Roundy’s, Inc. Reports Third Quarter 2012 Financial Results

  Roundy’s, Inc. Reports Third Quarter 2012 Financial Results

Business Wire

MILWAUKEE -- November 08, 2012

Roundy’s, Inc. (“Roundy’s”) (NYSE: RNDY), a leading grocer in the Midwest,
today reported financial results for the third quarter ended September 29,
2012.

  *Net sales decreased 0.3% to $973.6 million for the third quarter
  *Adjusted net income, which excludes the impact of one-time employee
    expenses, was $8.8 million, or $0.20 diluted earnings per common share,
    for the third quarter, compared to $12.4 million, or $0.41 diluted
    earnings per common share in the prior year
  *Adjusted EBITDA was $43.1 million for the third quarter compared to $56.7
    million in the same period last year
  *Quarterly dividend reduced to $0.12 per share, enhancing financial
    flexibility while maintaining attractive dividend pay-out profile and
    yield relative to peers

“During the third quarter, our results continued to be negatively affected by
the general weakness in the overall economy and increased competitive
environment,” said Robert Mariano, Roundy’s chairman, president and chief
executive officer. “We have worked very hard to strengthen our leading market
position as a provider of quality, value and convenience to consumers, but the
impact of increased price investments and promotional activities on our gross
margins and profitability was greater than we anticipated. In addition,
customers did not respond as enthusiastically as we had expected to our
Monopoly promotion program, which contributed to last year’s very strong third
quarter results. As we look ahead, we are carefully examining our entire
operation for ways in which we might improve sales and earnings and,
accordingly, have already made adjustments to our pricing and promotions to
drive our performance. Despite the headwinds in certain of our core markets,
we continue to be pleased with the performance of our Chicago area stores.
With eight Mariano’s now open in the Chicago area, we are gaining significant
traction, and continue to invest in the growth of that market. We believe that
our continued focus on enhancing the execution of our overall business model
will position us to deliver greater overall sales growth and profitability.”

Mr. Mariano continued, “Recognizing that the economy and competitive
environment are likely to remain challenging into fiscal 2013, we are reducing
our quarterly dividend to strengthen our balance sheet and increase our
financial flexibility. We believe that it is in the best long-term interest of
our shareholders as it will enable us to continue to invest in the business
and expand our growth banner, Mariano’s, in the Chicago market, as well as
provide cash flow to pay down debt. Our new dividend policy will continue to
provide for a dividend pay-out as a percentage of net income and dividend
yield that is very attractive relative to our peers.”

Financial Results for Third Quarter of 2012

Net sales for the third quarter of 2012 were $973.6 million, a decrease of
$3.3 million, or 0.3%, from $976.9 million for the third quarter of 2011. The
decrease primarily reflects a 3.6% decrease in same-store sales, partially
offset by the impact of new stores. The decline in same-store sales was
primarily due to a 3.0% decrease in the number of customer transactions and a
0.7% decrease in average transaction size. Same-store sales comparisons were
negatively impacted by the increased effect of competitive store openings and
related pricing and promotional activity in certain of our markets as a result
of the continuation of a challenging economic environment for our customers,
as well as the performance of certain promotional programs which did not
perform as well as last year. In addition, we did experience deflationary
trends, some of which were related to pricing and promotional activity, in
several key product categories that also negatively affected our same-store
sales.

Gross profit for the third quarter of 2012 decreased 4.6% to $251.2 million,
from $263.2 million in the third quarter of 2011. Gross profit as a percentage
of net sales was 25.8% for the third quarter of 2012, compared to 26.9% in the
third quarter of 2011. The decrease in gross profit as a percentage of net
sales primarily reflects greater price and promotional investments in certain
markets and increased shrink as a result of warm weather conditions.

Operating and administrative expenses for the third quarter of 2012 increased
to $225.9 million, from $224.5 in the same period last year. Operating and
administrative expenses as a percentage of net sales increased to 23.2% in the
third quarter of 2012, from 23.0% in the same period last year, due to
increased occupancy costs related to new and replacement stores, one-time
employee costs, incremental costs related to being a public company and
reduced fixed cost leverage in the Company’s core business resulting from
lower same store sales. Included in the third quarter 2012 were $1.4 million
of one-time recruiting, relocation and severance charges related to the
Company’s recently announced management changes.

