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Smart & Final finishes year with net loss

Foodservice warehouse stores see robust sales gains

With impairment charges hitting the bottom line, Smart & Final Stores Inc. posted net losses for its 2018 fourth quarter and fiscal year.

The warehouse-style food retailer also missed Wall Street’s forecast for adjusted earnings per share (EPS), despite sales gains in both periods.

For the fourth quarter ended Dec. 30, Smart & Final had a net loss of $121.8 million, or $1.66 per diluted share, compared with a net loss of $146.6 million, or $2.03 per diluted share, a year earlier.

Smart & Final noted that the loss reflects a goodwill impairment charge of $94 million related to the Smart & Final banner, store impairment charges of $12.5 million and valuation charges from deferred tax assets of $13.1 million (after tax). In the prior-year period, the Commerce, Calif.-based company reported a goodwill impairment charge of $180 million.

Adjusted net earnings for the 2018 quarter were $6 million, or 8 cents per diluted share, versus $11.3 million, or 15 cents per diluted share, a year ago. Analysts, on average, had projected adjusted EPS of 12 cents, with estimates ranging from a low of 11 cents to a high of 14 cents, according to Refinitiv/Thomson Reuters.

Adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] came in at $41.5 million, down from $49.1 million in the 2017 quarter.

At the top line, Smart & Final tallied 2018 fourth-quarter net sales of $1.1 billion, up 3.2% from $1.07 billion a year earlier. The company attributed the increase to a 1.9% uptick in comparable-store sales and the net sales contribution of new stores. Average transaction size grew 1.7% year over year, while the number of transactions inched up 0.2%.

Smart & Final banner stores saw net sales rise 2.7% to $864.4 million in the quarter, with same-store sales edging up 1.3%. Stronger results were posted by the Smart Foodservice Warehouse stores, where net sales climbed 5% to $238 million and comp-store sales rose 4.3%.

David_Hirz_Smart_&_Final_CEO.png"Our fiscal 2018 performance was solid, with 3.7% year-over-year sales growth, while facing an environment with low rates of product price inflation and rising operating costs that created significant headwinds to earnings growth,” President and CEO David Hirz (left) said in a statement. “In the fourth quarter, we delivered our seventh consecutive quarter of positive comparable-store sales, led by growth in both average transaction size and comparable transaction count, reflecting our unique assortment of business and club-pack items, our high-quality private-label offerings and convenient e-commerce options.”

For the full 2018 fiscal year, Smart & Final reported a net loss of $112.2 million, or $1.54 per diluted share, compared with a net loss of $138.9 million, or $1.92 per diluted share, in 2017. Both periods reflect the aforementioned impairment charges.

On an adjusted basis, net income $31.4 million, or 42 cents per diluted share, for 2018 versus $33.7 million, or 45 cents per diluted share, in 2017. Analysts’ consensus estimate was for 2018 adjusted EPS of 47 cents, with projections running from a low of 46 cents to a high of 48 cents, according to Refinitiv/Thomson Reuters.

Adjusted EBITDA for 2018 fell to $181.8 million from $184.4 million in 2017.

Fiscal 2018 net sales increased 3.7% to $4.74 billion from $4.57 billion the year before. Comp-store sales were up 1.2%, reflecting a 2.3% gain in average transaction size and a 1.1% decrease in transaction count.

Smart & Final stores had net sales of $3.67 billion, up 3.2% year over year, with same-store sales rising 0.5%. Net sales for the Smart Foodservice Warehouse banner grew 5.6% to $1.07 billion, while comp-store results were up 3.6%.

Smart & Final said that, in the fourth quarter, it opened one new Smart & Final Extra! store, relocated and converted one legacy Smart & Final store to an Extra! format store, closed one legacy Smart & Final store and opened two new Smart Foodservice Warehouse stores. As of Dec. 30, 2018, the retailer operated 326 stores, including 201 Smart & Final Extra! stores, 59 legacy Smart & Final stores and 66 Smart Foodservice Warehouse stores.

During fiscal 2019, Smart & Final plans to open one Smart & Final Extra! store and four Smart Foodservice Warehouse stores as well as relocate one or two Smart & Final stores.

"In 2019, we will continue to aggressively expand online options for both our small-business and household customers by introducing new e-commerce channels and order fulfillment options,” Hirz added. “Our vision will offer even greater levels of value and convenience to our target customers, at attractive economics, to capitalize on the significant growth in e-commerce that we continue to experience."

Smart & Final projects adjusted EPS (diluted) of 41 cents to 46 cents for 2019 and same-store sales growth of 1.5% to 2.5%. Net sales are forecast to rise 2.5% to 3.5%.

Analysts’ average estimate is for 2019 adjusted EPS of 46 cents, with projections ranging from 44 cents to 50 cents.

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