington, Arizona, Nevada, Idaho and northern Mexico. For more information, visit the company's website at http://www.smartandfinal.com/.
A telephone conference call with Smart & Final's senior management will be held on Wednesday November 1, 2006 at 8:00 a.m. Pacific Standard Time. The conference call is available in a listen-only mode through http://www.earnings.com/. Replays of the conference call will also be available.
Forward-Looking and Cautionary Statements
This Smart & Final press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and other expressions of management's belief or opinion which reflect its current understanding or belief with respect to such matters. Such statements are subject to certain risks and uncertainties, including known and unknown factors as included in the company's periodic filings with the Securities and Exchange Commission that could cause actual results to differ materially and adversely from those projected. All of these forward-looking statements are based on estimates and assumptions made by management of the company, which although believed to be reasonable, are inherently uncertain and difficult to predict; therefore, undue reliance should not be placed upon such statements. Current and future operating trends and results may be impacted by important factors, including the implementation of key information system initiatives and their potential effect on company operations. There can be no assurance that the company will not incur new or additional unforeseen costs in connection with the ongoing conduct of its business, including its exploration of potential strategic alternatives. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be realized. Except as specifically set forth herein, the company undertakes no obligation to update any such forward-looking or other statement.
SMART & FINAL INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share amounts)
October 8, January 1,
2006 2006 - ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $31,067 $31,887
Accounts receivable, less allowance for
doubtful accounts of $287 in 2006 and
$273 in 2005 14,328 18,410
Inventories 168,122 158,553
Prepaid expenses and other current assets 19,098 16,333
Deferred tax assets 14,031 13,036
Assets held for sale 2,129 2,129
Total current assets 248,775 240,348
Property, plant and equipment:
Land 79,188 70,860
Buildings and improvements 66,219 62,335
Leasehold improvements 139,858 137,467
Fixtures and equipment 221,554 209,751
506,819 480,413
Less - Accumulated depreciation and
amortization 243,080 221,951
Net property, plant and equipment 263,739 258,462
Assets under capital leases, net of
accumulated amortization of $3,020 in 2006
and $5,106 in 2005 1,069 1,423
Goodwill 34,775 34,775
Deferred tax assets 16,400 28,749
Equity investment in joint venture 8,145 7,481
Cash held in real estate trust 123 120
Other assets 70,503 66,960
Total assets $643,529 $638,318
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and
capital leases $53,875 $54,076
Notes payable to affiliate 33,125 33,146
Accounts payable 96,245 99,694
Accrued salaries and wages 16,098 19,898
Other accrued liabilities 36,157 56,251
Liabilities of discontinued operations 760 1,101
Total current liabilities 236,260 264,166
Long-term liabilities:
Obligations under capital leases 1,395 1,848
Bank debt 30,000 20,000
Other long-term liabilities 36,108 35,086
Postretirement and postemployment benefits 43,160 43,275
Total long-term liabilities 110,663 100,209
Commitments and contingencies
Stockholders' equity:
Preferred stock, $1 par value (authorized
10,000,000 shares; no shares issued) -- --
Common stock, $0.01 par value (authorized
100,000,000 shares; 32,541,031 shares
issued and outstanding in 2006 and
31,903,478 in 2005) 322 319
Additional paid-in capital 239,185 231,775
Retained earnings 83,270 67,523
Accumulated other comprehensive loss (16,013) (15,822)
Notes receivable for common stock (18) (18)
Treasury stock, at cost, 755,376 shares
in 2006 and 729,475 shares in 2005 (10,140) (9,834)
Total stockholders' equity 296,606 273,943
Total liabilities and stockholders'
equity $643,529 $638,318
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
Sixteen Weeks Ended Forty Weeks Ended
October 8, October 9, October 8, October 9,
2006 2005 2006 2005
(Unaudited) (Unaudited)
Sales $672,558 $634,371 $1,613,074 $1,546,101
Cost of sales, buying
and occupancy 561,810 524,996 1,350,259 1,288,819
Gross margin 110,748 109,375 262,815 257,282
Operating and
administrative expenses 95,679 86,903 230,130 211,444
Litigation charge -- 19,000 -- 19,000
Income from operations 15,069 3,472 32,685 26,838
Interest expense, net 3,111 2,882 8,004 7,262
Income from continuing
operations before
income taxes 11,958 590 24,681 19,576
Income tax provision (4,762) (136) (9,785) (7,585)
Equity earnings of joint
venture 257 497 851 652
Income from continuing
operations 7,453 951 15,747 12,643
Discontinued operations,
net of tax -- (128) -- (534)
Net income $7,453 $823 $15,747 $12,109
Earnings (loss) per
common share*:
Earnings per common
share from continuing
operations $0.24 $0.03 $0.50 $0.41
Loss per common share
from discontinued
operations -- -- -- (0.02)
Earnings per common
share $0.24 $0.03 $0.50 $0.39
Weighted average common
shares 31,415,296 30,883,785 31,313,528 30,768,305
Earnings (loss) per
common share, assuming
dilution*:
Earnings per common
share, assuming
dilution, from
continuing operations $0.23 $0.03 $0.49 $0.39
Loss per common share,
assuming dilution,
from discontinued
operations -- -- -- (0.02)
Earnings per common
share, assuming
dilution $0.23 $0.03 $0.49 $0.38
Weighted average common
shares and common
share equivalents 32,204,239 32,229,174 32,084,144 32,122,664
* Totals may not aggregate due to rounding.