For the third quarter of 2012, adjusted net income was $8.8 million, or $0.20
diluted earnings per common share, compared to $12.4 million, or $0.41 diluted
earnings per common share, for the third quarter of 2011. Adjusted net income
for the third quarter of 2012 excludes a $0.8 million after-tax charge, or
$0.02 per diluted common share, for one-time employee related expenses as
discussed above. Net income for the third quarter of 2012 was $7.9 million, or
$0.18 diluted earnings per common share.

Adjusted EBITDA for the quarter ended September 29, 2012 was $43.1 million,
compared to $56.7 million in the third quarter of 2011. The decrease was
primarily due to the effect of a more challenging economic and competitive
environment, which resulted in lower same-store sales, lower gross margins and
reduced fixed cost leverage.

The Company opened two new stores and one replacement store during the third
quarter of 2012 and opened one new store during the fourth quarter of 2012.

Net cash provided by operating activities for the third quarter 2012 was $15.5
million, compared to $5.2 million during the third quarter 2011. The increase
in cash from operating activities was due primarily to changes in working
capital in the third quarter 2012 as a result of timing of payments for
inventory and accounts payable.

The Company paid a dividend of $0.23 per share on all outstanding shares of
its common stock during the third quarter. Due to the continued challenging
economic and competitive environment, the Company’s Board of Directors has
decided to reduce the Company’s quarterly cash dividend to $0.12 per share of
outstanding common stock, for an annual rate of $0.48 per share. This decision
is consistent with the Company’s objective to utilize its capital to maintain
a strong and flexible balance sheet. The quarterly cash dividend of $0.12 per
share of outstanding common stock will be paid on November 26, 2012 to
stockholders of record as of November 19, 2012.

Year-to-Date Financial Results

Net sales were $2,908.7 million for the thirty-nine weeks ended September 29,
2012, an increase of $35.4 million, or 1.2% from $2,873.3 million for the
thirty-nine weeks ended October 1, 2011. The increase primarily reflects the
impact of new stores, partially offset by a 3.0% decrease in same-store sales.
The decline in same-store sales was due to a 2.3% decrease in the number of
customer transactions and 0.7% decrease in the average transaction size. The
Company’s same-store sales were negatively impacted by the effect of
competitive store openings during the last twelve months and the performance
of certain promotional programs, as well as a more challenging economic and
competitive environment. Same-store sales were also affected by the calendar
shift of the New Year’s holiday, which is traditionally a slow sales day and
fell in the first quarter of 2012.

For the thirty-nine weeks ended September 29, 2012 adjusted net income was
$38.3 million, or $0.89 diluted earnings per common share, compared with $38.9
million, or $1.28 diluted earnings per common share for the thirty-nine weeks
ended October 1, 2011. Adjusted net income for the current year-to-date period
excludes an $8.4 million after-tax charge, or $0.20 per diluted common share,
for the early extinguishment of debt and one-time IPO expenses that occurred
during the first quarter 2012 as well as the one-time employee expenses of
$0.8 million, or $0.02 per diluted common share that occurred during the third
quarter 2012 Net income for the thirty-nine weeks ended September 29, 2012 was
$29.1 million, or $0.68 diluted earnings per common share.

Adjusted EBITDA for the thirty-nine weeks ended September 29, 2012 and October
1, 2011 was $152.0 million and $172.7 million, respectively.

Fiscal 2012 Guidance

The Company updated its guidance for fiscal 2012. The following table provides
information on the Company’s current estimated 2012 results:


Sales growth                                           1.0% to 1.5%
                                                        
Same-store sales growth                                 (3.0%) to (2.5%)
                                                        
Adjusted EBITDA                                         $195 to $200 million
                                                        
Adjusted EBITDA Margin                                  5.0% to 5.2%
                                                        
Interest Expense ^ (1)                                  $51.0 to $51.5 million
                                                        
Income Tax Rate                                         39% to 40%
                                                        
Capital Expenditures                                    $60 to $65 million
New Store Openings                                      4
Replacement Store Openings                              2
                                                        
Weighted Average Diluted Common Shares Outstanding ^    43.4 million
(2)
                                                        
Earnings per Share
Fully Diluted                                           $0.82 to $0.89
Excluding One-Time Transactional Costs and Employee     $1.05 to $1.12
Expenses


(1) Includes non-cash interest of approximately $2.4 million and $1.4 million
related to amortization of deferred financing fees and original issue
discount, respectively.

(2) Represents the weighted average diluted common shares outstanding for the
full year, consisting of 38.6 million shares in the first quarter, 45.0
million shares in the second and third quarters and 44.9 million shares in the
fourth quarter.

