Fairway Group Holdings Corp. Reports Fourth Quarter Results

Fairway Group Holdings Corp. Reports Fourth Quarter Results

NEW YORK, May 29, 2014 (GLOBE NEWSWIRE) -- Fairway Group Holdings Corp.
("Fairway") (Nasdaq:FWM), the parent company of Fairway Market, today
announced financial results for its fiscal 2014 fourth quarter ended March 30,
2014.

  *Net sales increased to $200.3 million
  *Adjusted EBITDA was $12.7 million
  *Began working with Google Express to launch online shopping platform with
    same-day delivery throughout Manhattan

"During the quarter we made progress on a number of operational initiatives,
including leveraging our Central Service expense and reducing direct store
expenses through enhanced cost disciplines. Sales and Adjusted EBITDA were
in-line with our expectations," said William Sanford, Interim Chief Executive
Officer. "We are looking forward to transitioning into our new production
facility this summer as well as the opening of our new store in Lake Grove,
New York. We are also excited to begin working with Google to provide Fairway
with omni-channel capabilities through the Google Express shopping service
with same-day delivery service throughout Manhattan."

Co-President and Chief Operating Officer Kevin McDonnell added, "Fairway's
broad offering, which combines fresh, natural and organic products with hard
to find specialty items and a full selection of conventional groceries,
remains a unique platform in the market. Our commitment for delivering
quality, selection and value to our customers leaves us well positioned to
leverage the growing population of health conscious and value oriented
consumers."

Fairway to Provide Same-Day Delivery through Google Express Shopping Service

During the 1^st quarter of fiscal 2015 the Company began working with Google
Express to launch an online shopping platform with same-day delivery
throughout Manhattan. The shopping interface allows consumers to shop
approximately 12,000 Fairway SKUs seamlessly across multiple devices,
providing an added level of convenience for existing customers while
simultaneously exposing the Fairway brand to new customers. The integration of
Google Express allows Fairway to leverage Google's technology and distribution
network to increase delivery capacity and expand the Fairway footprint.

Operating Results for the Fourth Quarter of Fiscal 2014

For the fourth quarter of fiscal 2014, net sales increased $21.6 million, or
12.1%, to $200.3 million from $178.7 million in the fourth quarter of fiscal
2013. Net sales growth in the quarter was driven primarily by the new stores
opened subsequent to April 1, 2013 and three months of net sales from the Red
Hook, Brooklyn location ("Red Hook"), which was closed for the first nine
weeks of the fourth quarter in the prior year. On a pro-forma basis to include
the estimated lost sales from the Red Hook store in the fourth quarter of
fiscal 2013, net sales increased 4.8% in the quarter.


Pro forma Net Sales and Adjusted EBITDA Margin^1
                                         
(Dollars in millions) Thirteen Weeks Ended Thirteen Weeks Ended
                     March 31,           March 30,
                     2013                 2014
                     Actual    Pro forma  Actual    Pro forma
Net Sales             $178.7  $191.0   $200.3  $200.3
% growth              18.9%     27.1%      12.1%     4.8%
                                                 
Central Services      $10.8   $10.8    $10.7   $10.7
% margin              6.0%      5.7%       5.3%      5.3%
                                                 
Adjusted EBITDA      $13.5     $13.5      $12.7     $12.7
% margin              7.6%      7.1%       6.4%      6.4%

(1)The pro-forma adjustments are made to account for the temporary closing of
the Company's Red Hook, Brooklyn store due to Hurricane Sandy and therefore
make more meaningful comparisons between periods.The Red Hook, Brooklyn store
was closed beginning October 29, 2012 and re-opened on March 1, 2013. Pro
forma net sales for the quarter ended March 31, 2013 reflect an adjustment of
$12.3 million based on the Red Hook location's net sales during the same 9
week period in the prior fiscal year. The actual adjusted EBITDA includes
business interruption insurance proceeds of $2.5 million for the fourth
quarter. As a result, no pro-forma adjustment is needed for adjusted EBITDA.

