Grocery Outlet Business Overview - March 2021 - Investor Relations ...
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Grocery Outlet Business Overview
March 2021
1
Disclaimer
Forward-Looking Statements
This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as contained in Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which reflect management's current views and estimates regarding the prospects of the industry and the Company’s prospects, plans, business,
results of operations, financial position, future financial performance and business strategy. These forward-looking statements generally can be identified by the use of forward-looking terminology such as
"may," "should," "expect," "intend," "will," "estimate," "anticipate," "believe," "predict," "potential" or "continue" or the negatives of these terms or variations of them or similar terminology. Although the
Company believes that the expectations reflected in these forward-looking statements are reasonable, the Company cannot provide any assurance that these expectations will prove to be correct.
The following factors are among those that may cause actual results to differ materially from the forward-looking statements: failure of suppliers to consistently supply us with opportunistic products at attractive
pricing; inability to successfully identify trends and maintain a consistent level of opportunistic products; failure to maintain or increase comparable store sales; changes affecting the market prices of the products
we sell; failure to open, relocate or remodel stores on schedule; risks associated with newly opened stores; inability to retain the loyalty of our customers; costs and implementation difficulties associated with
marketing, advertising and promotions; failure to maintain our reputation and the value of our brand, including protecting our intellectual property; any significant disruption to our distribution network, the
operations of our distributions centers and our timely receipt of inventory; inability to maintain sufficient levels of cash flow from our operations; risks associated with leasing substantial amounts of space; failure
to participate effectively or at all in the growing online retail marketplace; unexpected costs and negative effects if we incur losses not covered by our insurance program; inability to attract, train and retain highly
qualified employees; difficulties associated with labor relations; loss of our key personnel or inability to hire additional qualified personnel; risks associated with economic conditions; competition in the retail
food industry; movement of consumer trends toward private labels and away from name-brand products; major health epidemics, such as the outbreak of COVID-19, and other outbreaks; natural disasters and
unusual weather conditions (whether or not caused by climate change), power outages, pandemic outbreaks, terrorist acts, global political events and other serious catastrophic events; failure to maintain the
security of information we hold relating to personal information or payment card data of our customers, employees and suppliers; material disruption to our information technology systems; risks associated with
products we and our independent operators ("IOs") sell; risks associated with laws and regulations generally applicable to retailers; legal proceedings from customers, suppliers, employees, governments or
competitors; failure of our IOs to successfully manage their business; failure of our IOs to repay notes outstanding to us; inability to attract and retain qualified IOs; inability of our IOs to avoid excess inventory
shrink; any loss or changeover of an IO; legal proceedings initiated against our IOs; legal challenges to the IO/independent contractor business model; failure to maintain positive relationships with our IOs; risks
associated with actions our IOs could take that could harm our business; our substantial indebtedness could affect our ability to operate our business, react to changes in the economy or industry or pay our debts
and meet our obligations; our ability to generate cash flow to service our substantial debt obligations; impairment of goodwill and other intangible assets; any significant decline in our operating profit and
taxable income; risks associated with tax matters; changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters; failure to
comply with requirements to design, implement and maintain effective internal controls; and the other factors discussed under "Risk Factors" in the Company’s most recent reports on Forms 10-Q and 10-K. Such
risk factors may be updated from time to time in the Company’s periodic filings with the SEC. The Company’s periodic filings are accessible on the SEC’s website at www.sec.gov.
You should not rely upon forward-looking statements as predictions of future events. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the
Company cannot guarantee that the future results, levels of activity, performance and events and circumstances reflected in the forward-looking statements will be achieved or occur. Except as required by
applicable law, the Company undertakes no obligation to update publicly any forward-looking statements for any reason after the date of this news release to conform these statements to actual results or to
changes in our expectations.
Industry Information
Market data and industry information used throughout this presentation are based on management’s knowledge of the industry and the good faith estimates of management. We also relied, to the extent
available, upon management’s review of independent industry surveys and publications and other publicly available information prepared by a number of third-party sources. All of the market data and
industry information used in this presentation involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. Although we believe that these sources
are reliable, we cannot guarantee the accuracy or completeness of this information, and we have not independently verified this information. While we believe the estimated market position, market
opportunity and market size information included in this presentation are generally reliable, such information, which is derived in part from management’s estimates and beliefs, is inherently uncertain and
imprecise. Projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate are necessarily subject to a high degree of uncertainty and risk
due to a variety of factors, including those described above. These and other factors could cause results to differ materially from those expressed in our estimates and beliefs and in the estimates prepared by
independent parties.
