Grocery Outlet Holding Corp. (NASDAQ: GO) ("Grocery Outlet" or the
"Company") today announced financial results for the first quarter
of fiscal 2023 ended April 1, 2023.
Highlights for First Quarter Fiscal 2023
as compared to First Quarter Fiscal 2022:
- Net sales increased by 16.1% to
$965.5 million.
- Comparable store sales increased by
12.1%, driven by a 7.9% increase in the number of transactions
combined with a 3.9% increase in average transaction size.
- The Company opened three new
stores, ending the quarter with 444 stores in eight states.
- Net income increased 18.5% to $13.7
million, or $0.14 per diluted share.
- Adjusted EBITDA(1) increased by
36.9% to $63.1 million.
- Adjusted net income(1) increased by
40.7% to $27.0 million, or $0.27 per adjusted diluted
share(1).
RJ Sheedy, President and CEO of Grocery Outlet,
commented, "Our first quarter performance exceeded expectations
driven by strong same store sales results, gross margin expansion
and bottom-line leverage. We are encouraged by the growth in
transactions as we are attracting new customers and our existing
customers are shopping with us more often. We are delivering on our
mission of Touching Lives for the Better and we continue to execute
our strategic growth initiatives to maximize long-term shareholder
value."
____________________(1) Adjusted EBITDA,
adjusted net income and adjusted diluted earnings per share are
non-GAAP financial measures, which exclude the impact of certain
special items. Please note that our non-GAAP financial measures
should be considered as a supplement to, and not as a substitute
for, or superior to, financial measures calculated in accordance
with GAAP. See the "Non-GAAP Financial Information" section of this
release as well as the respective reconciliations of our non-GAAP
financial measures below for additional information about these
items.
Balance Sheet and Cash
Flow:
- Cash and cash equivalents totaled
$82.1 million at the end of the first quarter of fiscal 2023.
- On February 21, 2023, the Company
completed the refinancing of its credit facility in order to lower
borrowing costs and increase both liquidity and financial
flexibility. The new facility includes a $300.0 million term loan
and a $400.0 million revolving credit facility. At closing, the
term loan was borrowed in full and $25.0 million was drawn against
the revolving credit facility. Total debt was $323.1 million at the
end of the first quarter of fiscal 2023, net of unamortized debt
issuance costs. On April 21, 2023, the Company repaid the
$25.0 million of principal on its revolving credit
facility.
- Net cash provided by operating
activities during the first quarter of fiscal 2023 was
$87.6 million.
- Capital expenditures for the first
quarter of fiscal 2023, before the impact of tenant improvement
allowances, were $40.8 million, and, net of tenant improvement
allowances, were $38.5 million.
Outlook:
The Company is revising its fiscal 2023 outlook
on key metrics as follows:
|
Previous |
Revised |
New store openings, net |
25 to 28 |
25 to 28 |
Net sales |
$3.85 billion to $3.90 billion |
~$3.90 billion |
Comparable store sales increase |
4.5% to 5.5% |
5.0% to 6.0% |
Gross margin |
~30.6% |
~30.7% |
Adjusted EBITDA(1) |
$237 million to $243 million |
$240 million to $246 million |
Adjusted earnings per share — diluted(1) |
$0.94 to $0.99 |
$0.96 to $1.00 |
Capital expenditures (net of tenant improvement allowances) |
~$155 million |
~$155 million |
Conference Call
Information:
A conference call to discuss the first quarter
fiscal 2023 financial results is scheduled for today, May 9,
2023 at 4:30 p.m. Eastern Time. Investors and analysts interested
in participating in the call are invited to dial (877) 407-9208
approximately 10 minutes prior to the start of the call, using
conference ID #13730481. A live audio webcast of the conference
call will be available online at
https://investors.groceryoutlet.com.
A taped replay of the conference call will be
available within two hours of the conclusion of the call and can be
accessed both online and by dialing (844) 512-2921 and entering
access code 13730481. The replay will be available for
approximately two weeks after the call.
