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Smart & Final Stores, Inc.$6.45($.40)(5.84%)

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 Smart & Final Stores, Inc. Reports Fourth Quarter and Full Year 2014 Financial Results
   Wednesday, March 18, 2015 4:01:00 PM ET

Smart & Final Stores, Inc. (the "Company") (SFS ) today reported financial results for the fourth quarter and fiscal year ended December 28, 2014.

Fourth Quarter Highlights:

-- Net sales increased 13.0% to $839.3 million

-- Comparable store sales growth of 7.8%

-- Net income of $9.3 million, or $0.12 per diluted share

-- Adjusted net income increased 50.3% to $12.3 million, or $0.16 per diluted share

-- Adjusted EBITDA increased 7.4% to $41.3 million

Full Year Highlights:

-- Net sales increased 10.1% to $3,534.2 million

-- Comparable store sales growth of 6.3%

-- Net income of $33.1 million, or $0.52 per diluted share

-- Adjusted net income increased 45.9% to $46.5 million, or $0.73 per diluted share

-- Adjusted EBITDA increased 7.2% to $176.1 million

-- 254 stores at year-end, including 98 Smart & Final Extra! stores

"2014 was an exciting year for Smart & Final. We delivered record financial results, continued our accelerated store expansion program and successfully completed our initial public offering," said Dave Hirz, President and Chief Executive Officer. "Performance across both the Smart & Final and Cash & Carry store banners was strong, driven by our ongoing merchandising and marketing efforts and consistent store level execution. Smart & Final Extra! continues to be the key to our new store growth, and, as planned, we completed twice as many new store openings and conversions to Extra! in 2014 as compared to the prior year."

Mr. Hirz continued, "Looking ahead, in 2015 we plan to continue our accelerated pace of new store openings and believe that our strong performance in comparable store sales, competitive positioning, and real estate development pipeline provide the foundation for strong operating and financial performance."

In order to aid understanding of the Company’s business performance, it has presented results in conformity with accounting principles generally accepted in the United States ("GAAP") and has also presented adjusted net income, adjusted net income per share, adjusted net income per diluted share, EBITDA and adjusted EBITDA, which are non-GAAP measures that are explained and reconciled to the comparable GAAP measures in the tables included in this release. Where applicable, the numbers below are first presented on a GAAP basis and then on an adjusted basis.

Fourth Quarter Fiscal 2014 Financial Results

Net sales were $839.3 million, a 13.0% increase as compared to $742.8 million in the same period of 2013. Net sales growth was driven by a 7.8% increase in comparable store sales and from the net sales contribution of new stores. In the 12 weeks ended December 28, 2014, the Company opened one new Smart & Final Extra! store and one new Cash & Carry store. The growth in comparable store sales was comprised of a 4.9% increase in comparable transaction count and a 2.8% increase in comparable average transaction size.

Net sales for Smart & Final banner stores were $644.6 million, a 13.5% increase as compared to $568.1 million in the same period of 2013. Comparable store sales growth for the Smart & Final banner was 7.0% in the fourth quarter.

Net sales for Cash & Carry banner stores were $194.7 million, an 11.5% increase as compared to $174.7 million in the same period of 2013. Comparable store sales growth for the Cash & Carry banner was 10.5% in the fourth quarter.

Gross margin from operations was $125.0 million, a 16.0% increase as compared to $107.8 million in the same period of 2013. Gross margin rate in the fourth quarter was 14.9% as compared to 14.5% in the same period of 2013.

Operating and administrative expenses were $104.0 million, a 13.4% increase as compared to $91.7 million in the same period of 2013. This increase was primarily related to higher sales volumes, increased store support costs, and initial public offering and public company costs.

Net income was $9.3 million, as compared to a net loss of $7.0 million in the same period of 2013. Net income per diluted share was $0.12 as compared to net loss per diluted share of $0.12 in the same period of 2013. The net loss in the fourth quarter of 2013 included costs related to extinguishment of debt in conjunction with a refinancing transaction.

Adjusted net income was $12.3 million, an increase of 50.3% as compared to $8.2 million for the same period of 2013. Adjusted net income per diluted share was $0.16 as compared to $0.14 in the same period of 2013.

Adjusted EBITDA was $41.3 million, an increase of 7.4% as compared to $38.5 million in the same period of 2013.