Non-GAAP Financial Measures
We present Adjusted EBITDA and Adjusted EBITDA margin to help us describe our operating performance. Our presentation of Adjusted EBITDA and Adjusted EBITDA margin is intended as a supplemental
measure of our performance that is not required by, or presented in accordance with, U.S. generally accepted accounting principles (“GAAP”). Adjusted EBITDA and Adjusted EBITDA margin should not be
considered as an alternative to operating income (loss), net income (loss), earnings per share or any other performance measures derived in accordance with U.S. GAAP as measures of operating
performance or operating cashflows or as measures of liquidity. Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed to imply that our future results will be
unaffected by these items. See the supplemental materials to this presentation for a reconciliation of Adjusted EBITDA and Adjusted EBITDA margin to net income (loss).
2 Data in this presentation are generally as of, or for the 2020 fiscal year ended January 2, 2021, unless otherwise noted.
COMPANY OVERVIEW
Our Positioning & COVID-19 Response
…And We have Acted Decisively to Support
Our Business Model is Well Positioned…
Customers, IOs and Partners
IOs manage labor payment at the store-level and comply with Enacted comprehensive safety measures in observance of
the mandates of their local government CDC & public health guidelines
We provide our customers with extreme value at a time Worked closely with supplier partners to keep pace with
when they are seeking to maximize savings demand, purchasing opportunistic & everyday products
We offer an assortment of familiar & trusted high-quality, Supported IOs by providing financial support and
name-brand consumables along with fresh products guidance through a COVID call center, Clean, Safe Store
initiative, and updates on local operating requirements
We have a flexible supply chain, logistics network and Focused customer communications on local product
merchandising to respond to demand spikes availability, safety precautions and community outreach
We serve as pillars of our local communities with
personalized service Maintained a strong liquidity position with $105mm of cash
and over $90mm available on our revolving credit facility
We Are Proud of Our IOs & Their Employees, Who Have Stepped Up in These Extraordinary Times
4
Grocery Outlet Is a Differentiated, High-Growth, Off-Price Retailer
Differentiated Model Attractive Store Base Strong Financial Performance
40% - 70% 56
67
8
$3.1bn
Prices Below Conventional Retailers 9
19 FY 2020
On Our BestDeals 221
Net Sales
~50% $223mm
Opportunistically FY 2020
Sourced Products 380 Stores Across 6 States (1) Adjusted EBITDA
5,000 10% 17
Ever-Changing SKUs Per Store Store Count CAGR Consecutive Years of Positive
Promote Treasure HuntExperience FY 2015 to FY 2020 Comparable Store Sales Growth (3)
340+ 1,900 5.6%
Independent Operators In-Market and Neighboring Average Comparable Store Sales
Create Local Shopping Experience States Potential Stores (2) Growth Over Past 17 Years (3)
~14,000 40%+ $105mm
Square Foot Year 4 Cash-on-Cash Returns
Cash Balance as of FY 2020 (1)
Average Store Size Historically
(1) As of January 2, 2021.
(2) Source:eSite.
(3) Fiscal years 2004-2020.
5
We Have Continued to Make Significant Progress Since Our IPO
Q4 2020 Results FY 2020 Results
Delivered Solid Comparable stores sales growth of 7.9% Comparable stores sales growth of 12.7%
Business Net Sales growth of 22.5%
Performance
Net Sales grew 23.1% to $806.8mm
Adjusted EBITDA grew 24.7% to $51.2mm Adjusted EBITDA grew 32.4% to $222.9mm
Compelling value and treasure hunt experience from strong opportunisticpurchasing
Continued Solid Broad-based growth with Natural, Organic, Specialty, Healthy (NOSH), fresh categories, and beer and wine as standouts
Product, IO Continued growth of newly introduced fresh seafood and grass-fed meat
Performance,
and Marketing Improvements in ordering and distribution systems that enhance IO localized assortment decisions
Execution GO brand refresh supported by new Bargain Bliss marketing campaign
Continued growth in email subscriber database to drive engagement
Expanded Opened 35 new stores (2 closures) in FY 2020
Footprint and New stores are performing well and in-line with expectations
Growth Began developing the East infrastructure, with new store openings planned in 2021
Initiatives
Continued to invest in talent & systems to build the infrastructure that will support future growth
Reduced net leverage (3) from 5.5x pre-IPO to 1.6x FY 2020
Improved Flexible credit facility with no principal payments due until 2025 and ample capacity vs. 7x leverage covenant
Balance Sheet
Cash balance of $105mm as of FY 2020-end
(1) Defined as (Total Debt – Cash) / FY 2020 Adj. EBITDA.