Reclassification of Certain Statements
of Operations and Comprehensive Income Items:
In the first quarter of fiscal 2023, in order to
enhance the comparability of our results with our peers, we updated
our presentation of the condensed consolidated statements of
operations and comprehensive income to include depreciation and
amortization expenses and share-based compensation expenses within
selling, general and administrative expenses. Prior period amounts
have been reclassified to conform to current period presentation.
The reclassification of these items had no impact on net income,
earnings per share, or retained earnings in the current or prior
periods.
Non-GAAP Financial
Information:
In addition to reporting financial results in
accordance with accounting principles generally accepted in the
United States ("GAAP"), the Company uses EBITDA, adjusted EBITDA,
adjusted net income and adjusted earnings per share as supplemental
measures of performance to evaluate the effectiveness of its
business strategies, to make budgeting decisions and to compare its
performance against that of other peer companies using similar
measures. In addition, the Company uses adjusted EBITDA to
supplement GAAP measures of performance to evaluate performance in
connection with compensation decisions. Management believes it is
useful to investors and analysts to evaluate these non-GAAP
measures on the same basis as management uses to evaluate the
Company's operating results. Management believes that excluding
items from operating income, net income and net income per diluted
share that may not be indicative of, or are unrelated to, the
Company's core operating results, and that may vary in frequency or
magnitude, enhances the comparability of the Company's results and
provides additional information for analyzing trends in the
business.
Adjusted EBITDA is defined as net income before
net interest expense, income taxes, depreciation and amortization
expenses ("EBITDA") and adjusted to exclude share-based
compensation expense, loss on debt extinguishment and modification,
asset impairment and gain or loss on disposition and certain other
expenses that may not be indicative of, or are unrelated to, the
Company's core operating results, and that may vary in frequency or
magnitude. Adjusted net income represents net income adjusted for
the previously mentioned adjusted EBITDA adjustments, further
adjusted for costs related to amortization of purchase accounting
assets and deferred financing costs, tax adjustment to normalize
the effective tax rate, and tax effect of total adjustments. Basic
adjusted earnings per share is calculated using adjusted net
income, as defined above, and basic weighted average shares
outstanding. Diluted adjusted earnings per share is calculated
using adjusted net income, as defined above, and diluted weighted
average shares outstanding.
EBITDA, adjusted EBITDA, adjusted net income and
adjusted earnings per share are non-GAAP measures and may not be
comparable to similar measures reported by other companies. EBITDA,
adjusted EBITDA, adjusted net income and adjusted earnings per
share have limitations as analytical tools, and you should not
consider them in isolation or as a substitute for analysis of the
Company's results as reported under GAAP. The Company addresses the
limitations of the non-GAAP measures through the use of various
GAAP measures. In the future the Company will incur expenses or
charges such as those added back to calculate adjusted EBITDA or
adjusted net income. The presentation of EBITDA, adjusted EBITDA,
adjusted net income and adjusted earnings per share should not be
construed as an inference that future results will be unaffected by
the adjustments used to derive these non-GAAP measures.
Beginning with the fourth quarter of fiscal
2022, we updated our definitions of adjusted EBITDA, adjusted net
income and adjusted earnings per share to no longer exclude the
impact of non-cash rent expense and the provision for accounts
receivable reserves. See the "Operating Metrics and Non-GAAP
Financial Measures" section of our Annual Report on Form 10-K for
the fiscal year ended December 31, 2022 for more
information.
The Company has not reconciled the non-GAAP
adjusted EBITDA and adjusted diluted earnings per share
forward-looking guidance included in this release to the most
directly comparable GAAP measures because this cannot be done
without unreasonable effort due to the variability and low
visibility with respect to taxes and non-recurring items, which are
potential adjustments to future earnings. We expect the variability
of these items to have a potentially unpredictable, and a
potentially significant, impact on our future GAAP financial
results.