Conference Call

The Company will host a conference call and audio webcast today, November 8,
2012 at 4:30 p.m. ET (3:30 p.m. CT) to discuss financial results for the third
quarter fiscal 2012. To access the conference call, participants should dial
888-790-3727; passcode is 5627188. Participants are encouraged to dial in to
the conference call ten minutes prior to the scheduled start time. The call
will be also broadcast live over the Internet and accessible through the
Investor Relations section of the Company’s website at www.roundys.com, where
it will be archived and accessible through November 22, 2012. A telephone
replay will be available through November 22, 2012 by calling 866-360-7719 to
access the playback.

About Roundy’s

Roundy’s is a leading grocer in the Midwest with nearly $4.0 billion in sales
and more than 18,000 employees. Founded in Milwaukee in 1872, Roundy’s
operates 161 retail grocery stores and 98 pharmacies under the Pick ’n Save,
Rainbow, Copps, Metro Market and Mariano’s retail banners in Wisconsin,
Minnesota and Illinois.

Non-GAAP Financial Measures

This press release presents Adjusted Net Income and Adjusted EBITDA, which are
non-GAAP financial measures within the meaning of applicable SEC rules and
regulations, as defined under “Consolidated Statements of Comprehensive
Income.” For a reconciliation of Adjusted Net Income and Adjusted EBITDA to
net income under generally accepted accounting principles and for a discussion
of the reasons why the Company believes that these non-GAAP financial measures
provide information that is useful to investors see the tables following
“Consolidated Statements of Comprehensive Income.”

Forward-Looking Statements

This release contains forward-looking statements about the Company’s future
performance, which are based on Management’s assumptions and beliefs in light
of the information currently available to it. The Company assumes no
obligation to update the information contained herein. These forward-looking
statements are subject to uncertainties and other factors that could cause
actual results to differ materially from such statements including, but not
limited to: competitive practices and pricing in the food industry generally
and particularly in the Company’s principal markets; employee relationships
and the terms of future collective bargaining agreements; the costs and other
effects of legal and administrative cases and proceedings; the nature and
extent of continued consolidation in the food industry; changes in the
financial markets which may affect the cost of capital and our ability to
access capital; supply or quality control problems with vendors; and changes
in economic conditions which affect the buying patterns of customers.
Additional factors that could cause actual results to differ materially from
such statements are discussed in the Company’s periodic reports and filings
with the Securities and Exchange Commission.


Roundy's, Inc.
Consolidated Statements of Comprehensive Income
(In thousands, except per share data)
(Unaudited)

                     Thirteen Weeks Ended        Thirty-nine Weeks Ended
                      October 1,  September 29,   October 1,   September 29,
                      2011         2012            2011          2012
Net Sales             $  976,881   $   973,595     $ 2,873,262   $  2,908,682
                                                                 
Costs and Expenses:
Cost of sales            713,699       722,432       2,090,086      2,133,065
Operating and            224,455       225,907       663,808        676,022
administrative
Interest:
Interest expense,        17,279        11,597        51,939         37,257
net
Amortization of
deferred financing       847           574           2,632          1,840
costs
Loss on debt            -            -            -             13,304
extinguishment
                        956,280      960,510      2,808,465     2,861,488
                                                                 
Income before            20,601        13,085        64,797         47,194
Income Taxes
                                                                 
Provision for           8,240        5,152        25,919        18,079
Income Taxes
                                                                 
Net Income            $  12,361    $   7,933       $ 38,878      $  29,115
                                                                 
Net earnings per
common share:
Basic                 $  0.41      $   0.18        $ 1.28        $  0.68
Diluted               $  0.41      $   0.18        $ 1.28        $  0.68
                                                                 
Weighted average
number of common
shares outstanding:
Basic                    27,345        44,824        27,345         42,455
Diluted                  30,395        44,976        30,395         42,884
                                                                 
Dividends declared    $  -         $   0.23        $ -           $  0.46
per share
                                                                 
Comprehensive         $  12,600    $   8,603       $ 39,594      $  31,126
Income


Adjusted Net Income

The following is a summary of the calculation of Adjusted Net Income for the
thirteen and thirty-nine weeks ended October 1, 2011 and September 29, 2012,
respectively (in thousands):


                        Thirteen Weeks Ended        Thirty-nine Weeks Ended
                         October 1,  September 29,   October 1,   September
                                                                    29,
                         2011         2012           2011          2012
Net Income               $  12,361    $    7,933      $   38,878    $  29,115
Loss on debt
extinguishment, net of      -              -              -            8,049
tax
Executive recruiting
fees and relocation         -              293            -            293
expenses, net of tax
Severance to former         -              547            -            547
executives, net of tax
One-time IPO expenses,     -             -             -           314
net of tax
                                                                    
