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Orchard Supply Hardware Stores Corporation Reports Second Quarter Fiscal 2012 Financial Results

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, including the statements made under the caption “Fiscal 2012 Outlook” 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. 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
(Unaudited, in thousands, except per share amounts)
       
 
13 Weeks Ended 26 Weeks Ended
July 28, 2012 July 30, 2011 July 28, 2012 July 30, 2011
Net sales $ 194,053 $ 196,437 $ 349,057 $ 360,205
 
Cost of sales and expenses:
Cost of sales (excluding depreciation and amortization) 129,596 130,596 232,521 239,237
Gross Margin 64,457 65,841 116,536 120,968
Selling and administrative 57,458 46,257 103,318 90,256
Depreciation and amortization 7,532 7,504 15,371 14,667
Gain on sale of real property  

 

    (630 )  
Total cost of sales and expenses   194,586   184,357   350,580   344,160
Operating (loss) income (533 ) 12,080 (1,523 ) 16,045
Interest expense, net   7,763   5,517   14,328   11,071
(Loss) income before income taxes (8,296 ) 6,563 (15,851 ) 4,974
Income tax expense   18,431   2,672   15,385   2,073
Net (loss) income $ (26,727 ) $ 3,891 $ (31,236 ) $ 2,901
(Loss) income per common share attributable to stockholders:
Basic and diluted (loss) income per share $ (4.44 ) $ 0.65 $ (5.19 ) $ 0.48

Basic and diluted weighted average common shares Outstanding

6,021 6,010 6,016 6,011
 
ORCHARD SUPPLY HARDWARE STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
           
 
July 28, 2012 January 28, 2012 July 30, 2011
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 33,918 $ 8,148 $ 10,596
Restricted cash 556 554
Merchandise inventories 174,442 157,671 162,326
Deferred income taxes 2,094 14,129 17,221
Prepaid expenses and other current assets   18,753   13,228   12,199
Total current assets 229,207 193,732 202,896
PROPERTY AND EQUIPMENT, NET 195,802 210,362 263,588
INTANGIBLE ASSETS 130,920 133,916 141,744
DEFERRED FINANCING COSTS AND OTHER LONG-TERM ASSETS   8,621   8,493   4,803
TOTAL $ 564,550 $ 546,503 $ 613,031
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Merchandise payables $ 74,463 $ 54,410 $ 54,041
Accrued expenses and other liabilities

53,545

44,508 50,139
Current portion of long-term debt and capital lease obligations 15,527 8,269 11,711
Deposits from sale of real property   22,490   21,471  
Total current liabilities

166,025

128,658 115,891
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 211,269 254,152 310,532
LONG-TERM DEPOSITS FROM SALE OF REAL PROPERTIES 41,495
OTHER LONG-TERM LIABILITIES

38,719

29,286 18,029
DEFERRED INCOME TAXES   51,459   48,108   67,490
Total liabilities   508,967   460,204   511,942
Total stockholders’ equity   55,583   86,299   101,089
TOTAL $ 564,550 $ 546,503 $ 613,031
 

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.

The Company’s definition of Adjusted EBITDA is further adjusted (“Adjusted EBITDA, As Adjusted”) to show the cost impact associated with having transitioned to a publicly traded company independent from Sears Holdings Corporation on December 30, 2011 and rent associated with sale-leaseback properties that were owned by the Company in the prior year period and for which the Company did not pay rent. These further adjustments are made to provide a comparison of financial performance for the second quarter of fiscal 2012 to the second quarter of fiscal 2011 and the 26-week period ended July 28, 2012 to the 26-week period ended July 30, 2011 on a more consistent basis by adding back to Adjusted EBITDA these categories of costs associated with recent significant operating and structural changes. Adjusted EBITDA, As Adjusted, is not a measurement determined in accordance with GAAP and should not be considered in isolation or as an alternative to net income (loss) as an indicator of financial performance. Each non-GAAP financial measure used as presented may not be comparable to other similarly titled measures used by other companies. For a reconciliation of net income (loss) to these non-GAAP financial measures, see the notes and related tables below.

   
13 Weeks Ended   26 Weeks Ended
July 28, 2012   July 30, 2011 July 28, 2012   July 30, 2011
Net (loss) income $ (26,727)   $ 3,891 $ (31,236 ) $ 2,901
Interest expense, net 7,763 5,517 14,328 11,071
Income tax expense (1) 18,431 2,672 15,385 2,073
Depreciation and amortization 7,532 7,504 15,371 14,667
Net loss on sale of real property and impairment of assets 7,428 12 7,625 97
Stock-based compensation 317 64 520 210
Other significant items   139     432   (193 )
Adjusted EBITDA $ 14,883 $ 19,660 $ 22,425 $ 30,826  
 
Sale-leaseback rent (2) $ 743

$

$

1,392

$

Transition costs (3)   1,555     3,330    
Adjusted EBITDA, as Adjusted $ 17,181 $ 19,660 $ 27,147 $ 30,826  

(1) The Company recorded a non-cash charge of $18.4 million to income tax expense in the 13 weeks ended July 28, 2012 related to the establishment of a valuation allowance for its deferred tax assets.

(2) Adjusted EBITDA, As Adjusted, for the second quarter and 26-week period ended July 28, 2012 excludes $0.7 million and $1.4 million, respectively, of rent expense that was not included in the comparable periods of fiscal 2011 as a result of sale-leaseback transactions. Rent expense is included in cost of sales.

(3) Second quarter 2012 Adjusted EBITDA, As Adjusted, excludes approximately $1.6 million of incremental costs associated with the effect of having transitioned to a publicly traded company independent from Sears Holdings Corporation on December 30, 2011, as compared to the same prior year period. Approximately $1.3 million of these costs are included in selling and administrative expenses and approximately $0.3 million of these costs are included in cost of sales. For the 26-week period ended July 28, 2012, Adjusted EBITDA, As Adjusted, excludes approximately $3.3 million of incremental costs associated with the effect of having transitioned to a publicly traded company independent from Sears Holdings Corporation on December 30, 2011, as compared to the same prior year period. Approximately $2.8 million of these costs are included in selling and administrative expenses and approximately $0.5 million are included in cost of sales.



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