Orchard Supply Hardware Stores Corporation Reports Fourth Quarter and Full Year Fiscal 2012 Financial Results

  Orchard Supply Hardware Stores Corporation Reports Fourth Quarter and Full
  Year Fiscal 2012 Financial Results

Business Wire

SAN JOSE, Calif. -- May 3, 2013

Orchard Supply Hardware Stores Corporation (Nasdaq:OSH), which operates
neighborhood hardware and garden stores focused on paint, repair and the
backyard, today reported financial results for the fourth quarter and full
year fiscal 2012 ended February 2, 2013.

Fourth Quarter and Fiscal Year 2012 Financial Results

  *Net sales for the 14-week fourth quarter were $153.0 million compared to
    $141.6 million for the 13-week fourth quarter in fiscal 2011. Comparable
    store sales^(1) on a 13-week basis increased 1.6%. Net sales for the
    53-week year in fiscal 2012 were $657.3 million compared to $660.5 million
    for the 52-week year in fiscal 2011. The 53^rd week in fiscal 2012
    contributed approximately $9.4 million to net sales. Comparable store
    sales^(1) on a 52-week basis were essentially flat, decreasing 0.2%. These
    results were in line with expectations previously announced on February
    15, 2013.
  *Net loss in the fourth quarter of fiscal 2012 was $33.6 million compared
    to net loss of $7.3 million in the fourth quarter of fiscal 2011. Net loss
    for the 2012 quarterly period includes $39.3 million of non-cash charges
    comprised of $35.8 million for impairment of trade names, $2.5 million for
    impairment of store assets and $1.0 million non-cash loss recorded for
    accounting purposes in relation to sale leaseback transactions from the
    fourth quarter of fiscal 2011. Net loss in fiscal 2012 was $118.4 million
    compared to net loss of $14.5 million in fiscal 2011. Net loss in fiscal
    2012 includes $111.5 million of non-cash charges comprised of $96.1
    million for impairment of trade names, $15.0 million for impairment of
    store assets and a net $0.4 million non-cash loss on sale of real
    property.
  *Non-GAAP Adjusted EBITDA in the fourth quarter was breakeven compared to
    $4.9 million in the fourth quarter of fiscal 2011. Non-GAAP Adjusted
    EBITDA in fiscal 2012 was $24.1 million compared to $45.0 million in the
    prior year. Results for fiscal 2012 include $5.0 million of incremental
    costs associated with the effect of having transitioned to a publicly
    traded company independent from Sears Holding Corporation and
    approximately $2.8 million of rent associated with sale-leaseback
    properties owned by the Company in fiscal 2011 and for which the Company
    did not pay rent (see “Non-GAAP Financial Measures” below for a discussion
    of this non-GAAP measure and reconciliation to its most directly
    comparable GAAP financial measure and further information on its uses and
    limitations).

“The past year was one of significant progress in our ongoing efforts to
reposition the Orchard brand and execute our strategic priorities,” said Mark
Baker, President and Chief Executive Officer. “We are continuing to work
productively with our lenders to reach an agreement that will address our
capital structure and allow us to build a stronger platform from which we can
deliver improved results. We continue to expect comparable store sales growth
of 9% to 11% in the first quarter, reflecting our team’s focused efforts
during the important spring selling season. Looking at the balance of the
year, we hope to carry this momentum into the second quarter and deliver solid
operating results for fiscal 2013.”

Fiscal 2013 Store Opening and Remodel Plans

To date in fiscal 2013, Orchard has opened new stores in Portland and Tigard,
Oregon and one in Yorba Linda, California, and completed remodels on three
locations, which bring Orchard’s total number of neighborhood format stores to
16. Including these store openings, Orchard continues to expect to open at
least four new stores and to remodel at least six existing locations, reaching
a total of approximately 20 stores or more than 20% of the portfolio in the
new format, by fiscal year-end.

Footnote

^(1) Comparable store sales are calculated using sales of stores open at least
twelve months and exclude E-commerce. Additionally, and because of an
agreement the Company entered into with Sears Holdings Corporation on October
26, 2011 whereby the Company now sells appliances on a consignment basis and
receives commission income for sales of such appliances and related protection
agreements, fiscal 2011 comparable store sales also exclude approximately
$13.2 million of net sales of Sears branded appliances in fiscal 2011 and
fiscal 2012 comparable store sales exclude approximately $1.7 million of
commission income in fiscal 2012.

