Investor Presentation March 2016

Transcription

1 Investor Presentation March

2 Disclaimer This presentation contains certain forward-looking statements, which may be identified by the use of forward-looking terminology, including the terms may, should, expects, plans, anticipates, could, intends, target, projects, contemplates, believes, estimates, predicts, potential or continue or, in each case, their negative, or other variations or comparable terminology. The forward-looking statements involve risks and uncertainties, some of which cannot be predicted or quantified. Further, certain forward-looking statements are based on assumptions of future events which may not prove to be accurate. The Company derives many of its forward-looking statements from its operating budgets and forecasts, which are based upon detailed assumptions. While the Company believes that its assumptions are reasonable, it is difficult to predict the impact of known factors and to anticipate all factors that could affect actual results. As such, actual results may differ materially from those projected or implied and you should not place undue reliance on these forward looking statements. For a discussion concerning the factors that could cause these differences, please refer to the Company s filings with the Securities and Exchange Commission. This presentation makes no representations or warranties and no person has been authorized to make any representations on behalf of the Company or any of its affiliates, or to give any information other than that contained in this presentation. Nothing contained in this presentation is, or shall be relied upon as, a promise or representation, whether as to the past, present or the future. Certain of the economic and market information contained herein has been obtained from published sources and/or prepared by other parties. None of the Company or any of its directors, partners, stockholders, officers, affiliates, employees, agents or advisers nor any other person assumes any responsibility for the completeness of any information in this presentation, and we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which such statements are based. This presentation includes certain non-gaap financial measures, including EBITDA and Adjusted EBITDA. These non-gaap financial measures should be considered only as supplemental to, and not as superior to, financial measures prepared in accordance with GAAP. Please refer to the Appendix of this presentation for a reconciliation of the non-gaap financial measures included in this presentation to the most directly comparable financial measures prepared in accordance with GAAP. This presentation is confidential and may not be reproduced or otherwise distributed or disseminated, in whole or part, without the prior written consent of the Company, which consent may be withheld in its sole and absolute discretion. Any investment in the Company will be subject to certain risks related to the nature of the Company s business and the structure and operations of the Company. Any investment in the Company should be made only with an appreciation of the applicable risks, which will be described in the Company s filings with the SEC.

3 Smart & Final Overview High growth, value-oriented food retailer 276 non-membership, smaller-box, warehousestyle stores (1) 2015 Sales (2) : $3,971 million 2015 Adj. EBITDA (2) : $193 million Taking share from conventional grocery and specialty retailers Unique platform that appeals to both household and business customers Historical SSS (%) 276 Locations in 6 States Two complementary and highly productive banners Everyday Low Prices 6.7% 6.3% 98% non-union (1) Strong new store development momentum FY2015 new stores (22) and Extra! conversions (9) Accelerating development rate in % 4.5% (1) As of January 3, (2) For the 53 week fiscal year ended January 3,

4 2015 Highlights Strong top-line sales growth (+12.4%) and record adjusted EBITDA ($192.9 million) 26th year of positive same store sales over last 27 years Delivering Results Smart & Final Extra! format now ~60% of Smart & Final banner stores, up from ~40% pre-ipo Private label sales of ~30% Smart & Final banner, with over 300 new items introduced (including Sun Harvest natural and organic label products) Achieved 10% new store growth goal for Smart & Final banner Continued conversions and relocations of older legacy stores to Extra! format Driving Growth Expanded growth in Cash & Carry store banner Maintained focus on dual household and business customer base Acquired 33 California store leases of former Albertsons and Safeway stores to accelerate 2016 growth 3

5 Complementary Store Banners Store Footprint (1) Banner Differentiator Value Proposition 127 in CA, NV and AZ 94 in CA, NV and AZ Two shops in one stop Distinctive mix of household and business items at Everyday Low Prices, including warehouse club pack sizes 55 in CA, WA, OR, NV and ID We sell ingredients No frills, focused on business customers Average Size (1) ~27,000 sq. ft. ~16,000 sq. ft. ~20,000 sq. ft. Merchandise Mix (1) Perishables 37% 29% 46% Grocery, beverage, paper & packaging & restaurant supplies 63% 71% 54% 2015 Sales $3,037 million $934 million FY 2015 SSS 4.4% 4.5% Customer Mix (1) Business: ~31% Household: ~69% ~90% ~10% (1) As of January 3,