Full Year Fiscal 2014 Financial Results

Net sales were $3,534.2 million, a 10.1% increase as compared to $3,210.3 million in fiscal 2013. Net sales growth was driven by a 6.3% increase in comparable store sales growth and the net sales contribution from 13 new Extra! stores and one new Cash & Carry store in fiscal 2014. The growth in comparable store sales was comprised of a 4.1% increase in comparable transaction count and a 2.1% increase in comparable average transaction size.

Net sales for Smart & Final banner stores were $2,668.9 million, or a 10.0% increase as compared to $2,425.4 million in fiscal 2013. Fiscal 2014 comparable store sales growth for the Smart & Final banner was 5.0%.

Net sales for Cash & Carry banner stores were $865.3 million, or a 10.2% increase as compared to $784.9 million in fiscal 2013. Fiscal 2014 comparable store sales growth for the Cash & Carry banner was 10.0%.

Net income was $33.1 million, as compared to $8.2 million in fiscal 2013. Net income per diluted share was $0.52 as compared to $0.14 for fiscal 2013.

Adjusted net income was $46.5 million, an increase of 45.9% as compared to $31.9 million in fiscal 2013. Adjusted net income per diluted share was $0.73, compared to $0.54 in fiscal 2013.

Adjusted EBITDA was $176.1 million, or a 7.2% increase as compared to $164.3 million in fiscal 2013.

Growth and Development

During fiscal 2014, the Company opened 13 new Smart & Final Extra! stores, completed 16 conversions of legacy Smart & Final stores to the Smart & Final Extra! format, including two relocations, and opened one new Cash & Carry store. As of December 28, 2014, the Company operated a total of 98 Smart & Final Extra! and 103 legacy Smart & Final stores, and 53 Cash & Carry stores.

Operating Store at Period End (December 28, 2014)
                        Smart & Final Banner Stores          Cash & Carry   Total
                                                             Banner Stores  Company
                        Legacy format  Extra! format  Total
End of Fiscal 2013      119            69             188    52             240
New stores              -              12             12     -              12
Relocations             (1)            1              -      -              -
Conversions             (8)            8              -      -              -
End of 3rd Quarter 2014 110            90             200    52             252
New stores              -              1              1      1              2
Relocations             (1)            1              -      -              -
Conversions             (6)            6              -      -              -
End of Fiscal 2014      103            98             201    53             254

In the first quarter of fiscal 2015, the Company expects to open four new Smart & Final Extra! stores.

In fiscal 2015, the Company expects to open a total of 20 new Smart & Final Extra! stores, complete nine conversions of legacy stores to the Extra! format, including three store relocations, and open three Cash & Carry stores, including one store relocation. The Company expects the pace of new store openings to be relatively consistent throughout 2015.

Leverage and Liquidity

During the full year fiscal 2014, the Company repaid approximately $120.9 million in borrowings under its Term Loan Facility. At December 28, 2014, the Company’s debt, net of debt discount, was $588.1 million and cash and cash equivalents was $106.8 million.

The Company generated cash from operations of $125.3 million in the 52 weeks ended December 28, 2014. The Company invested $117.4 million in capital expenditures under the Company’s plan to accelerate openings of Extra! format and Cash & Carry stores, as well as convert its legacy stores to the Extra! format and ensure its existing store portfolio maintains its competitiveness.

Outlook

The following provides information on the Company’s guidance for the full year ending January 3, 2016:

                                                  2015
Net sales growth                                  11% - 12%
Comparable store sales growth                     3.5% - 4.5%
Unit growth (net new stores)                      20 Smart & Final Extra!
                                                  2 Cash & Carry
Relocations of existing stores                    3 Smart & Final
                                                  1 Cash & Carry
Conversions of legacy stores to the Extra! format 6 stores
Adjusted EBITDA                                   $185 - $190 million
Adjusted net income                               $51 - $53 million
Adjusted diluted EPS                              $0.67- $0.70
Capital expenditures                              $135 - $145 million
Basic weighted average shares                     73.1 million
Fully diluted weighted average shares             76.6 million

Fourth Quarter and Full Year 2014 Conference Call

The Company will host a conference call today at 1:30 p.m. PT / 4:30 p.m. ET to discuss its fourth quarter and full year fiscal 2014 financial results. To participate in the call, please dial (877) 407-0784 (U.S.) or (201) 689-8560 (International) ten minutes prior to the start time. The conference call can also be accessed on the "Investors" section of the Company’s Web site at http://www.smartandfinal-investor.com/ .

