3 q14 earnings presentation final
TRANSCRIPT
3Q14 Earnings Conference Call
July 10, 2014
A Word of Caution Certain statements contained in this presentation which are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address the Company’s plans, activities or events which the Company expects will or may occur in the future.
A number of important factors could cause actual results to differ materially from those expressed in any forward-looking statements. Such factors, risks and uncertainties are set forth under the headings “Cautionary Statement Regarding Forward-Looking Statements,” or “Risk Factors” or "Management’s Discussion and Analysis of Financial Condition and Results of Operation" in the Company’s annual report on Form 10-K and quarterly reports on Form 10-Q filed or to be filed, respectively, and which are expressly incorporated herein by reference.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of July 10, 2014. The Company does not undertake to update or revise its forward-looking statements even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law.
In addition, the amounts and timing of all estimates are subject to change. The actual amounts and timing may vary materially based on various factors, including the timing of store closings; the timing and amount of sublease income and other lease expense; factors relating to real estate including sale proceeds; asset write-downs and other factors affecting inventory value; changes in management's assumptions; and other factors.
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Agenda
Introduction & Safe Harbor Kiley Rawlins, CFA VP – IR & Communications
Opening Remarks Howard Levine Chairman & CEO
Financial Review and Outlook Mary Winston Chief Financial Officer
Questions & Answers Howard Levine Mary Winston
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Opening Remarks
Howard Levine Chairman & CEO
Difficult Operating Environment
• Customers facing pressures
– Elevated unemployment levels
– Reductions to key government assistance programs
– Healthcare uncertainties
– Energy price volatility
• Competitive environment
– Elevated traffic-driving promotions
– Aggressive every day pricing
5
Improving Trends
• Comparable store sales
• Shrink
• Store manager turnover
• Inventory management
6
Price Investments: Return to Value
• $50+ million annualized price investment on nearly 1,000 basic SKUs
• More compelling values for our customers
• Encouraging early trends
7
Driving Profitable Growth
• Refine and enhance key-traffic driving consumables categories – Refrigerated and frozen food
– Beer & wine
• Improve merchandise markups – Global sourcing
– Private Brand
• Driving operational efficiency – Palletized delivery program
8
Delivering Long-term Shareholder Value
• Executing previously announced strategic actions
• Investing in longer-term strategic initiatives to improve financial performance and operational efficiency
• In-depth business review continues with the goal to unlock further actions to enhance shareholder value
9
Financial Review and Outlook
Mary Winston CFO
3Q14 Highlights
• Total net sales increase 3.3% to $2.66 billion
• Comparable store sales decrease 1.8%
• Adjusted Earnings per diluted share of $0.85*
– Gross margin pressure
– SG&A deleverage
11 *Excludes $0.14 relating to restructuring charges
Third Quarter Revenues
$2.57
$2.66
Net Sales (billions)
3Q13 3Q14
2.9%
-1.8%
Comparable Store Sales Growth
3Q13 3Q14
12
Assortment Enhancements
• Food
– 400 new items
– Focus on key national brands
– Improved adjacencies
• Household
– New items and formulations in both national brands and private brands
13
Third Quarter Gross Profit
72.5% 73.3%
10.3% 9.8%
8.0% 7.9%
9.2% 9.0%
3Q13 3Q14
Category Sales Mix (% of Sales)
Consumables Home Products
Apparel & Accessories Seasonal & Electronics
36.6% 36.2%
35.8%
34.7% 34.3%
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
3Q10 3Q11 3Q12 3Q13 3Q14*
(Gro
ss P
rofi
t ($
M)
Gross Profit Trends
GM$ GM Rate
*3Q14 results exclude restructuring charges. 14
Third Quarter SG&A Expense
• Lower sales growth
• De-leverage
– Store occupancy
– Labor
– Advertising
• Leverage
– Incentive compensation
28.1% 27.9%
27.6% 27.4%
28.8%
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
3Q10 3Q11 3Q12 3Q13 3Q14
SG&
A E
xpen
se (
$M
)
SG&A Trends
SG&A SG&A (% of Sales)
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Workforce Reduction and Store Closures
• Reduced corporate overhead by 10% in third quarter fiscal 2014 and re-aligned key organizational functions
• Closing approximately 370 stores in fourth quarter fiscal 2014
16
Estimated $40 - $45 million in Annualized Operating Profit Benefit
Third Quarter Earnings Results
(in millions except for per share amounts)
3Q13 3Q14 Change
Net Income* $120.9 $96.5 -20.2%
Diluted Earnings per Share*
$1.05 $0.85 -19.0%
Weighted average shares - diluted
115.5 114.2
17 *3Q14 results exclude restructuring charges.
$147 $163
$191 $189 $193
$0
$25
$50
$75
$100
$125
$150
$175
$200
$225
$250
3Q10 3Q11 3Q12 3Q13 3Q14
(th
ou
san
ds)
• Anniversary of FY12 consumables expansion
• Consumable assortment changes
• Well-managed discretionary inventories
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Capital Expenditures
$136
$230
$391
$600
$307
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
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3Q10 3Q11 3Q12 3Q13 3Q14
(mill
ion
s)
• New store openings ($107M)
• Renovation program ($93M)
• Existing stores ($51M)
• Corporate/ IT ($36M)
• Supply Chain ($20M)
Year to Date
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Store Activity FY13 FY14
Openings Closings Openings Closings
1Q 125 1 126 1
2Q 126 17 118 21
3Q 129 3 111 3
YTD 380 21 355 25
Ending Store Count 7,801 8,246
Selling square footage (in 000s) 55,994 59,488
Renovations, Relocations and Expansions
556 585
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Returning Capital to Shareholders
58 62 67 78 95
272
513
92 75 125
$0
$100
$200
$300
$400
$500
$600
$700
3Q10 3Q11 3Q12 3Q13 3Q14
(mill
ion
s)
Dividends Share Repurchases
21
Year to Date
Outlook*
4Q14
Comparable Store Sales Flat
Gross Margin Decline
SG&A Expense De-leverage
Diluted Earnings per Share^ $0.75 - $0.85
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*As provided in earnings press release dated July 10, 2014. ^Excludes $0.37 of earnings per diluted share related to restructuring charges.
Outlook*
FY14
Total Sales^ Low-single-digit growth
Comparable Store Sales Low-single-digit decline
Gross Margin Decline
SG&A Expense De-leverage
Tax Rate 34.0% - 34.5%
Diluted Earnings per Share@ $3.07 – $3.17
Capital expenditures $450M - $500M
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*As provided in earnings press release dated July 10, 2014. ^Excluding impact of the extra week in FY13. @Excluding $0.51 of earnings per diluted share related to restructuring charges.
3Q14 Earnings Conference Call
July 10, 2014