6
The WOW! Shopping Experience
PRICE QUALITY SERVICE
• Extreme value • Name-brand products • Locally owned and operated
• ~40% average basket • Fresh • Friendly, high-touch service
savings (1) • Natural Organic Specialty • Active in community
• ~40% - 70% savings on Healthy (NOSH) • Family-run stores
best deals (1) • Quality guarantee • Easy-to-shop stores
• Distinct and proven buying • Clean, well-merchandised
model stores
TREASURE HUNT DISCOVERY
= FUN!
• Unexpected deals
• Ever-changing assortment
• Curated and localized merchandise
7 (1) Compared to conventional grocers.
Grocery Outlet’s Model Is Well-Positioned Against
Other Off-Price / Discount Retailers
Opportunistic Treasure Hunt E-Commerce as
Sourcing Experience a % of Sales
✓ ✓ 0%
✓ ✓ 0%
✓ ✓
Consistent Track Record of Earnings Growth
2020 was our 17th Consecutive Year of Positive Comparable Store Sales Growth
Strong Comp 8.4% 12.3% 14.7%
Average: 5.6% 12.7%
Performance 4.9%
2.6%
5.4% 5.0% 5.2% 4.2% 3.6%
5.3% 3.9% 5.2%
0.8% 0.6% 0.2%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Total Stores
Disciplined 265 293 316 347 380
237
Store Growth
2015 2016 2017 2018 2019 2020
Gross Margin % Strong and Consistent Annual Gross Margins Between 30.1% and 31.1% since 2010
Consistent 30.2% 30.6% 30.4% 30.4% 30.8% 31.1%
Margins
2015 2016 2017 2018 2019 2020
Adjusted EBITDA (1) ($mm)
Track Record $223
$168
of Earnings $107 $121 $135 $152
Growth
2015 2016 2017 2018 2019 2020
(1) Beginning with the fourth quarter of fiscal 2020, we updated our definitions of non-GAAP financial measures to simplify our presentation and enhance comparability between periods
9
While Each Recession is Unique, Grocery Outlet Had Strong Comparable
Store Sales Growth Performance in 2008-2009
Recessionary Conditions (2008 – 2009)
2-year stack Comparable Store Sales Growth of selected public retailers (1)
27%
(15%) (9%) (6%) (5%) (3%) (2%) 3% 4% 7% 8% 19%
Source: Company filings, company projections, publicly available information and FactSet. n = 184
(1) Reflects 2008 and 2009 comparable store sales growth stack for all U.S. retailers that were public during 2008 and 2009 and have reported comparable store sales growth figures for these years on FactSet.
10Grocery Outlet Evolution: Over 70 Years of Delivering The WOW!
Signs first IO Berkshire Expands to Reaches $2 Publicly-listed
Agreement in Partners invests Southern billion in sales Company
Redmond, OR
$2bn
California market
Jim Read opens Eric Lindberg Acquires
“Cannery Sales” and MacGregor Amelia’s and
Read become expands to East 2019
Co-CEOs Coast
2018
2017
2014
2012
2011
2009 Hellman & Opens 300th
2006 Friedman store in
1946 1973 invests Inglewood
11Strong Commitment To Corporate Culture
Grocery Outlet is driven by family values that
are reflected throughout the organization
Integrity Collaboration Entrepreneurship Performance
Our Mission:
Touching Lives For The Better
12INVESTMENT HIGHLIGHTS AND
GROWTH STRATEGIESInvestment Highlights & Growth Strategies
Investment Highlights Growth Strategies
POWERFUL CUSTOMER VALUE Be the First Choice for Bargain-Minded
I PROPOSITION SUPPORTED BY A Customers Across the Country
“WOW!” EXPERIENCE
FLEXIBLE SOURCING AND
DRIVE COMPARABLE
II DISTRIBUTION MODEL THAT IS
STORE SALES GROWTH
DIFFICULT TO REPLICATE
INDEPENDENT OPERATORS: OUR
III “SMALL BUSINESS AT SCALE” MODEL
EXECUTE ON STORE EXPANSION PLANS
STRONG CONSUMER ENGAGEMENT
IV AND ALIGNMENT WITH MACRO
TRENDS
ATTRACTIVE AND CONSISTENT NEW IMPROVE PRODUCTIVITY AND REINVEST
V STORE ECONOMICS SUPPORT IN THE VALUE PROPOSITION
WHITESPACE
14Our Fundamentally Different Approach To Buying and Selling
Small Business at Scale
How We Buy How We Sell
Opportunistic sourcing of quality, name- Independently operated, local, small-box
brand, fresh products stores
Large, centralized purchasing team Personalized customer service
Long-standing, actively managed High community involvement
supplier relationships IOs control store operations and oversee:
Proactive sourcing of on-trend products and Product selection
brands
Hiring, training and managing their