For those unable to participate during the live broadcast, a telephonic replay of the call will also be available beginning today at approximately 7:30 p.m. Eastern Time, by dialing (877) 870-5176 (U.S.) or (858) 384-5517 (International) and entering the replay pin number: 13602597. The telephonic replay will be available until 11:59 p.m. Eastern Time, on Wednesday, April 1, 2015.

About Smart & Final

Smart & Final Stores, Inc. (SFS ), is a value-oriented food and everyday staples retailer that serves household and business customers. The Company is headquartered in Commerce (located in Los Angeles), CA, where it was founded over 140 years ago. As of December 28, 2014, the Company operated 254 grocery and foodservice stores under the "Smart & Final", "Smart & Final Extra!" and "Cash & Carry Smart Foodservice" banners in California, Oregon, Washington, Arizona, Nevada, and Idaho, with an additional 14 stores in northern Mexico operated through a joint venture.

Forward-Looking Statements

Certain statements contained in this release that are not historical information contain forward-looking statements. The forward-looking statements involve risks and uncertainties and actual results may differ materially from those projected or implied. Further, certain forward-looking statements are based on assumptions of future events which may not prove to be accurate. These forward-looking statements can 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 Company derives many of its forward-looking statements from its operating budgets and forecasts, which are based upon many detailed assumptions. While the Company believes that its assumptions are reasonable, it is difficult to predict the impact of known factors and, of course, it is impossible to anticipate all factors that could affect actual results. These factors are discussed in the "Risk Factors," "Special Note Concerning Forward-Looking Statements," "Management’s Discussion and Analysis of Financial Condition and Results of Operations," and "Business" sections and elsewhere in the prospectus that is contained in the Company’s registration statement on Form S-1 (File No. 333-196931) filed with the Securities and Exchange Commission.

You should keep in mind that any forward-looking statement made by the Company herein, or elsewhere, speaks only as of the date on which made. New risks and uncertainties come up from time to time, and it is impossible for the Company to predict these events or how they may affect it. The Company has no obligation to update any forward-looking statements after the date hereof, except as required by federal securities laws.