6 The Experience Differentiated, value focused merchandise mix in a convenient format Value Broad Range of Product Sizes Private Label Brands Everyday Low Prices Household & business products side-by-side Smart & Final Banner Mix (1) ~$3 billion Net Sales Unique Items Perishables 47% 42% Unique 12% 18% 24% 30% Private Label Wide selection of quality private label and national brands Emphasis on high-quality, fresh products Common National Brands Common Private Label Unique Private Label Unique National Brands (1) Percentages may not add to 100% due to rounding. Reflects estimated data for fiscal year

7 The Experience Natural & Organic Produce Household & Club Sizes Rotisserie Style Chicken Bulk Foods 6

8 The Experience Convenient, no-frills shopping environment for the business customer Value Convenience Perishables Competitive pricing with no membership fee Accessible locations and no minimum order size Ability to hand-select high quality, fresh perishables Ingredients and Supplies Diverse Customer Base Strong Business Customer Loyalty Cash & Carry SSS (%) 10.0% 5.4% 6.1% 4.5% Broad selection of everyday foodservice products Format serves a wide variety of businesses and organizations

9 The Experience Fresh Produce Primal Cut & Case Meats Foodservice Items Professional Sizes 8

10 Differentiated Go-to-Market Strategy DIFFERENTIATED PRODUCTS CONVENIENCE COMPELLING VALUE Large variety of warehouse club sizes Extensive selection of private label Unique items for businesses No membership fee Smaller, easy-to-shop format Located near customer s home or business Targeted pricing substantially lower than conventional grocers Targeted pricing competitive with Walmart, Costco and leading discount grocers such as Food 4 Less (Kroger) Consistently offer better value than large discounters on produce Broad appeal across household and business customers 9

11 Key Drivers for Growth Same Store Sales Grow margin accretive private label sales Continue to evolve merchandising mix Drive business customer growth Enhance brand awareness to expand customer reach Testing delivery with Instacart and Google Smart & Final Banner Perishables Penetration Conversions Continue conversions and opportunistic relocations 6 planned conversions in planned relocations in 2016 Target pre-tax cash-on-cash returns of ~25% in year 3 for Extra! conversions Cumulative Conversions and Relocations New Store Openings Significant opportunities in current markets 33 new Extra! stores planned for to 5 new Cash & Carry stores planned for 2016 Potential for expansion of both banners into adjacent / new markets Longer-term national opportunity Cumulative New Stores 33% 34% % 29% 28% Conversions Relocations Extra! Cash & Carry 10

12 Key Drivers for Growth: New Store Openings Opportunity to open more than 150 new Extra! stores in existing and adjacent markets (2017 and beyond) Potential for further growth from higher densities in key California market New Unit Growth in Existing and Adjacent Markets Pacific Northwest represents an actionable near-term expansion opportunity Opportunistically grow Cash & Carry store banner Lower risk expansion utilizing distribution infrastructure Flexible real estate strategy new and adaptive reuse Deep institutional knowledge of existing local markets Longer-term Growth Opportunities Broader U.S. market has potential to support over 1,250 additional Extra! stores Accelerate growth in Mexico (currently 15 stores) (1) (1) Operated as a non-consolidated 50/50 joint venture. 11

13 Attractive New Store Economics New Extra! Store Model Cash investment of ~$3.2 million Extra! Conversions Cash investment of ~$2.0 million New Cash & Carry Store Model Cash investment of ~$1.5 million Target pre-tax cash-on-cash returns of ~25% in year 3 Target pre-tax cash-on-cash returns of ~25% in year 3 Target pre-tax cash-on-cash returns of ~25% in year 3 Proven execution of model through 45 new Extra! stores opened to date Recent new store performance in line with expectations Since 2008, have converted 58 locations to Extra! Add perishables and optimize merchandising to maximize productivity Generating an average sales increase of ~30% in the first twelve months following conversion Faster Cash & Carry stores growth planned in 2016 to test acceleration of capital returns 12