Adjusted Net Income      $  12,361    $    8,773      $   38,878    $  38,318
                                                                    
Net earnings per
common share
(adjusted):
                                                                    
Basic                    $  0.41      $    0.20       $   1.28      $  0.90
Diluted                  $  0.41      $    0.20       $   1.28      $  0.89


The Company presents Adjusted Net Income, a non-GAAP measure, to provide
investors with a view of operating performance excluding significant and
non-recurring items.

Adjusted EBITDA

The following is a summary of the calculation of Adjusted EBITDA for the
thirteen and thirty-nine weeks ending October 1, 2011 and September 29, 2012,
respectively (in thousands):


                      Thirteen Weeks Ended        Thirty-nine Weeks Ended
                       October 1,  September 29,   October 1,  September 29,
                       2011         2012            2011         2012
Net Income             $  12,361    $    7,933      $  38,878    $   29,115
Interest expense          17,279         11,597        51,939        37,257
Provision for income      8,240          5,152         25,919        18,079
taxes
Depreciation and          17,091         15,781        51,515        47,992
amortization expense
LIFO charges              839            250           1,839         1,500
Amortization of
deferred financing        847            574           2,632         1,840
costs
Non-cash stock            -              396           -             1,053
compensation expense
Loss on debt              -              -             -             13,304
extinguishment
Executive recruiting
fees and relocation       -              484           -             484
expenses
Severance to former       -              904           -             904
executives
One-time IPO             -             -            -            519
expenses
                                                                 
Adjusted EBITDA        $  56,657    $    43,071     $  172,722   $   152,047


The Company presents Adjusted EBITDA, a non-GAAP measure, to provide investors
with a supplemental measure of its operating performance. The Company believes
that Adjusted EBITDA is a useful performance measure and is used by the
Company to facilitate a comparison of its operating performance on a
consistent basis from period-to-period and to provide for a more complete
understanding of factors and trends affecting the Company’s business than
measures under U.S. generally accepted accounting principles (‘‘GAAP’’) can
provide alone. The Company’s board of directors and management also use
Adjusted EBITDA as one of the primary methods for planning and forecasting
overall expected performance and for evaluating on a quarterly and annual
basis actual results against such expectations, and as a performance
evaluation metric in determining achievement of certain compensation programs
and plans for employees, including its senior executives.

The Company defines Adjusted EBITDA as earnings before interest expense,
provision for income taxes, depreciation and amortization, LIFO charges,
amortization of deferred financing costs, non-cash compensation expenses
arising from the issuance of stock, options to purchase stock and stock
appreciation rights, costs incurred in connection with the Company’s IPO (or
subsequent offerings of Roundy’s common stock), loss on debt extinguishment
and certain one-time employee related costs. Omitting interest, taxes and the
other items provides a financial measure that facilitates comparisons of the
Company’s results of operations with those of companies having different
capital structures. Since the levels of indebtedness, tax structures, and
methodologies in calculating LIFO expense that other companies have are
different from the Company’s, it omits these amounts to facilitate investors’
ability to make these comparisons. Similarly, the Company omits depreciation
and amortization because other companies may employ a greater or lesser amount
of owned property, and because in the Company’s experience, whether a store is
new or one that is fully or mostly depreciated does not necessarily correlate
to the contribution that such store makes to operating performance. The
Company believes that investors, analysts and other interested parties
consider Adjusted EBITDA an important measure of the Company’s operating
performance. Adjusted EBITDA should not be considered as an alternative to net
income as a measure of the Company’s performance. Other companies in the
Company’s industry may calculate Adjusted EBITDA differently than the Company
does, limiting its usefulness as a comparative measure.

Adjusted EBITDA has limitations as an analytical tool, and should not be
considered in isolation or as a substitute for analysis of the Company’s
results as reported under GAAP. The limitations of Adjusted EBITDA include:
(i) it does not reflect the Company’s cash expenditures or future requirements
for capital expenditures or contractual commitments; (ii) it does not reflect
changes in, or cash requirements for, the Company’s working capital needs;
(iii) it does not reflect income tax payments the Company may be required to
make; and (iv) although depreciation and amortization are non-cash charges,
the assets being depreciated and amortized often will have to be replaced in
the future, and Adjusted EBITDA does not reflect any cash requirements for
such replacements.