Smart & Final Stores, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in Thousands, Except Share and Per Share Amounts)
                                      Twelve Weeks Ended                                         Fifty-two Weeks Ended
                                      December 28, 2014            December 29, 2013             December 28, 2014            December 29, 2013
Net sales                             $                839,336     $                742,800      $             3,534,244      $             3,210,293
Cost of sales, buying and occupancy   714,325                      634,999                       3,006,955                    2,736,357
Gross margin                          125,011                      107,801                       527,289                      473,936
Operating and administrative expenses 104,001                      91,677                        438,528                      387,133
Income from operations                21,010                       16,124                        88,761                       86,803
Interest expense, net                 8,119                        10,550                        37,602                       50,365
Loss on early extinguishment of debt  -                            (17,348)                      (2,224)                      (24,487)
Equity in earnings of joint venture   5                            241                           1,037                        1,649
Income (loss) before income taxes     12,896                       (11,533)                      49,972                       13,600
Income tax (provision) benefit        (3,623)                      4,544                         (16,854)                     (5,429)
Net income (loss)                     $                    9,273   $                   (6,989)   $                  33,118    $                    8,171
Net income (loss) per share:
Basic                                 $                      0.13  $                     (0.12)  $                      0.54  $                      0.14
Diluted                               $                      0.12  $                     (0.12)  $                      0.52  $                      0.14
Weighted average shares outstanding:
Basic                                 73,074,360                   57,171,190                    61,455,584                   57,030,099
Diluted                               76,193,944                   57,171,190                    63,841,118                   59,387,487
Smart & Final Stores, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands, Except Share Amounts)
                                                             December 28, 2014          December 29, 2013
Assets
Current assets:
Cash and cash equivalents                                    $                 106,847  $                   53,699
Accounts receivable, less allowances of $787 and $766 at
December 28, 2014 and December 29, 2013, respectively        23,666                     19,453
Inventories                                                  223,404                    209,502
Prepaid expenses and other current assets                    26,532                     17,938
Deferred income taxes                                        22,419                     20,747
Total current assets                                         402,868                    321,339
Property, plant, and equipment:
Land                                                         11,165                     10,394
Buildings and improvements                                   23,938                     20,441
Leasehold improvements                                       176,114                    119,306
Fixtures and equipment                                       203,473                    148,271
Construction in progress                                     7,344                      5,541
                                                             422,034                    303,953
Less accumulated depreciation and amortization               115,350                    59,961
                                                             306,684                    243,992
Capitalized software, net of accumulated amortization of
$9,486 and $5,168 at December 28, 2014 and
December 29, 2013, respectively                              10,403                     12,664
Other intangible assets, net                                 325,289                    328,865
Goodwill                                                     611,242                    611,242
Deferred financing costs, net                                5,894                      8,272
Equity investment in joint venture                           11,924                     10,948
Other assets                                                 54,988                     62,219
Total assets                                                 $              1,729,292   $              1,599,541
Liabilities and Stockholders’ equity
Current liabilities:
Accounts payable                                             $                 184,897  $                 153,644
Accrued salaries and wages                                   28,582                     22,337
Accrued expenses                                             72,667                     69,174
Current portion of long-term debt                            -                          7,200
Total current liabilities                                    286,146                    252,355
Long-term debt, less current portion and debt discount       588,117                    698,991
Deferred income taxes                                        125,673                    151,232
Postretirement and postemployment benefits                   127,004                    84,155
Other long-term liabilities                                  85,144                     70,949
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.001 par value;
Authorized shares - 10,000,000
Issued and outstanding shares - none                         -                          -
Common stock, $0.001 par value;
Authorized shares - 340,000,000
Issued and outstanding shares - 73,074,360 and 57,171,190 at
December 28, 2014 and December 29, 2013, respectively        73                         57
Additional paid-in capital                                   489,551                    311,935
Retained earnings (deficit)                                  32,001                     (1,117)
Accumulated other comprehensive (loss) income                (4,417)                    30,984
Total stockholders’ equity                                   517,208                    341,859
Total liabilities and stockholders’ equity                   $              1,729,292   $              1,599,541
Smart & Final Stores, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in Thousands)
                                                                                      Fifty-two Weeks Ended
                                                                                      December 28, 2014                 December 29, 2013
Operating activities
Net income                                                                            $                       33,118    $                         8,171
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation                                                                          35,565                            33,414
Amortization                                                                          28,629                            27,345
Amortization of deferred financing costs and debt discount                            3,275                             4,465
Share-based compensation                                                              11,329                            -
Excess tax benefits related to share-based payments                                   (728)                             -
Deferred income taxes                                                                 (3,826)                           (1,258)