14 Accelerating Growth in 2016: Overview of Haggen Transaction Acquired 33 former Albertsons and Safeway stores, briefly operated under Haggen Banner All located in central and southern California 29 net new Extra! stores and 4 relocations Unique opportunity to accelerate growth Top quality locations, including hard to access markets Attractive cash-on-cash returns Opportunity to test additional merchandise initiatives Investment summary Purchase price ($68 mil) includes leasehold interest, equipment and licenses Additional investment for store conversions ($58 million) Inventory and pre-opening costs ($30 million) Average store investment (~$3 million) (1) Funded through available cash and revolver credit facility (1) Average store investment: $58 million of additional capex + $30 million of inventory and pre-opening costs + $13 million for fixtures, equipment and licenses (included as part of Haggen transaction purchase price) for a total investment of $101 million 13

15 Efficient and Scalable Distribution Network Existing distribution capacity supports growth without significant incremental capital deployment Distribution Infrastructure Supports Growth Plan In-house perishables expertise and facilities developed from legacy Henry s Farmers Market business (now Sprouts stores) Flexible supply chain infrastructure Mix of company and third party operated facilities Strong relationships with national third party operators facilitate low capex growth 14

16 A Long History of Growth Positive same store sales growth in 26 of the last 27 fiscal years! Historical SSS Performance (%) (0.2) 15

17 Delivering Strong Financial Results Net Sales ($ in millions) $2,840 $3,043 $3,210 $3,534 $3,971 Increase in net sales attributable to strong growth in both banners SSS driven by increase in number of transactions Increasing contribution from new store growth % SSS 9.5% 6.7% 4.0% 6.3% 4.5% Adjusted EBITDA (1) and Margin ($ in millions) $125 $139 $164 $176 $193 Merchandise initiatives provide product margin flexibility Private label, produce, perishables and natural and organic items 4.4% 4.6% 5.1% 5.0% 4.9% Opportunity for future EBITDA leverage Occupancy and distribution expense Fixed cost structure Adjusted EBITDA % Margin (1) Adjusted EBITDA defined as earnings (income or loss) before income tax provision, interest expense (net), depreciation and amortization, as adjusted for the items set forth in the reconciliation schedule in the Appendix and 2012 amounts are pro forma for acquisition of Company by affiliates of Ares management. 16

18 2016 Guidance (1) Full Year 2016 Net sales growth (52 weeks) 15% - 16% Comparable store sales growth 2.5% - 3.0% Unit growth (net new stores) Relocations of existing stores Conversions of legacy stores to the Extra! format Adjusted EBITDA Adjusted net income 33 Smart & Final Extra! 4-5 Cash & Carry 6 Smart & Final 6 stores $205 - $210 million $58 - $60 million Adjusted diluted EPS $ $0.77 Capital expenditures Basic weighted average shares Fully diluted weighted average shares $150 - $160 million 73.3 million 77.6 million (1) This information was provided by the Company on March 9, Actual results may differ materially from those projected or implied. 17

19 Long-term Financial Targets (1) Unit Growth ~9% Same Store Sales Growth ~4% Total Sales Growth ~11% EBITDA Growth ~13% Net Income Growth ~18% (1) As originally established in September These targets are forward-looking, are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, many of which are beyond the control of the Company and its management, and are based upon assumptions with respect to future decisions, which are subject to change. Actual results will vary and those variations may be material. For discussion of some of the important factors that could cause these variations, please consult the Risk Factors section of the Company s SEC filings. Nothing in this presentation should be regarded as a representation by any person that these goals will be achieved and the Company undertakes no duty to update its goals. 18

20 What Makes Us Different? Unique growth platform that appeals to both household and business customers Positive same store sales growth in 26 out of the last 27 years! Distinctive and value-focused merchandise offering Unique sizes and extensive selection of private label at highly competitive prices Two highly productive store banners Sales per square foot of $707 (1) Flexible real estate strategy to support new store growth Ample opportunities for additional new stores in existing and adjacent markets. Experienced and committed management team with developed infrastructure (1) Reflects data for fiscal year