Everyday core staples to complement our store workers
WOW! offerings
Local marketing
“Out Chain the Locals, Out Local the Chains”
15Flexible Sourcing and Distribution Model
Anchored by Purchasing Team and Relationships
…Who Make Us One of
Long-Standing Suppliers…
Their First Calls
RELATIONSHIP
BRAND PROTECTION
…And New Emerging Suppliers
EXECUTION
SCALE
16Substantial Opportunity to Further Grow Opportunistic Supply
Significant Share Gain Opportunity Ongoing Secondary Market Growth
Secondary
Market
17Grocery Outlet’s Differentiated Sourcing
Model Delivers Great Value To Customers
Two Primary Methods
Opportunistic Everyday Core Staples
Opportunistic purchases When staples, such as milk
CPG excess
represent or sugar, cannot be sourced
inventory opportunistically, GO buys from
suppliers
GO is a preferred CPG
partner for a Provides customer convenience
non‐disruptive, brand- via a more complete
protected sales channel product assortment
~50% of Purchases ~50% of Purchases
Allows GO to pass along Products priced at or
significant savings to below conventional
customers while making a supermarkets’ and discount
healthy margin competitors’ everyday prices
18Favorable Value Proposition vs. Other Retailers
Basket Savings Further Differentiation
% Savings Across Store Relative to Competitors(1)
BUT WITH NO
CLUB STORES MEMBERSHIP FEE
~40% OR BULK SIZES!
DEEP BUT OFFERS LEADING
~20% DISCOUNTERS NATIONAL BRANDS!
Conventional
Grocery
Discount
Grocery
ACROSS A
DOLLAR
FULL GROCERY
STORES ASSORTMENT!
AND WE PROVIDE AND IN AN EASY-
EXTREME VALUE! TO-SHOP STORE!
BUT WITH FRIENDLY,
ONLINE HIGH-TOUCH SERVICE!
(1) Savings vs. Conventional/Discount derived from Grocery Outlet’s pricing research as of June 2019 based on a blended basket of items from Safeway and Walmart for 5,000+ SKUs from multiple regions.
19Unique Independent Operator Model Fuels Success
“Out Chain the Locals, Out Local the Chains”
Independent Operators
Operational GROCERY OUTLET BENEFITS Operational
Sourcing Merchandising
Aligned economic interests
Initial Pricing Managing inventory
Recruiting and Reduced fixed costs Modify pricing
trainingIOs Hiring and trainingstore
Real estate
Locally driven loyalty employees
Distribution and Community and
logistics
IO BENEFITS customer service
Financial
Autonomy Financial
Own inventory Scale benefits Wages
(consigned to IOs) Local marketing
Regional marketing
Significant income
opportunity Store operating
Rent expenses
Capex Operating
Corporate SG&A working capital
Operatingassets
Collaboration with and amongst IOs enables real-time feedback
and best-practice sharing for continual improvement
20Compelling Store Economics For Both Grocery Outlet
and Our Independent Operators
GO IO IO Model Reduces GO’s Fixed Cost Burden
Illustrative Expense Split
Upfront Investment
CapEx Buildout
Fixed Costs
Inventory / Pre-Opening
Fixed Costs
IO
IO Assets / Working Capital Commission
IO model
reduces
Illustrative Year-4 P&L fixed cost
$6.9 burden
Sales
Gross Profit $2.1
COGS ex. Rent COGS ex. Rent
Share of Gross Profit 50% 50%
Wages, Taxes, Benefits
Occupancy
"Traditional" Model IO Model
VariableCosts Fixed Costs
Note: Dollars in millions.
21Selective Independent Operator Recruiting And Rigorous Training
Annual Leads: 20,000+
First Contact: Phone Screen
& Initial Review
Considered: On-Site
Executive Interviews
Selected:
70+
Enter 6 – 9 Month Aspiring Operator In Training Program
22Centralized Marketing Coupled With Local IO Marketing Efforts
Enterprise Marketing Driven By Grocery Outlet Local Marketing Driven By IOs
Digital
Social Media Digital Ads WOW! Alerts In-Store
Localization
Targeted
Radio / Connected TV Influencer Promotions
Active Social
Media
Traditional
Presence
Print Radio Television
Community
Involvement
23Significant Whitespace Opportunity
Opportunity to establish additional ~1,500 “In-Market” and neighboring state locations
Long term market potential to establish ~4,800 stores nationally
67 ~1,900
56
8
19
9
221
+5x
Potential
380
As of In-Market and
1/2/2021 Neighboring State
Potential
Source:eSite.