Roundy's, Inc.
Consolidated Balance Sheets
(In thousands, except per share data)

                                                December 31,   September 29,
                                                 2011            2012
Assets                                                           (Unaudited)
Current Assets:
Cash and cash equivalents                        $ 87,068        $ 43,192
Notes and accounts receivable, less allowance      32,467          34,206
for losses
Merchandise inventories                            286,537         296,837
Prepaid expenses                                   18,880          18,788
Deferred income taxes                             6,038         6,038     
Total current assets                              430,990       399,061   
                                                                 
Property and Equipment, net                        309,575         305,224
                                                                 
Other Assets:
Other assets - net                                 45,238          47,779
Goodwill                                          726,879       726,879   
Total other assets                                772,117       774,658   
                                                                 
Total assets                                     $ 1,512,682    $ 1,478,943 
                                                                 
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable                                 $ 245,216       $ 222,164
Accrued wages and benefits                         48,876          36,418
Other accrued expenses                             42,089          46,407
Current maturities of long-term debt and           10,789          11,007
capital lease obligations
Income taxes                                      4,265         4,851     
Total current liabilities                         351,235       320,847   
                                                                 
Long-term Debt and Capital Lease Obligations       809,352         687,996
Deferred Income Taxes                              66,438          69,181
Other Liabilities                                 108,482       100,714   
Total liabilities                                 1,335,507     1,178,738 
                                                                 
Shareholders' Equity:
Preferred Stock                                    1,044           -
Common stock (150,000 shares authorized, $0.01
par value, 27,072 shares
and 45,654 shares at 12/31/11 and 9/29/12,         271             457
respectively, issued and outstanding)
Additional paid-in capital                         -               113,742
Retained earnings                                  221,365         229,500
Accumulated other comprehensive loss              (45,505   )    (43,494   )
Total shareholders' equity                        177,175       300,205   
                                                                 
Total liabilities and shareholders' equity       $ 1,512,682    $ 1,478,943 



Roundy's, Inc.
Consolidated Statements of Cash Flows
(In thousands)

                                                  (Unaudited)
                                                   Thirty-nine Weeks Ended
                                                   October 1,   September 29,
                                                   2011          2012
Cash Flows From Operating Activities:
Net income                                         $ 38,878      $  29,115
                                                                 
Adjustments to reconcile net income to net cash
flows provided by (used in) operating
activities:
                                                                 
Depreciation and amortization, including             54,147         49,832
deferred financing costs
Gain on sale of property and equipment               (309    )      (123     )
LIFO charges                                         1,839          1,500
Amortization of debt discount                        375            1,008
Stock-based compensation expense                     -              1,053
Interest earned on shareholder notes receivable      (140    )      -
Loss on debt extinguishment                          -              13,304
Deferred income taxes                                -              392
                                                                 
Changes in operating assets and liabilities:
Notes and accounts receivable                        (1,509  )      (1,739   )
Merchandise inventories                              (20,876 )      (11,800  )
Prepaid expenses                                     (651    )      92
Other assets                                         370            113
Accounts payable                                     41,505         (23,052  )
Accrued expenses and other liabilities               (12,190 )      (12,492  )
Income taxes                                        25,547       1,171    
Net cash flows provided by operating activities     126,986      48,374   
                                                                 
Cash Flows From Investing Activities:
Capital expenditures                                 (48,578 )      (40,434  )
Proceeds from sale of property and equipment        376          129      
Net cash flows used in investing activities         (48,202 )     (40,305  )
                                                                 
Cash Flows From Financing Activities:
Proceeds from long-term borrowings                   -              664,875
Payments of debt and capital lease obligations       (8,207  )      (790,575 )
Dividends paid                                       -              (20,619  )
Issuance of common stock, net of issuance costs      -              112,540
Debt issuance and refinancing fees and related      -            (18,166  )
expenses
Net cash flows used in financing activities         (8,207  )     (51,945  )
                                                                 
Net increase (decrease) in Cash and Cash             70,577         (43,876  )
Equivalents
                                                                 
Cash and Cash Equivalents, Beginning of Period      36,435       87,068   
Cash and Cash Equivalents, End of Period           $ 107,012    $  43,192   
                                                                 
Supplemental Cash Flow Information:
Cash paid for interest                             $ 53,610      $  42,239
Cash paid for income taxes                           372            16,516


Contact:

ICR
Katie Turner, 646-277-1228
katie.turner@icrinc.com
 
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