Same store sales, excluding the Red Hook store, decreased 1.9% in the quarter.
The decrease in same store sales was largely due to the timing of the
Easter/Passover holidays, which occurred in the fourth quarter of fiscal 2013
but not in the fourth quarter of fiscal 2014, and the sales transfers from
existing Fairway locations to new stores. Poor weather conditions also
negatively impacted traffic patterns throughout the quarter as heavy snowfall
skews the destination customer towards convenience shopping. Same store sales
in fiscal 2013 included an approximate 100 basis points sales benefit related
to the Easter and Passover holidays.

Adjusted EBITDA was $12.7 million in the fourth quarter of fiscal 2014
compared to $13.5 million in the fourth quarter of fiscal 2013.The Adjusted
EBITDA margin was 6.4% in the quarter compared to 7.1%, on a pro forma basis
to include the estimated lost sales from the Red Hook store in the fourth
quarter of fiscal 2013.Adjusted EBITDA in the quarter was negatively impacted
by lower contribution from the Red Hook location due to a difficult year over
year comparison and increased competitive pressures. Store contribution at Red
Hook declined approximately $2.3 million in the fourth quarter of fiscal 2014
compared to the fourth quarter of fiscal 2013, which more than offset $1.5
million of higher contribution from the rest of the Company.Management
estimates that approximately $0.8 million of the lower store contribution at
Red Hook was a result of a recent competitive opening.The remaining decrease
was primarily driven by the comparison against a higher than average store
contribution at Red Hook in the fourth quarter of fiscal 2013 due to higher
sales in the robust re-opening period.See the discussion under "Supplemental
Non-GAAP Financial Disclosure" below for an explanation of Adjusted EBITDA.

The following table sets forth a reconciliation to Adjusted EBITDA from Net
Loss:


Adjusted EBITDA Reconciliation
                                                        
(Dollars in thousands, % of net      Thirteen Weeks Ended Thirteen Weeks Ended
sales)
                                    March 31,            March 30,
                                    2013                 2014
Net loss (a)                         $(6,689)   (3.7)%  $(8,842)   (4.4)%
                                                                   
Store depreciation and amortization  5,082        2.8     5,964        3.0
Corporate depreciation and           1,111        0.6     1,050        0.5
amortization
Interest expense, net (b)            6,525        3.7     4,760        2.4
Income tax (benefit) provision       (705)        (0.4)   561          0.3
Store opening costs                  2,412        1.3     1,150        0.6
Pre-opening advertising costs        480          0.3     43           0.0
Production center start-up costs     —            —       1,311        0.7
Management fees (c)                  877          0.5     —            —
IPO related                          742          0.4     —            —
Transaction expenses                 2,438        1.4     —            —
Equity compensation charge           26           0.0     3,268        1.6
Severance (d)                        640          0.4     3,276        1.6
Professional services (e)            351          0.2     198          0.1
Non-operating expenses (e)           232          0.1     6            0.0
Adjusted EBITDA                      $13,522    7.6%    $12,745    6.4%

(a)Our Red Hook store was temporarily closed for 9 weeks during the fourth
quarter of fiscal 2013 due to damage sustained in Hurricane Sandy and reopened
on March 1, 2013. During the same 9 week period in fiscal 2012 corresponding
to the period in fiscal 2013 that this store was closed, net sales were
approximately $12.3 million.

(b)Includes amortization of deferred financing costs.

(c)Represents management fees paid to an affiliate of Sterling Investment
Partners pursuant to an agreement that was terminated upon the consummation of
our IPO.

(d)In fiscal 2013, consists primarily of severance required to be paid under
an employment agreement in connection with the termination of employment of a
senior officer.In fiscal 2014 consists primarily of severance paid in
connection with our organizational realignment program, including payments
required to be paid under a separation agreement due to the retirement of our
former chief executive officer.

(e)Consists of charges that were incurred and associated with discrete and
different events that do not relate to and are not indicative of our core
on-going operations.

Other Operating Items

Gross profit for the fourth quarter increased to $64.9 million from $60.1
million in the prior year and the gross margin decreased 120 basis points to
32.4% from 33.6% in the prior year.The decrease in the gross margin was
primarily due to higher occupancy costs, as a percentage of sales, at new
locations as well as increased occupancy costs at several existing locations
due to the modification of existing leases and an increase in real estate
taxes.

