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Fairway Group Holdings Corp. Reports Third Quarter Results

Adjusted EBITDA increased to $12.8 million in the third quarter of fiscal 2014 from $12.4 million in the third quarter of fiscal 2013. The increase was primarily due to the contribution from new stores and enhanced productivity in Central Services, which improved 70 basis points as a percent of sales in the quarter despite absorbing approximately $0.3 million in incremental public company costs. The Adjusted EBITDA margin was 6.2% in the quarter compared to 6.9% on a pro forma basis in the same period of the prior year, after adding back the estimated lost sales at our Red Hook location, which was closed for nine weeks during the prior period due to damage sustained from Hurricane Sandy.  The Adjusted EBITDA margin was adversely affected by, principally, lower than expected holiday sales during the second half of the quarter and higher expenses, as a percentage of sales, at our new stores, which is typical for new locations as they ramp to maturity. 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 sales) Thirteen Weeks Ended Thirteen Weeks Ended
  December 30, December 29,
   2012 2013
Net loss  $ (44,471) (26.6)% $ (31,268) (15.2)%
Transaction expenses  330 0.2
Non-recurring items  1,446 0.9 717 0.3
Management fees  1,190 0.7
Interest expense, net  7,070 4.2 5,061 2.5
Income tax provision  35,095 21.0 25,386 12.3
Store depreciation and amortization 4,547 2.7 6,028 2.9
Corporate depreciation and amortization 1,223 0.7 1,052 0.5
Equity compensation charge 55 2,928 1.4
Store opening costs 5,299 3.2 2,140 1.0
Production center start-up costs 1,367 0.7
Pre-opening advertising costs 919 0.5 620 0.3
Gain on insurance recovery (3,089) (1.5)
Foundation funding 1,500 0.7
Adjusted EBITDA  $ 12,373 7.4%  $ 12,772 6.2%

Other Operating Items

Gross profit for the quarter increased to $65.6 million from $53.2 million and the gross margin improved 10 basis points to 31.9% from 31.8% in the prior year. The increase in the gross margin was primarily due to an increase of approximately 50 basis points in the merchandise margin partially offset by higher occupancy costs as a percentage of sales. 

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