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Fairway Group Holdings Corp. Reports First Quarter Fiscal 2014 Results

During the quarter the Company also amended its existing senior credit facility. The amendment revised certain terms and covenants contained in the existing $315 million credit agreement which among other things is expected to reduce the Company's annualized cash interest payments by approximately $4.8 million.

Operating Results for the First Quarter of Fiscal 2014

For the first quarter of fiscal 2014, net sales increased $32 million, or 21%, to $187 million from $155 million in the first quarter of fiscal 2013. Sales growth in the quarter was driven primarily by new store openings which contributed approximately 93% of the total sales growth, and this was complemented by an increase in same store sales of 1.4% which comprised the remaining approximately 7% of sales growth. Same store sales growth in the quarter was driven by an increase in both customer transactions and average basket size which grew 0.8% and 0.5% respectively. The same store sales metric for the quarter was negatively impacted by approximately 90 basis points due to the first quarter of the prior year having the benefit of the Easter/Passover holidays.

Adjusted EBITDA increased 12% to $12.7 million in the first quarter of fiscal 2014 from $11.3 million in the first quarter of fiscal 2013.  The increase was primarily due to the contribution from new stores, gross margin improvement and the continued leveraging of Central Services expenses. The Adjusted EBITDA margin was 6.8% in the quarter compared to 7.3% in the same period of the prior year. The decrease in the Adjusted EBITDA margin was primarily due to higher operating expenses as a percentage of sales at the three new stores opened in fiscal 2013, which is typical for new locations during the first few quarters of operations. 

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

 
EBITDA Reconciliation ($ in millions, % of net sales)
         
   13 weeks    13 weeks 
Quarter Ended: July 1, 2012 June 30, 2013
Net Loss  $ (3.9) (2.5)%  $ (27.9) (15.0)%
         
Management agreement termination  --  0.0%  9.2 4.9%
Contractual IPO bonuses  --  0.0%  8.1 4.3%
Other IPO related expenses  --  0.0%  0.8 0.4%
(+) Sub-total IPO transaction expenses   --  0.0%  18.1 9.7%
(+) Non-recurring items   1.6 1.0%  0.9 0.5%
(+) Management fees  0.8 0.5%  0.9 0.5%
(+) Interest expense, net   4.6 3.0%  5.4 2.9%
(+) Income tax (benefit) provision   (2.7) (1.7)%  2.4 1.3%
(+) Store depreciation & amortization   3.5 2.3%  5.3 2.8%
(+) Corporate depreciation & amortization   1.0 0.6%  1.1 0.6%
(+) Equity compensation charge   0.0 0.0%  2.1 1.1%
(+) Store opening costs   5.8 3.7%  3.0 1.6%
(+) Production center start-up costs   --  0.0%  0.5 0.3%
(+) Pre-opening advertising costs  0.7 0.5%  1.0 0.5%
Adjusted EBITDA  $ 11.3 7.3%  $ 12.7 6.8%

Other Operating Items

Gross profit in the first quarter increased $10.7 million, or 21%, to $61.4 million from $50.7 million and gross margin improved to 32.9% from 32.8% in the prior year. The increase in gross margin was primarily due to an increase in the merchandise margin partially offset by higher occupancy rates at our new locations.

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