General and administrative expenses for the fourth quarter increased $0.8
million to $18.5 million from $17.7 million in the fourth quarter of the prior
year, primarily due to an increase in equity compensation and severance
charges, in connection with the organizational realignment initiative we began
in the fourth quarter. This was partially offset by the elimination of
management fees and a reduction in transaction expenses as a result of the
refinancing of our senior credit facility in the fourth quarter of fiscal
2013.

Central Services, a component of general and administrative expenses that
directly relates to the operations of the business, was $10.7 million for the
quarter compared to $10.8 million in the prior year. Consistent with the
Company's strategy, Central Services, as a percentage of sales, decreased 40
basis points in the quarter to 5.3%, from 5.7% on a pro forma basis to include
the estimated lost sales from the Red Hook store in the fourth quarter of
fiscal 2013

The following table sets forth a reconciliation to Central Services from
General and Administrative expenses:


Central Services Reconciliation
                                       
(Dollars in thousands, % of net sales)  Thirteen Weeks Ended
                                       March 31,        March 30,
                                       2013             2014
General and administrative expenses     $17,700 9.9%   $18,503 9.2%
                                                               
Management fees                         (877)    (0.5) —         —
Transaction expenses                    (2,438)  (1.4) —         —
Corporate depreciation and amortization (1,111)  (0.6) (1,050)  (0.5)
Equity compensation charge              (26)     (0.0)  (3,268)  (1.6)
Pre-opening advertising costs           (480)    (0.3) (43)     (0.0)
Severance charge                        (640)    (0.4) (3,276)  (1.6)
IPO related                             (742)    (0.4) —         —
Professional services                   (351)    (0.2) (198)    (0.1)
Non-operating expenses                  (232)    (0.1) (6)      (0.0)
Central Services                        $ 10,803 6.0%   $ 10,662 5.3%

Total store opening costs decreased to $1.2 million in the quarter from $2.4
million in the prior year due to the timing of new store opening
activities.In addition, the Company incurred $1.3 million of start-up costs
in the fourth quarter of fiscal 2014 in connection with the new production
center, which is expected to begin operations in early summer.Approximately
$0.1 million and $0.4 million of store opening costs and production center
start-up costs in the fourth quarter of fiscal 2014, respectively, were
non-cash, primarily due to deferred rent.

During the fourth quarter of 2014, the Company recorded an income tax
provision of approximately $0.6 million versus an income tax benefit of $0.7
million in the fourth quarter of 2013. The income tax provision was recorded
despite incurring a pre-tax loss because the Company does not record any
income tax benefit related to the operating losses but recognizes income tax
expense related to indefinite-lived intangibles assets.

The net loss in the quarter was $8.8 million, compared to a net loss of $6.7
million in the fourth quarter of the prior fiscal year.The adjusted net loss
in the quarter was $0.3 million, a decrease of $0.8 million from the adjusted
net loss of $1.1 million in the fourth quarter of the prior year.See the
discussion under "Supplemental Non-GAAP Disclosure" below for an explanation
of adjusted net loss.

The following table sets forth a reconciliation to Adjusted Net Loss from Net
Loss:


Net Loss Reconciliation
                                      
(Dollars in thousands, % of net sales) Thirteen Weeks Ended
                                      March 31,         March 30,
                                      2013              2014
Net loss                               $(6,689) (3.7)% $(8,842) (4.4)%
                                                                
Management fees                        877       0.5    —          —
Financing transaction expenses         2,438     1.4    —          —
IPO related                            742       0.4    —          —
Professional services                  351       0.2    198        0.1
Severance                              640       0.4    3,276      1.6
Non-operating expenses                 232       0.1    6          0.0
Non-cash interest                      992       0.6    1,281      0.6
Equity compensation charge             26        0.0    3,268      1.6
Income tax (benefit) provision         (705)     (0.4)  561        0.3
Adjusted net loss                      $ (1,096) (0.6)% $(252)   (0.1)%

Other Items

The Company ended the quarter with approximately $75.2 million of liquidity
which include $58.8 million of cash and $16.4 million in borrowing capacity
under the senior credit facility.