Forward-Looking Statements:
This news release includes forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements contained in this release other
than statements of historical fact, including statements regarding
our future operating results and financial position, our business
strategy and plans, business and market trends, our objectives for
future operations, macroeconomic and geopolitical conditions, and
the sufficiency of our cash balances, working capital and cash
generated from operating, investing, and financing activities for
our future liquidity and capital resource needs may constitute
forward-looking statements. Words such as "anticipate," "believe,"
"estimate," "expect," "intend," "may," "outlook," "plan,"
"project," "seek," "will," and similar expressions, are intended to
identify such forward-looking statements. These forward-looking
statements are subject to a number of risks, uncertainties and
assumptions that may cause actual results to differ materially from
those expressed or implied by any forward-looking statements,
including the following: failure of suppliers to consistently
supply the Company with opportunistic products at attractive
pricing; inability to successfully identify trends and maintain a
consistent level of opportunistic products; failure to maintain or
increase comparable store sales; failure to open, relocate or
remodel stores on schedule and on budget (including due to
increased lead times to acquire materials, obtain permits and
licenses as well as higher construction related costs); inflation
(resulting in part from various supply disruptions, increased
shipping and transportation costs, increased commodity costs,
increased labor costs in the supply chain, increased selling,
general and administrative expenses and the uncertain economic
environment) and other changes affecting the market prices and
supply of the products the Company sells; risks associated with
newly opened stores; costs and successful implementation of
marketing, advertising and promotions; failure to maintain the
Company's reputation and the value of its brand, including
protecting intellectual property; any significant disruption to the
Company's distribution network, the operations of its distributions
centers and timely receipt of inventory; inability to maintain
sufficient levels of cash flow from operations; risks associated
with leasing substantial amounts of space; failure to participate
effectively in the growing online retail marketplace; natural or
man-made disasters, unusual weather conditions (which may become
more frequent due to climate change), power outages, pandemic
outbreaks, terrorist acts, global political events or other serious
catastrophic events and the concentration of the Company's business
operations; unexpected costs and negative effects if the Company
incurs losses not covered by insurance; inability to attract, train
and retain highly qualified employees; risks associated with
macroeconomic and geopolitical conditions; competition in the
retail food industry; movement of consumer trends toward private
labels and away from name-brand products; failure of the Company's
independent operators ("IOs") to successfully manage their
business; failure of the IOs to repay notes outstanding to us;
inability to attract and retain qualified IOs; inability of the IOs
to avoid excess inventory shrink; any loss or changeover of an IO;
legal proceedings initiated against the IOs; legal challenges to
the IO/independent contractor business model; failure to maintain
positive relationships with the IOs; risks associated with actions
the IOs could take that could harm the Company's business; failure
to maintain the security of information relating to personal
information or payment card data of customers, employees and
suppliers; material disruption to information technology systems;
risks associated with products the Company and its IOs sell; risks
associated with laws and regulations generally applicable to
retailers; legal proceedings from customers, suppliers, employees,
governments or competitors; the Company's substantial indebtedness
could affect its ability to operate its business, react to changes
in the economy or industry or pay debts and meet obligations;
restrictive covenants in the Company's debt agreements may restrict
its ability to pursue its business strategies, and failure to
comply with any of these restrictions could result in acceleration
of the Company's debt; risks associated with tax matters; changes
in accounting standards and subjective assumptions, estimates and
judgments by management related to complex accounting matters; and
the other factors discussed under "Risk Factors" in the Company's
most recent annual report on Form 10-K and in other subsequent
reports the Company files with the United States Securities and
Exchange Commission (the "SEC"). The Company's periodic filings are
accessible on the SEC's website at www.sec.gov.
Moreover, the Company operates in a very
competitive and rapidly changing environment, and new risks emerge
from time to time. Although the Company believes that the
expectations reflected in the forward-looking statements are
reasonable, and our expectations based on third-party information
and projections are from sources that management believes to be
reputable, the Company cannot guarantee that future results, levels
of activity, performance or achievements. These forward-looking
statements are made as of the date of this release or as of the
date specified herein and the Company has based these
forward-looking statements on current expectations and projections
about future events and trends. Except as required by law, the
Company does not undertake any duty to update any of these
forward-looking statements after the date of this news release or
to conform these statements to actual results or revised
expectations.