21 Appendix 20

22 Reconciliation of EBITDA and Adjusted EBITDA ($ in thousands) Fifty-two Weeks Fifty-three Weeks Twelve Weeks Thirteen Weeks Ended Ended Ended Ended December 28, 2014 January 3, 2016 December 28, 2014 January 3, 2016 Net income $33,118 $38,262 $9,273 $9,961 Depreciation and amortization 64,194 68,766 15,201 17,096 Interest expense, net 37,602 32,687 8,119 7,680 Income tax provision 16,854 23,102 3,623 4,692 EBITDA 151, ,817 36,216 39,429 Transaction costs (a) 1, (100) - Net loss from closed stores and exit costs (b) 2,030 2, Loss from asset dispositions (c) 851 1, Share-based compensation expense (d) 11,329 10,003 2,874 1,922 Non-cash rent (e) 4,797 4, ,430 Pre-opening costs (f) 3,971 8, ,369 Loss on extinguishment of debt (g) 2,224 2, Other items (h) (2,399) 135 (119) 38 Adjusted EBITDA $176,110 $192,874 $41,303 $47,358 (a) Represents costs primarily associated with the Company's secondary public offering that were charged to expense in the fiscal year ended January 3, 2016 and the Company's initial public offering that were charged to expense in the twelve-week and fiscal year ended December 28, (b) Represents costs associated with store closure and exit costs. (c) Represents non-cash loss associated with asset dispositions and impairment charges. (d) Represents expenses associated with the Company's equity-based incentive award program. (e) Represents non-cash component of recognized rent expense. (f) Represents new store and relocation opening costs consisting primarily of rent, utilities, distribution, store labor and advertising. (g) Represents loss on the early extinguishment of debt in (i) the fiscal year ended January 3, 2016 in connection with an amendment to the Company's Term Loan Facility and the write-off of unamortized debt discount and deferred financing costs and (ii) the fiscal year ended December 28, 2014 in connection with an early payment on the Company's Term Loan Facility. (h) Represents (i) reversal of a reserve related to executive compensation for the fiscal year ended December 28, 2014, (ii) death benefit income from a Company-owned life insurance policy for the fiscal year ended December 28, 2014, and (iii) consulting expenses related to strategic growth initiatives for the fiscal year ended December 28,

23 Reconciliation of Net Income and Adjusted Net Income ($ in thousands) Fifty-two Weeks Ended Fifty-three Weeks Ended Twelve Weeks Ended Thirteen Weeks Ended December 28, 2014 January 3, 2016 December 28, 2014 January 3, 2016 Net income $33,118 $38,262 $9,273 $9,961 Income tax provision 16,854 23,102 3,623 4,692 Net income before income taxes 49,972 61,364 12,896 14,653 Transaction costs (a) 1, (100) - Net loss from closed stores and exit costs (b) 2,030 2, Loss from asset dispositions (c) 851 1, Share-based compensation expense (d) 11,329 10,003 2,874 1,922 Non-cash rent (e) 4,797 4, ,430 Pre-opening costs (f) 3,971 8, ,369 Loss on extinguishment of debt (g) 2,224 2, Other items (h) (2,399) 135 (119) 38 Adjusted income tax provision (27,800) (35,140) (5,658) (7,857) Adjusted Net Income $46,514 $56,281 $12,325 $14,725 Net income per share - basic $0.54 $0.52 $0.13 $0.14 Adjusted net income per share - basic $0.76 $0.77 $0.17 $0.20 Net income per share - diluted $0.52 $0.50 $0.12 $0.13 Adjusted net income per share - diluted $0.73 $0.73 $0.16 $0.19 Weighted average shares - basic 61,455,584 73,121,964 73,074,360 73,191,829 Weighted average shares - fully diluted 63,841,118 77,141,621 76,193,944 77,497,406 (a) Represents costs primarily associated with the Company's secondary public offering that were charged to expense in the fiscal year ended January 3, 2016 and the Company's initial public offering that were charged to expense in the twelve-week and fiscal year ended December 28, (b) Represents costs associated with store closure and exit costs. (c) Represents non-cash loss associated with asset dispositions and impairment charges. (d) Represents expenses associated with the Company's equity-based incentive award program. (e) Represents non-cash component of recognized rent expense. (f) Represents new store and relocation opening costs consisting primarily of rent, utilities, distribution, store labor and advertising. (g) Represents loss on the early extinguishment of debt in (i) the fiscal year ended January 3, 2016 in connection with an amendment to the Company's Term Loan Facility and the write-off of unamortized debt discount and deferred financing costs and (ii) the fiscal year ended December 28, 2014 in connection with an early payment on the Company's Term Loan Facility. (h) Represents (i) reversal of a reserve related to executive compensation for the fiscal year ended December 28, 2014, (ii) death benefit income from a Company-owned life insurance policy for the fiscal year ended December 28, 2014, and (iii) consulting expenses related to strategic growth initiatives for the fiscal year ended December 28,

