Smart & Final said Wednesday that effects of deflation, cannibalization and bad weather contributed to a comparable-store sales decline of 2.5% and an adjusted net loss of $1.5 million in the fiscal first quarter, but that it anticipated those effects would subside through the year.
The Commerce, Calif.-based company said total revenues improved by 6.4% to $967 million in the quarter, which ended March 26. It posted a net loss of $4.6 million, or $1.5 million loss when adjusted for effects of income tax benefits in both periods.
Analysts had anticipated less severe comp declines and slightly positive earnings. The company maintained previous guidance for 1% to 2% comp growth, net sales growth of 5.5% to 6.5% and net income of $39 to $43 million for the fiscal year.
“The operating environment in the first quarter remained challenging, with lingering effects of deflation and cannibalization weighing on our sales performance and results of operations," David Hirz, president and CEO, said in a statement. "Our ability to deliver first quarter net sales growth of 6% year-over-year, despite market conditions and severe weather in our market areas, highlights the effectiveness of our differentiated model, as a one-stop shop for our household and business customers, and our unique product assortment of private label, club sizes and high-quality perishables. In the second half of 2017, we expect deflationary and cannibalization pressures to alleviate, and with severe weather behind us, anticipate positive comparable store sales growth and improved financial comparisons.”
Smart & Final is in the process of opening 19 new stores this fiscal year, which is contributing to overall sales growth but affecting sales at surrounding locations. Fifteen of the new stores will carry the Smart & Final Extra! banner, a non-membership warehouse model. Four of the new ones will open under the Cash & Carry banner, which primarily serves foodservice business customers.
Comps during the first quarter reflected a 0.4% decrease in comparable transaction count, including the effect of cannibalization from new stores, and a 2.1% decrease in comparable average transaction size, including the impact of deflation in key product categories in both store banners.
Gross margin from operations was $133.1 million, a 3.7% increase, compared to $128.4 million in the first quarter of 2016. Gross margin rate was 13.8% as compared to 14.1% for the same period of 2016.