The Company generated $12.7 million of cash flow from operations in the fourth
quarter.

The Company recorded $3.3 million of severance costs in the fourth quarter in
connection with the organizational realignment initiative that began in the
fourth quarter.

Supplemental Non-GAAP Disclosure

This press release presents Adjusted EBITDA, which is a non-GAAP financial
measure within the meaning of applicable SEC rules and regulations.The
Company believes that Adjusted EBITDA is a useful performance measure and is
used to facilitate a comparison of operating performance on a consistent basis
from period-to-period and to provide for a more complete understanding of
factors and trends affecting the business than GAAP measures can provide
alone. The Company defines Adjusted EBITDA as earnings before interest
expense, income taxes, depreciation and amortization expense, store opening
costs, production center start-up costs, financing transaction expenses,
non-operating expenses, equity compensation expenses, pre-opening advertising
costs and management fees.

This press release presents Central Services, which is a non-GAAP financial
measure within the meaning of applicable SEC rules and regulations.The
Company believes that Central Services is a useful performance measure and is
used to facilitate an evaluation of infrastructure investments without
distortions that may result from general and administrative expenses that do
not directly relate to the operations of the business. The Company defines
Central Services as general and administrative expenses less: depreciation and
amortization related to general and administrative activities, management
fees, financing transaction expenses, pre-opening advertising costs, equity
compensation and non-operating items.

This press release presents adjusted net loss, which is a non-GAAP financial
measure within the meaning of applicable SEC rules and regulations. The
Company believes that adjusted net loss is a useful performance measure and is
used to facilitate a comparison of operating performance on a consistent basis
from period-to-period without distortions that may result from one-time items
and non-cash charges. The Company defines adjusted net loss as net loss plus
any transaction expenses, expenses that did not continue after the IPO and
one-time charges, non-operating expenses and non-cash charges that may distort
period comparisons.

Conference Call Information

Fairway will host a conference call today, May 29, 2014 at 4:30pm ET. The
call, which will be hosted by William Sanford, Interim Chief Executive
Officer;Edward Arditte, Co-President and Chief Financial Officer and Kevin
McDonnell, Co-President and Chief Operating Officer and will be broadcast live
over the Internet and accessible through the Investor Relations section of the
Company's website at www.fairwaymarket.com. The webcast will also be archived
online for a short period thereafter.In addition, listeners may dial (877)
353-0039 to access the live call.A telephonic playback will be available
after the call through Thursday, June 12, 2014. Participants can dial (855)
859-2056 to hear the playback and enter the conference passcode 45685195.

About Fairway Market

Fairway Market is a growth oriented food retailer offering customers a
differentiated one-stop shopping experience "Like No Other Market".Fairway
has established itself as a leading food retailing destination in the Greater
New York City metropolitan area, with stores that emphasize an extensive
selection of fresh, natural and organic products, prepared foods and
hard-to-find specialty and gourmet offerings, along with a full assortment of
conventional groceries.Fairway is headquartered in New York, New York.

Forward-Looking Statements

Except for historical information contained herein, the statements in this
release are forward-looking and made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking
statements involve known and unknown risks and uncertainties and other factors
that may cause Fairway's actual results in current or future periods to differ
materially from forecasted results. Food retail is a large and highly
competitive industry, and Fairway's business involves many risks and
uncertainties, including, but not limited to: our ability to open new stores
on a timely basis or at all; our ability to achieve sustained sales and
profitable operating margins at new and existing stores; the availability of
financing to pursue our new store openings on satisfactory terms or at all;
our ability to compete effectively with other retailers; our ability to
maintain price competitiveness; our ability to achieve the anticipated
benefits of our centralized production facility; the geographic concentration
of our stores; our ability to maintain or improve our operating margins; our
history of net losses; ordering errors or product supply disruptions in the
delivery of perishable products; restrictions on our use of the Fairway name
other than on the East Coast and in California and certain parts of Michigan
and Ohio; our ability to retain and attract senior management, key employees
and qualified store-level employees; rising costs of providing employee
benefits, including increased healthcare costs and pension contributions due
to unfunded pension liabilities; our ability to satisfy our ongoing capital
needs and unanticipated cash requirements; and other risk factors detailed in
our filings with the Securities and Exchange Commission ("SEC"), including our
Annual Report on Form 10-K for the fiscal year ended March 30, 2014, and
available at the SEC's website at www.sec.gov. You are urged to consider these
factors carefully in evaluating the forward-looking statements herein and are
cautioned not to place undue reliance on such forward-looking statements,
which are qualified in their entirety by this cautionary statement. The
forward-looking statements made herein speak only as of the date of this press
release and the company undertakes no obligation to publicly update such
forward-looking statements to reflect subsequent events or circumstances.


