US retailer Roundy's Inc said a "more challenging economic and competitive environment" affected results in the third quarter as profits fell.
Earnings in the three months ended 1 October amounted to US$8.8m compared to $12.4m a year earlier. Adjusted EBITDA, excluding the impact of one-time employee expenses, fell 24% to $43.1m.
Net sales in the period amounted to $973.6m, a drop of 0.3% on last year. Roundy's posted a 3.6% decline in same-store sales. The company opened two new stores and one replacement store during the third quarter.
Roundy's, Inc. Reports Third Quarter 2012 Financial Results
MILWAUKEE--(BUSINESS WIRE)--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.
"During the third quarter, our results continued to be negatively affected by the general weakness in the overall economy and increased competitive environment"
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.