Equity in earnings of joint venture                                                   (1,037)                           (1,649)
(Gain) loss on disposal of property, plant, and equipment                             (30)                              75
Asset impairment                                                                      988                               1,105
Loss on early extinguishment of debt                                                  2,224                             24,487
Dividend from joint venture                                                           -                                 577
Changes in operating assets and liabilities:
Accounts receivable, net                                                              (2,931)                           (1,755)
Inventories, net                                                                      (13,902)                          (14,099)
Prepaid expenses and other assets                                                     (8,074)                           6,218
Accounts payable                                                                      31,253                            20,067
Accrued salaries and wages                                                            6,245                             (3,112)
Other accrued liabilities                                                             3,239                             3,466
Net cash provided by operating activities                                             125,337                           107,517
Investing activities
Purchases of property, plant, and equipment                                           (114,933)                         (52,884)
Proceeds from disposal of property, plant, and equipment                              95                                85
Investment in capitalized software                                                    (2,466)                           (2,209)
Purchase of intangible asset                                                          (100)                             -
Other                                                                                 34                                (311)
Net cash used in investing activities                                                 (117,370)                         (55,319)
Financing activities
Borrowings on bank line of credit                                                     -                                 5,000
Issuance of bank debt, net of issuance costs                                          -                                 188,985
Issuance of common stock in IPO                                                       173,080                           -
Issuance of common stock, other                                                       79                                1,700
Proceeds from exercise of stock options                                               450                               -
Payment of minimum withholding taxes on net share settlement of stock option exercise (2,667)                           -
Fees paid in conjunction with debt financing                                          (315)                             (1,073)
Payments on bank line of credit                                                       -                                 (7,000)
Payments on bank debt                                                                 (120,880)                         (199,213)
Payments of IPO issuance costs                                                        (5,046)                           -
Excess tax benefits related to share-based payments                                   728                               -
Contingent consideration related to acquisition of SFHC                               (248)                             (22,885)
Net cash provided by (used in) financing activities                                   45,181                            (34,486)
Net increase in cash and cash equivalents                                             53,148                            17,712
Cash and cash equivalents at beginning of period                                      53,699                            35,987
Cash and cash equivalents at end of period                                            $                     106,847     $                       53,699
Cash paid during the period for:
Interest                                                                              $                       41,290    $                       45,547
Income taxes                                                                          $                       25,372    $                       12,718
Non-cash investing and financing activities
Software development costs incurred but not paid                                      $                            419  $                              49
Construction in progress costs incurred but not paid                                  $                         8,101   $                         3,366
Issuance costs incurred but not paid                                                  $                            222  $                                -
Other consideration payable for acquisition of Smart & Final Holdings Corp.           $                         2,359   $                         2,607
Smart & Final Stores, Inc. and Subsidiaries
Segment Reporting
(Dollars in Thousands)
                                                Smart & Final    Cash & Carry      Corporate / Other  Consolidated
Twelve Weeks Ended December 28, 2014
Net sales                                       $      644,609   $      194,727    $               -  $      839,336
Cost of sales, distribution and store occupancy 544,830          167,623           1,872              714,325
Operating and administrative expenses           76,213           13,639            14,149             104,001
Income (loss) from operations                   $        23,566  $        13,465   $    (16,021)      $        21,010
Capital expenditures                            $        22,933  $          4,045  $          737     $        27,715
Twelve Weeks Ended December 29, 2013
Net sales                                       $      568,132   $      174,668    $               -  $      742,800
Cost of sales, distribution and store occupancy 481,956          151,361           1,682              634,999
Operating and administrative expenses           66,735           12,222            12,720             91,677
Income (loss) from operations                   $        19,441  $        11,085   $   (14,402)       $        16,124
Capital expenditures                            $        10,087  $            705  $       1,635      $        12,427
Fiscal Year Ended December 28, 2014
Net sales                                       $    2,668,933   $      865,311    $               -  $    3,534,244
Cost of sales, distribution and store occupancy 2,252,698        746,102           8,155              3,006,955
Operating and administrative expenses           319,864          57,963            60,701             438,528
Income (loss) from operations                   $        96,371  $        61,246   $    (68,856)      $        88,761
Capital expenditures                            $      106,528   $          5,229  $       5,642      $      117,399
Fiscal Year Ended December 29, 2013
Net sales                                       $    2,425,346   $      784,947    $               -  $    3,210,293
Cost of sales, distribution and store occupancy 2,050,197        678,760           7,400              2,736,357
Operating and administrative expenses           284,025          53,240            49,868             387,133
Income (loss) from operations                   $ 91,124         $ 52,947          $   (57,268)       $ 86,803
Capital expenditures                            $        48,053  $          2,198  $       4,842      $        55,093