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AS A PERCENTAGE OF SALES
Sixteen Weeks Ended Forty Weeks Ended
October 8, October 9, October 8, October 9,
2006 2005 2006 2005
(Unaudited) (Unaudited)
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, buying
and occupancy 83.5 82.8 83.7 83.4
Gross margin 16.5 17.2 16.3 16.6
Operating and
administrative expenses 14.2 13.7 14.3 13.7
Litigation charge -- 3.0 -- 1.2
Income from operations 2.2 0.5 2.0 1.7
Interest expense, net 0.5 0.5 0.5 0.5
Income from continuing
operations before
income taxes 1.8 0.1 1.5 1.3
Income tax provision (0.7) -- (0.6) (0.5)
Equity earnings of joint
venture -- 0.1 0.1 --
Income from continuing
operations 1.1 0.1 1.0 0.8
Discontinued operations,
net of tax -- -- -- --
Net income 1.1% 0.1% 1.0% 0.8%
*Totals may not aggregate due to rounding.
SMART & FINAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Forty Weeks Ended
October 8, October 9,
2006 2005
(Unaudited)
Cash Flows from Operating Activities:
Income from continuing operations $15,747 $12,643
Adjustments to reconcile income from
continuing operations to net cash
provided by continuing activities:
Non-cash litigation charge, net of tax -- 11,373
Depreciation 14,459 14,066
Amortization 12,708 9,777
Amortization of deferred financing costs 359 220
Share-based compensation 2,475 845
Excess tax benefit from share-based
compensation (693) --
Deferred income tax provision 11,354 943
Equity earnings of joint venture (851) (652)
Asset impairment, at gross 594 --
Gain on disposal of property, plant and
equipment (75) (64)
Decrease (increase) in:
Accounts receivable 4,088 527
Inventories (9,568) (2,589)
Prepaid expenses and other assets (4,506) 2,471
Increase (decrease) in:
Accounts payable (3,449) 10,749
Accrued salaries and wages (3,800) (2,921)
Other accrued liabilities (14,905) 2,060
Net cash provided by continuing activities 23,937 59,448
Net cash used in discontinued activities -- (1,970)
Net cash provided by operating activities 23,937 57,478
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (31,874) (34,678)
Proceeds from disposal of property, plant
and equipment 82 37
Investment in capitalized software (6,453) (9,088)
Other 16 (423)
Net cash used in investing activities (38,229) (44,152)
Cash Flows from Financing Activities:
Payments on bank line of credit (60,000) (20,000)
Borrowings on bank line of credit 70,000 20,000
Payments on notes payable (675) (1,040)
Excess tax benefits from share-based
compensation 693 --
Stock repurchases (289) --
Payments in connection with debt amendments -- (215)
Proceeds from issuance of common stock,
net of costs 3,743 1,388
Net cash provided by financing activities 13,472 133
(Decrease) Increase in cash and cash equivalents (820) 13,459
Cash and cash equivalents at beginning of the
period 31,887 28,672
Cash and cash equivalents at end of the period $31,067 $42,131