FAIRWAY GROUP HOLDINGS CORP. AND SUBSIDIARIES
Consolidated Balance Sheet (In thousands, except share and per share amounts)
                                                                  
                                                        March 31,  March 30,
                                                        2013       2014
ASSETS                                                             
CURRENT ASSETS                                                     
Cash and cash equivalents                                $21,723  $58,800
Accounts receivable, net                                 2,553      5,536
Merchandise inventories                                  24,759     28,061
Insurance claims receivable                              5,184      —
Income tax receivable                                    817        894
Prepaid rent                                             3,146      892
Deferred financing fees                                  1,580      1,751
Prepaid expenses and other                               5,604      2,701
Deferred income taxes                                    915        —
Total current assets                                     66,281     98,635
PROPERTY AND EQUIPMENT, NET                              126,958    144,529
GOODWILL                                                 95,412     95,412
INTANGIBLE ASSETS, NET                                   25,729     25,435
DEFERRED INCOME TAXES                                    3,781      —
OTHER ASSETS                                             20,340     16,333
Total assets                                             $338,501 $380,344
LIABILITIES, REDEEMABLE PREFERRED STOCK AND                        
STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES                                                
Current portion of long-term debt                        $2,750   $2,750
Accounts payable                                         39,399     33,971
Accrued expenses and other                               18,360     20,455
Total current liabilities                                60,509     57,176
NONCURRENT LIABILITIES                                             
Long-term debt, net of current maturities                256,563    253,717
Deferred income taxes                                    —          24,574
Other long-term liabilities                              22,629     33,334
Total liabilities                                        339,701    368,801
COMMITMENTS AND CONTINGENCIES                                      
REDEEMABLE PREFERRED STOCK                                         
SeriesA Preferred Stock, $0.001 par value per share,
52,982 shares authorized at March31, 2013 and 0 shares
authorized at March 30, 2014 and 43,058 shares issued
and outstanding at March31, 2013 and 0 shares issued    84,328     —
and outstanding at March 30, 2014 (inclusive of
cumulative deemed dividends of $28,353 and $0 at
March31, 2013 and March 30, 2014, respectively)
SeriesB Preferred Stock, $0.001 par value per share,
64,018 shares authorized at March31, 2013 and 0 shares
authorized at March 30, 2014 and 64,016.98 shares issued
and outstanding at March31, 2013 and 0 shares issued    149,916    —
and outstanding at March 30, 2014 (inclusive of
cumulative deemed dividends of $85,899 and $0 at
March31, 2013 and March 30, 2014, respectively)
Total redeemable preferred stock                         234,244    —
STOCKHOLDERS' (DEFICIT) EQUITY                                     
ClassA common stock, $0.00001 par value per share,
150,000,000 shares authorized, 12,506,885 and 29,108,316 —          —
shares issued at March31, 2013 and March 30, 2014,
respectively
ClassB common stock, $0.001 par value per share,
31,000,000 shares authorized, 0 shares and 14,225,455    —          14
shares issued and outstanding at March31, 2013 and
March 30, 2014, respectively
Treasury stock at cost, 136,485 shares and 2,965 shares  (1,500)   —
at March31, 2013 and March 30, 2014, respectively
Additional paid-in capital                               —          369,883
Accumulated deficit                                      (233,944) (358,354)
Total stockholders' (deficit) equity                     (235,444) 11,543
Total liabilities, redeemable preferred stock and        $338,501 $380,344
stockholders' (deficit) equity
                                                                  