About Grocery Outlet:
Based in Emeryville, California, Grocery Outlet
is a high-growth, extreme value retailer of quality, name-brand
consumables and fresh products sold through a network of
independently operated stores. Grocery Outlet has more than 440
stores in California, Washington, Oregon, Pennsylvania, Idaho,
Nevada, Maryland and New Jersey.
GROCERY OUTLET HOLDING
CORP.CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME(in thousands,
except per share data)(unaudited)
|
|
|
13 Weeks Ended |
|
April 1,2023 |
|
April 2,2022 |
Net sales |
$ |
965,467 |
|
$ |
831,427 |
Cost of sales |
|
664,924 |
|
|
580,538 |
Gross profit |
|
300,543 |
|
|
250,889 |
Selling, general and administrative expenses |
|
267,725 |
|
|
231,461 |
Income from operations |
|
32,818 |
|
|
19,428 |
Other expenses: |
|
|
|
Interest expense, net |
|
5,919 |
|
|
3,682 |
Loss on debt extinguishment and modification |
|
5,340 |
|
|
— |
Total other expenses |
|
11,259 |
|
|
3,682 |
Income before income taxes |
|
21,559 |
|
|
15,746 |
Income tax expense |
|
7,839 |
|
|
4,172 |
Net income and comprehensive income |
$ |
13,720 |
|
$ |
11,574 |
Basic earnings per share |
$ |
0.14 |
|
$ |
0.12 |
Diluted earnings per share |
$ |
0.14 |
|
$ |
0.12 |
Weighted average shares outstanding: |
|
|
|
Basic |
|
97,920 |
|
|
96,148 |
Diluted |
|
100,569 |
|
|
99,434 |
|
|
|
|
|
|
|
|
|
|
|
|
GROCERY OUTLET HOLDING
CORP.CONDENSED CONSOLIDATED BALANCE
SHEETS(in
thousands)(unaudited)
|
|
|
|
|
April 1,2023 |
|
December 31,2022 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
82,115 |
|
$ |
102,728 |
Independent operator receivables and current portion of independent
operator notes, net of allowance |
|
8,693 |
|
|
10,805 |
Other accounts receivable, net of allowance |
|
4,277 |
|
|
4,368 |
Merchandise inventories |
|
316,397 |
|
|
334,319 |
Prepaid expenses and other current assets |
|
15,725 |
|
|
15,137 |
Total current assets |
|
427,207 |
|
|
467,357 |
Independent operator notes and receivables, net of allowance |
|
24,914 |
|
|
22,535 |
Property and equipment, net |
|
574,225 |
|
|
560,746 |
Operating lease right-of-use assets |
|
917,175 |
|
|
902,163 |
Intangible assets, net |
|
68,713 |
|
|
63,993 |
Goodwill |
|
747,943 |
|
|
747,943 |
Other assets |
|
9,504 |
|
|
7,667 |
Total assets |
$ |
2,769,681 |
|
$ |
2,772,404 |
Liabilities and Stockholders' Equity |
|
|
|
Current liabilities: |
|
|
|
Trade accounts payable |
$ |
158,618 |
|
$ |
137,631 |
Accrued and other current liabilities |
|
55,586 |
|
|
53,213 |
Accrued compensation |
|
13,249 |
|
|
27,194 |
Current portion of long-term debt |
|
5,625 |
|
|
— |
Current lease liabilities |
|
58,754 |
|
|
54,586 |
Income and other taxes payable |
|
9,107 |
|
|
7,890 |
Total current liabilities |
|
300,939 |
|
|
280,514 |
Long-term debt, net |
|
317,436 |
|
|
379,650 |
Deferred income tax liabilities, net |
|
25,912 |
|
|
19,782 |
Long-term lease liabilities |
|
996,427 |
|
|
980,759 |
Other long-term liabilities |
|
1,428 |
|
|
1,485 |
Total liabilities |
|
1,642,142 |
|
|
1,662,190 |
Stockholders' equity: |
|
|
|
Common stock |
|
98 |
|
|
98 |
Series A preferred stock |
|
— |
|
|
— |
Additional paid-in capital |
|
851,194 |
|
|
847,589 |
Retained earnings |
|
276,247 |
|
|
262,527 |
Total stockholders' equity |
|