The following tables show reconciliations of adjusted net income, EBITDA and adjusted EBITDA to net income, and adjusted net income per share and adjusted net income per diluted share to net income per share, for the twelve-week and fifty two-week periods ended December 28, 2014 and December 29, 2013.

Smart & Final Stores, Inc. and Subsidiaries
Reconciliation of Net Income to Non-GAAP Adjusted Net Income
(Unaudited)
(Dollars in Thousands, Except Share and Per Share Amounts)
                                                        Twelve Weeks Ended                      Year Ended
                                                        December 28, 2014   December 29, 2013   December 28, 2014  December 29, 2013
Net income                                              $            9,273  $          (6,989)  $          33,118  $            8,171
Income tax provision                                    3,623               (4,544)             16,854             5,429
Net income before income taxes                          12,896              (11,533)            49,972             13,600
Adjustments to Net Income
Transaction costs (a)                                   (100)               7                   1,539              220
Net (income) loss from closed stores and exit costs (b) 569                 1,136               2,030              3,592
(Gain) loss from asset dispositions (c)                 345                 904                 851                974
Share-based compensation expense (d)                    2,874               -                   11,329             -
Non-cash rent (e)                                       646                 1,039               4,797              3,985
Pre-opening costs (f)                                   872                 741                 3,971              1,432
Loss on extinguishment of debt (g)                      -                   17,348              2,224              24,487
Other items (h)                                         (119)               4,145               (2,399)            4,847
Adjusted income tax provision                           (5,658)             (5,589)             (27,800)           (21,251)
Adjusted net income                                     $          12,325   $            8,198  $          46,514  $          31,886
Adjusted Net Income Per Share
Net income per share - basic                            $            0.13   $           (0.12)  $            0.54  $            0.14
Per share impact of net income adjustments              $            0.04   $            0.26   $            0.22  $            0.42
Adjusted net income per share - basic                   $            0.17   $            0.14   $            0.76  $            0.56
Net income per share - diluted                          $            0.12   $          (0.12)   $            0.52  $            0.14
Per share impact of net income adjustments              $            0.04   $            0.26   $            0.21  $            0.40
Adjusted net income per share - diluted                 $            0.16   $            0.14   $            0.73  $            0.54
Weighted average shares - basic                         73,074,360          57,171,190          61,455,584         57,030,099
Weighted average shares - fully diluted                 76,193,944          57,171,190          63,841,118         59,387,487
Smart & Final Stores, Inc. and Subsidiaries
Reconciliation of EBITDA to Adjusted EBITDA
(Unaudited)
(Dollars in Thousands)
                                                        Twelve Weeks Ended                      Year Ended
                                                        December 28, 2014   December 29, 2013   December 28, 2014  December 29, 2013
Net income                                              $            9,273  $          (6,989)  $          33,118  $            8,171
Depreciation and amortization                           15,201              14,119              64,194             60,759
Interest expense, net                                   8,119               10,550              37,602             50,365
Income tax provision                                    3,623               (4,544)             16,854             5,429
EBITDA                                                  36,216              13,136              151,768            124,724
Adjustments to EBITDA
Transaction costs (a)                                   (100)               7                   1,539              220
Net (income) loss from closed stores and exit costs (b) 569                 1,136               2,030              3,592
(Gain) loss from asset dispositions (c)                 345                 904                 851                974
Share-based compensation expense (d)                    2,874               -                   11,329             -
Non-cash rent (e)                                       646                 1,039               4,797              3,985
Pre-opening costs (f)                                   872                 741                 3,971              1,432
Loss on extinguishment of debt (g)                      -                   17,348              2,224              24,487
Other items (h)                                         (119)               4,145               (2,399)            4,847
Adjusted EBITDA                                         $          41,303   $          38,456   $        176,110   $        164,261
(a)  Represents costs (i) primarily associated with the Company’s initial public offering that were charged to expense for the fiscal year ended December 28, 2014 and (ii) associated with the Ares Acquisition for the fiscal year ended December 29, 2013.
(b)  Represents costs associated with store closure and exit costs.
(c)  Represents non-cash gain or 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 the write-off of unamortized debt discount and deferred financing costs.
(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, (iii) consulting expenses related to strategic growth initiatives for the fiscal year ended December 28, 2014, and (iv) costs primarily related to a legal settlement for the twelve-week period and fiscal year ended December 29, 2013, net.

Non-GAAP Financial Measures

To supplement the Company’s financial information presented in accordance with GAAP, the Company uses certain non-GAAP financial measures, namely adjusted net income, adjusted net income per share, adjusted net income per diluted share, EBITDA and Adjusted EBITDA to clarify and enhance understanding of its past performance. The Company defines adjusted net income as net income adjusted for the items set forth in the table above. The Company defines adjusted net income per share as adjusted net income divided by the weighted average basic shares outstanding. The Company defines adjusted net income per diluted share as adjusted net income divided by the weighted average diluted shares outstanding. The Company defines EBITDA as net income before depreciation and amortization, interest expense and provision for income tax, and adjusted EBITDA as EBITDA adjusted for the items set forth in the table above.

Use of these non-GAAP measures may differ from similar measures reported by other companies. Each of these non-GAAP measures has its limitations as an analytical tool, and you should not consider them in isolation or as a substitute for analysis of the Company’s results as reported under GAAP.

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SOURCE Smart & Final Stores, Inc.

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