FAIRWAY GROUP HOLDINGS CORP. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)
                                                                  
                                                       Thirteen Weeks Ended
                                                       March 31,   March 30,
                                                       2013        2014
                                                                  
Net sales                                               $178,705  $200,262
                                                                  
Cost of sales and occupancy costs (exclusive of         118,571     135,332
depreciation and amortization)
                                                                  
Gross profit                                            60,134      64,930
                                                                  
Direct store expenses                                   43,391      47,486
                                                                  
General and administrative expenses                     17,700      18,503
                                                                  
Store opening costs                                     2,412       1,150
                                                                  
Production center start-up costs                        —           1,311
                                                                  
Loss from operations                                    (3,369)    (3,910)
                                                                  
Business interruption and gain on storm-related         2,500       —
insurance recoveries
                                                                  
Interest expense, net                                   (6,525)    (4,760)
                                                                  
Loss before income taxes                                (7,394)    (8,281)
                                                                  
Income tax provision (benefit)                          (706)      561
                                                                  
Net loss                                                (6,688)    (8,842)
                                                                  
Preferred stock dividends                               (7,712)    —
                                                                  
Net loss attributable to common stockholders            $(14,400) $(8,842)
                                                                  
Basic and diluted loss per common share                 $(1.17)   $(0.21)
                                                                  
Weighted average common shares outstanding              12,330,356  43,123,979
                                                                  

FAIRWAY GROUP HOLDINGS CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
                                                                 
                                                      Fiscal Years Ended
                                                      March 31,   March 30,
                                                      2013        2014
CASH FLOWS FROM OPERATING ACTIVITIES                              
Net loss                                               $(62,868) $(80,280)
Adjustments to reconcile net loss to net cash used                
from operating activities
Deferred income taxes                                  25,798     29,270
Deferred rent                                          9,364      9,575
Depreciation and amortization of property and          21,497     26,444
equipment
Amortization of intangibles                            279        294
Amortization of discount on term loans and             1,553      3,275
subordinated notes
Amortization of deferred financing fees                1,362      1,742
Amortization of prepaid rent                           317        318
Non-cash stock compensation expense                    109        11,020
Gain on insurance claim                                —         (3,089)
Changes in operating assets and liabilities                       
Accounts receivable                                    (270)      (2,983)
Merchandise inventories                                (4,799)    (3,302)
Insurance claims receivable                            (5,184)    3,761
Prepaid expense and other                              (4,661)    4,919
Other assets                                           (1,735)    2,483
Accounts payable                                       13,383     (5,428)
Accrued expenses and other                             2,656      2,505
Other long-term liabilities                            6          720
Net cash provided by (used in) operating activities    (3,193)    1,244
CASH FLOWS FROM INVESTING ACTIVITIES                              
Capital expenditures                                   (57,916)   (43,906)
Insurance proceeds                                     3,398      4,403
Net cash used in investing activities                  (54,518)   (39,503)
CASH FLOWS FROM FINANCING ACTIVITIES                              
Proceeds from long-term debt, net                      526,908    —
Payments on long-term debt                             (476,146)  (2,750)
Repurchase of treasury stock                           (1,500)    —
Proceeds from common shares and shares issued in       —         158,821
initial public offering, net of issuance costs
Cash dividends paid on preferred stock                 —         (76,818)
Issuance costs from debt re-pricing                    —         (3,917)
Net cash provided by financing activities              49,262     75,336
Net (decrease) increase in cash and cash equivalents   (8,449)    37,077
Cash and cash equivalents — beginning of period        30,172     21,723
Cash and cash equivalents — end of period              $21,723   $58,800
Cash paid during the period for                                   
Interest                                               $21,514   $15,217
Income taxes                                           $175      $2

CONTACT: Fairway Group Holdings Corp.
         Nicholas Gutierrez
         Manager of Finance & Investor Relations
         (646) 616-8103
         nicholas.gutierrez@fairwaymarket.com
 
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