About Orchard

Orchard Supply Hardware Stores Corporation operates neighborhood hardware and
garden stores focused on paint, repair and the backyard. The Company was
founded as a purchasing cooperative in San Jose in 1931. Today the stores
average approximately 36,000 square feet of interior selling space and 8,000
square feet of exterior nursery and garden space. As of February 2, 2013, the
Company had 89 stores in California. For more information, visit
http://osh.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995:

This press release (including information incorporated or deemed incorporated
by reference herein) contains “forward-looking statements” within the meaning
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements are those involving future events and future results that are based
on current expectations, estimates, forecasts, and projections as well as the
current beliefs and assumptions of the Company’s management. Words such as
“guidance”, “outlook”, “believes”, “expects”, “appears”, “may”, “will”,
“should”, “intend”, “target”, “projects”, “estimates”, “plans”, “forecast”,
“is likely to”, “anticipates”, or the negative thereof or comparable
terminology, are intended to identify such forward looking statements. Any
statement that is not a historical fact and other estimates, projections,
future trends and the outcome of events that have not yet occurred referenced
in this press release, is a forward-looking statement. Forward-looking
statements are only predictions and are subject to risks, uncertainties and
assumptions that are difficult to predict. Therefore actual results may differ
materially and adversely from those expressed in any forward-looking
statements. Factors that might cause or contribute to such differences
include, but are not limited to, factors discussed under the section entitled
“Risk Factors” in the Company’s reports filed with the Securities and Exchange
Commission. Many of such factors relate to events and circumstances that are
beyond the Company’s control. These risks and uncertainties and the risks and
uncertainties relating to the Company’s ability to modify its capital
structure include, but are not limited to, consumer demand for the Company's
products and services; competition and other factors; continued support from
the Company's lenders, vendors, and landlords; the loss of key executives and
employees; the risks to the Company and its stakeholders associated with the
Company’s inability to successfully refinance or modify its Term Loan and/or
raise new long term debt and/or equity; and the risks that raising additional
capital, refinancing or amending the Company’s Term Loan or any other
transaction needed to deleverage or address the Company’s capital structure
could be significantly dilutive to its stockholders or even lead to a complete
loss of their investment. You should not place undue reliance on
forward-looking statements. The Company does not assume any obligation to
update the information contained in this press release.

                                                             
ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
                
                   February 2,     January 28,     February 2,      January 28,
                   2013            2012            2013             2012
                   14 Weeeks       13 Weeks        53 Weeks         52 Weeks
NET SALES          $ 153,093      $ 141,579      $ 657,313       $ 660,472 
                                                                      
COST OF SALES
AND EXPENSES:
Cost of sales
(excluding
depreciation         108,187         94,620          450,861          441,031
and
amortization)
Gross Margin         44,906          46,959          206,452          219,441
Selling and          46,546          42,566          187,666          173,658
administrative
Depreciation
and                  8,474           7,000           32,490           29,390
amortization
Trade name and
property and         38,300          3,526           111,073          3,526
equipment
impairment
Loss on sale
of real             998           470           368            14,780  
property
Total cost of
sales and           202,505       148,182       782,458        662,385 
expenses
OPERATING LOSS       (49,412 )       (6,603  )       (125,145 )       (1,913  )
INTEREST            6,450         6,568         24,718         23,362  
EXPENSE, NET
LOSS BEFORE          (55,862 )       (13,171 )       (149,863 )       (25,275 )
INCOME TAXES
INCOME TAX          (22,292 )      (5,928  )      (31,487  )      (10,825 )
BENEFIT
NET LOSS           $ (33,570 )     $ (7,243  )     $ (118,376 )     $ (14,450 )
LOSS PER
COMMON SHARE
ATTRIBUTABLE
TO COMMON
STOCKHOLDERS:
Basic and
diluted loss       $ (5.59   )     $ (1.21   )     $ (19.64   )     $ (2.40   )
per share
Basic and
diluted
weighted             6,033           6,009           6,025            6,010
average common
shares
outstanding
                                                                              


ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
                                                                
                                                     Fiscal Year
                                                     2012            2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents                            $ 6,532         $ 8,148
Restricted cash                                        -               556
Merchandise inventories                                171,385         157,671
Income taxes receivable                                3,115           -
Deferred income taxes                                  1,657           14,129
Prepaid expenses and other current assets             17,370        13,228
Total current assets                                   200,059         193,732
PROPERTY AND EQUIPMENT, NET                            168,343         210,362
INTANGIBLE ASSETS, NET                                 29,750          133,916
DEFERRED FINANCING COSTS AND OTHER LONG-TERM          9,261         8,493
ASSETS
TOTAL                                                $ 407,413      $ 546,503
                                                                     
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
CURRENT LIABILITIES:
Merchandise payables                                 $ 47,813        $ 54,410
Accrued expenses and other liabilities                 39,661          44,508
Current portion of long-term debt and capital          214,494         8,269
lease obligations
Deposits from sale leaseback of real property         -             21,471
Total current liabilities                              301,968         128,658
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS           46,948          254,152
LONG-TERM DEPOSITS FROM SALE LEASEBACK OF REAL         39,780
PROPERTIES
OTHER LONG-TERM LIABILITIES                            42,237          29,286
DEFERRED INCOME TAXES                                 7,090         48,108
Total liabilities                                     438,023       460,204
Total stockholders’ equity (deficit)                  (30,610 )      86,299
TOTAL                                                $ 407,413      $ 546,503
                                                                       

Reconciliation of Net Loss to Non-GAAP Adjusted EBITDA:

Non-GAAP Financial Measures

In addition to our net income (loss) determined in accordance with GAAP, for
purposes of evaluating operating performance, the Company uses an Adjusted
Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted
EBITDA”), which is adjusted to exclude certain significant items as set forth
below. Our management uses Adjusted EBITDA to evaluate the operating
performance of our business for comparable periods. Adjusted EBITDA should not
be used by investors or other third parties as the sole basis for formulating
investment decisions as it excludes a number of important cash and non-cash
recurring items. Adjusted EBITDA should not be considered as a substitute for
GAAP measurements. While Adjusted EBITDA is a non-GAAP measurement, management
believes that it is an important indicator of operating performance because:

  *Adjusted EBITDA excludes the effects of financing and investing activities
    by eliminating the effects of interest, depreciation and amortization
    costs;
  *Management considers gain/loss on the sale of assets to result from
    investing decisions.Asset impairments and equity compensation expenses
    are excluded as they are non-cash charges; and
  *Other significant items, while periodically affecting our results, may
    vary significantly from period to period and have a disproportionate
    effect in a given period.

                                             
                  14 and 13 Weeks Ended          53 and 52 Weeks Ended      
                  February 2,   January 28,     February 2,    January 28,
                  2013            2012            2013             2012
Net (loss)        $ (33,570 )     $ (7,243  )     $ (118,376 )     $ (14,450 )
income
Interest            6,450          6,568           24,718           23,362
expense, net
Income tax          (22,292 )       (5,928)         (31,487  )       (10,825 )
benefit
Depreciation
and                 8,474          7,000           32,490           29,390
amortization
Impairment of
assets and
net loss on         39,212         3,578           112,195          18,093
sale of real
property ^(1)
Stock-based         454            59              1,467            328
compensation
Other
significant        1,290         816           3,121          (884    )
items ^(2)
Adjusted          $ 18           $ 4,850        $ 24,128        $ 45,014  
EBITDA
                            

            The Company recorded non-cash trade mark impairment charges of
            $35.8 million and $96.1 million in the 14 weeks and 53 weeks ended
            February 2, 2013, respectively, and store assets write-down
            charges of $2.5 million and $15.0 million, respectively. During
  (1)   the 13 weeks and 52 weeks ended January 28, 2012, the Company
            recorded store assets write-down charges of $3.5 million. During
            the 52 weeks ended January 28, 2012, the Company recorded a
            non-cash loss of $14.8 million in connection with sale leaseback
            transactions.
            Other significant items include $1.3 million and $3.1 million of
            legal, financial advisory and severance costs for the 14 weeks and
    (2)     53 weeks ended February 2, 2013. The 13 weeks ended January 28,
            2012 includes $0.8 million of severance costs. The 52 weeks ended
            January 28, 2012 includes $1.3 million of severance costs net of
            $2.1 million reversal of legal accruals.

Contact:

Investor Relations:
The Blueshirt Group
Christine Greany, 858-523-1732
christine@blueshirtgroup.com