24 Summary Historical Financials¹ ($ in thousands) Fiscal Year Ending Smart & Final Cash & Carry Total Stores Smart & Final 9.4% 7.1% 3.4% 5.0% 4.4% Cash & Carry 9.7% 5.4% 6.1% 10.0% 4.5% SSS 9.5% 6.7% 4.0% 6.3% 4.5% Smart & Final $2,138 $2,303 $2,425 $2,669 $3,037 Cash & Carry Total Sales $2,840 $3,043 $3,210 $3,534 $3,971 % growth 9.6% 7.1% 5.5% 10.1% 12.4% Gross Margin % of sales 15.0% 14.7% 14.8% 14.9% 15.1% Income from operations % of sales 1.9% 2.3% 2.7% 2.5% 2.4% Net Income ($3) $14 $8 $33 $38 % of sales (0.1%) 0.5% 0.3% 0.9% 1.0% GAAP Basic EPS ($0.05) $0.25 $0.14 $0.54 $0.52 GAAP Diluted EPS ($0.05) $0.24 $0.14 $0.52 $0.50 Adjusted EBITDA $125 $139 $164 $176 $193 % of sales 4.4% 4.6% 5.1% 5.0% 4.9% Adjusted Net Income $32 $47 $56 % of sales 1.0% 1.3% 1.4% Adjusted Basic EPS $0.56 $0.76 $0.77 Adjusted Diluted EPS $0.54 $0.73 $0.73 (1) 2011 and 2012 amounts are pro forma for the Ares acquisition. 23

25 Consolidated Quarterly P&L Performance¹ ($ in thousands) March 23, 2014 June 15, 2014 October 5, 2014 Quarter Ending December 28, 2014 March 22, 2015 June 14, 2015 October 4, 2015 January 3, 2016 Net sales $735.0 $828.1 $1,131.8 $839.3 $822.2 $905.1 $1,246.1 $997.6 Cost of sales, distribution and store occupancy Gross Margin Operating and administrative expenses Income from operations Interest expense, net Loss on early extinguishment of debt (2.2) (2.2) Equity in earnings of joint venture Income (loss) before income taxes Income tax (provision) benefit (1.3) (6.9) (5.0) (3.6) (2.8) (6.9) (8.6) (4.7) Net income $2.5 $11.1 $10.2 $9.3 $4.9 $11.0 $12.4 $10.0 Net income per share basic $0.04 $0.19 $0.17 $0.13 $0.07 $0.15 $0.17 $0.14 Net income per share - diluted $0.04 $0.19 $0.17 $0.12 $0.06 $0.14 $0.16 $0.13 Weighted average shares - basic 57,171,190 57,259,361 59,101,972 73,074,360 73,084,282 73,090,917 73,116,746 73,191,829 Weighted average shares - fully diluted 59,495,270 59,312,773 61,232,212 76,193,944 76,645,281 76,893,066 77,404,466 77,497,406 Sales Growth 6.5% 9.5% 10.8% 13.0% 11.9% 9.3% 10.1% 18.9% Gross Margin 14.2% 15.5% 15.0% 14.9% 14.9% 15.6% 15.0% 14.8% EBIT Margin 1.7% 3.2% 2.5% 2.5% 1.9% 3.0% 2.4% 2.2% Net Income Margin 0.3% 1.3% 0.9% 1.1% 0.6% 1.2% 1.0% 1.0% Note: All of the per share data has been adjusted on a retroactive basis for the 2014 quarterly periods to reflect the 190-forone stock split effected on September 19,