1,127,539 |
|
|
1,110,214 |
Total liabilities and stockholders' equity |
$ |
2,769,681 |
|
$ |
2,772,404 |
|
|
|
|
|
|
|
|
|
|
|
|
GROCERY OUTLET HOLDING
CORP.CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (in thousands)
(unaudited)
|
|
|
13 Weeks Ended |
|
April 1,2023 |
|
April 2,2022 |
Cash flows from operating activities: |
|
|
|
Net income |
$ |
13,720 |
|
|
$ |
11,574 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
Depreciation of property and equipment |
|
18,309 |
|
|
|
17,120 |
|
Amortization of intangible and other assets |
|
2,366 |
|
|
|
1,870 |
|
Amortization of debt issuance costs and debt discounts |
|
401 |
|
|
|
628 |
|
Non-cash rent |
|
1,144 |
|
|
|
1,936 |
|
Loss on debt extinguishment and modification |
|
5,340 |
|
|
|
— |
|
Share-based compensation |
|
6,676 |
|
|
|
5,795 |
|
Provision for accounts receivable reserves |
|
1,369 |
|
|
|
1,233 |
|
Deferred income taxes |
|
6,130 |
|
|
|
4,056 |
|
Other |
|
105 |
|
|
|
362 |
|
Changes in operating assets and liabilities: |
|
|
|
Independent operator and other accounts receivable |
|
(2,008 |
) |
|
|
(1,752 |
) |
Merchandise inventories |
|
17,922 |
|
|
|
(21,892 |
) |
Prepaid expenses and other assets |
|
(397 |
) |
|
|
2,620 |
|
Income and other taxes payable |
|
1,217 |
|
|
|
265 |
|
Trade accounts payable, accrued compensation and other
liabilities |
|
11,343 |
|
|
|
9,340 |
|
Operating lease liabilities |
|
3,995 |
|
|
|
3,174 |
|
Net cash provided by operating activities |
|
87,632 |
|
|
|
36,329 |
|
Cash flows from investing activities: |
|
|
|
Advances to independent operators |
|
(1,547 |
) |
|
|
(2,402 |
) |
Repayments of advances from independent operators |
|
2,010 |
|
|
|
1,667 |
|
Purchases of property and equipment |
|
(32,894 |
) |
|
|
(32,109 |
) |
Proceeds from sales of assets |
|
20 |
|
|
|
29 |
|
Investments in intangible assets and licenses |
|
(7,936 |
) |
|
|
(2,707 |
) |
Net cash used in investing activities |
|
(40,347 |
) |
|
|
(35,522 |
) |
Cash flows from financing activities: |
|
|
|
Proceeds from exercise of stock options |
|
204 |
|
|
|
887 |
|
Proceeds from senior term loan due 2028 |
|
300,000 |
|
|
|
— |
|
Proceeds from revolving credit facility |
|
25,000 |
|
|
|
— |
|
Principal payments on senior term loan due 2025 |
|
(385,000 |
) |
|
|
— |
|
Principal payments on finance leases |
|
(320 |
) |
|
|
(325 |
) |
Repurchase of common stock |
|
(3,275 |
) |
|
|
(3,451 |
) |
Dividends paid |
|
— |
|
|
|
(7 |
) |
Debt issuance costs paid |
|
(4,507 |
) |
|
|
— |
|
Net cash used in financing activities |
|
(67,898 |
) |
|
|
(2,896 |
) |
Net decrease in cash and cash equivalents |
|
(20,613 |
) |
|
|
(2,089 |
) |
Cash and cash equivalents at beginning of period |
|
102,728 |
|
|
|
140,085 |
|
Cash and cash equivalents at end of period |
$ |
82,115 |
|
|
$ |
137,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROCERY OUTLET HOLDING
CORP.RECONCILIATION OF GAAP NET INCOME TO ADJUSTED
EBITDA(in thousands)
(unaudited)
|
|
|
13 Weeks Ended |
|
April 1,2023 |
|
April 2,2022 |
Net income |
$ |
13,720 |
|
$ |
11,574 |
Interest expense, net |
|
5,919 |
|
|
3,682 |
Income tax expense |
|
7,839 |
|
|
4,172 |
Depreciation and amortization expenses |
|
20,675 |
|
|
18,990 |
EBITDA |
|
48,153 |
|
|
38,418 |
Share-based compensation expenses (1) |
|
6,676 |
|
|
5,795 |
Loss on debt extinguishment and modification (2) |
|
5,340 |
|
|
— |
Asset impairment and gain or loss on disposition (3) |
|
107 |
|
|
363 |
Other (4) |
|
2,802 |
|
|
1,505 |
Adjusted EBITDA |
$ |
63,078 |
|
$ |
46,081 |
|
|
|
|
|
|
|
|
|
|
|
|
GROCERY OUTLET HOLDING
CORP.RECONCILIATION OF GAAP NET INCOME TO ADJUSTED
NET INCOME(in thousands, except per share
data) (unaudited)
|
|
|
13 Weeks Ended |
|
April 1,2023 |
|
April 2,2022 |
Net income |
$ |
13,720 |
|
|
$ |
11,574 |
|
Share-based compensation expenses (1) |
|
6,676 |
|
|
|
5,795 |
|
Loss on debt extinguishment and modification (2) |
|
5,340 |
|
|
|
— |
|
Asset impairment and gain or loss on disposition (3) |
|
107 |
|
|
|
363 |
|
Other (4) |
|
2,802 |
|
|
|
1,505 |
|
Amortization of purchase accounting assets and deferred financing
costs (5) |
|
1,567 |
|
|
|
3,112 |
|
Tax adjustment to normalize effective tax rate (6) |
|
1,592 |
|
|
|
(176 |
) |
Tax effect of total adjustments (7) |
|
(4,780 |
) |
|
|
(2,963 |
) |
Adjusted net income |
$ |
27,024 |
|
|
$ |
19,210 |
|
|
|
|
|
GAAP earnings per share |
|
|
|
Basic |
$ |
0.14 |
|
|
$ |
0.12 |
|
Diluted |
$ |
0.14 |
|
|
$ |
0.12 |
|
Adjusted earnings per share |
|
|
|
Basic |
$ |
0.28 |
|
|
$ |
0.20 |
|
Diluted |
$ |
0.27 |
|
|
$ |
0.19 |
|
Weighted average shares outstanding |
|
|
|
Basic |
|
97,920 |
|
|
|
96,148 |
|
Diluted |
|
100,569 |
|
|
|
99,434 |
|
____________________
- Includes non-cash share-based
compensation expense and cash dividends paid on vested share-based
awards as a result of dividends declared in connection with a
recapitalization that occurred in fiscal 2018.
- Represents the write-off of debt
issuance costs and debt discounts as well as debt modification
costs related to refinancing and/or repayment of our credit
facilities.
- Represents asset impairment charges
and gains or losses on dispositions of assets.
- Represents other non-recurring,
non-cash or non-operational items, such as technology upgrade
implementation costs, costs related to employer payroll taxes
associated with equity awards, legal settlements and other legal
expenses, certain personnel-related costs, store closing costs and
miscellaneous costs.
- Represents the amortization of debt
issuance costs and incremental amortization of an asset step-up
resulting from purchase price accounting related to our acquisition
in 2014 by an investment fund affiliated with Hellman &
Friedman LLC, which included trademarks, customer lists, and
below-market leases.
- Represents adjustments to normalize
the effective tax rate for the impact of unusual or infrequent tax
items that we do not consider in our evaluation of ongoing
performance, including excess tax expenses or benefits related to
stock option exercises and vesting of restricted stock units that
are recorded in earnings as discrete items in the reporting period
in which they occur.
- Represents the tax effect of the
total adjustments. We calculate the tax effect of the total
adjustments on a discrete basis excluding any non-recurring and
unusual tax items.
INVESTOR RELATIONS CONTACTS:
John Rouleau
(203) 682-4810
John.Rouleau@icrinc.com
MEDIA CONTACT:
Layla Kasha
(510) 379-2176
lkasha@cfgo.com
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