24 Note: Map figures as of January 2, 2021.Market Expansion Strategy and Success
Strong Presence in Southern CA Foundation For Growth in The Mid-Atlantic
Market entry in 2012 Acquired Amelia's Grocery Outlet in 2011
86 stores in Southern CA(1) Goal: to accommodate supplier partners more effectively
Bakersfield
Harrisburg
Philadelphia
Los Angeles
San Diego
(1) As of January 2, 2021.
25Attractive and Historically Consistent New Store Economics
Overview
We employ a blended underwriting model reflecting average
economics across all urbanicities, geographies and store types
New stores require average net cash investment of ~$2mm
4 – 5 year store ramp until maturity
Payback period of less than 4 years
Recent cohorts have outperformed the new store model
Year4
Sales ~$6,875
GO Four Wall EBITDAContribution ~$680
Model
Assumptions % Four Wall EBITDA Margin ~10%
Cash-on-CashReturn ~35%
Note: Dollars in thousands. Cash-on-cash return defined as four-wall EBITDA divided by total initial net cash investment.
26We Are Winning Through Constant Investments To Continually
Strengthen Our Value Proposition
Talent Technology
27FINANCIAL PERFORMANCE AND OUTLOOK
Historical Financial Performance
Strong and Disciplined Track Record of
Net Sales Growth Adjusted EBITDA Growth (1)
$223
20.0%
$3,135
$200
$168 16.0%
$2,560
$152
$2,288 $150
$2,075 $135
12.0%
$121
$1,832
$1,627 $107
$100
7.1% 8.0%
6.5% 6.6% 6.5% 6.6%
6.7% 6.6%
$50
4.0%
$0 0.0%
2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020
Stores 237 265 293 316 347 380
Unit Growth 9% 12% 11% 8% 10% 10% (1) Beginning with the fourth quarter of fiscal 2020, we updated our definitions of non-GAAP financial measures to
simplify our presentation and enhance comparability between periods
Comp 4.2% 3.6% 5.3% 3.9% 5.2% 12.7%
Note: Dollars in millions.
2917 Consecutive Years of Positive Comparable Store Sales Growth
14.7%
Recessionary Economic 2004 – 2020 Average: 5.6%
Conditions 12.7%
12.3%
8.4%
5.4% 5.0% 5.2% 5.3% 5.2%
4.9%
4.2% 3.6% 3.9%
2.6%
0.8% 0.6% 0.2%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
FY 2017 – FY 2020 Quarterly Comparable Store Sales Growth
2017 – 2020 Average: 6.8%
17.4% 16.7%
9.1%
7.9%
5.9% 5.3% 4.2% 4.2% 5.8% 5.8%
4.9% 5.1% 4.5% 4.1% 5.1%
2.7%
Q1'17 Q2'17 Q3'17 Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20
30Q4 2020 Recent Developments
Fourteen WeeksEnded Y-o-Y Q4 Highlights
January 2, 2021 Growth
Opened eight new stores ending the quarter with 380
stores in six states
Stores 380 9.5%
Comp store sales increased by 7.9% over a 5.1%
increase in the same period last year. Comp store
Comparable Store sales increases continued to be driven by increases in
Sales Growth 7.9% 280 bps average basket that were partially offset by declines in
traffic
Adjusted EBITDA increased 24.7% to $51.2MM.
Net Sales $806.8MM 23.1%
2021 Outlook
Adj. EBITDA $51.2MM 24.7% Currently expects to open between 36 and 38 stores
this year with one closure.
As of March 2, 2021, we expect Q1 comp store sales
$24.2MM 46.1%
will decline negative HSDs reflecting the impact of
Adj. Net Income
cycling initial demand surge related to COVID-19
pandemic in March 2020.
Note: Dollars in millions.
(1) As of March 2, 2021.
31Capital Structure
● Used IPO proceeds to repay in full its second lien Capitalization
term loan (~$150mm) and prepay ~$250mm of
its outstanding first lien term loann FY 2019 FY 2020
● In October 2019, the Company prepaid additional Cash & Cash Equivalents $28 $105
$15mm of its outstanding first lien term loan
● In January 2020, repriced its first lien term loan at
L+275bps, down from L+375bps originally
Total Gross Debt $460 $460
● In March 2020, the Company drew down $90mm
from its revolving credit facility as a precautionary Net Debt $432 $345
measure in light of COVID-19
● The entirety of this draw down was repaid on Adj. EBITDA $168 $223
May 26, 2020
● No required principal payments until2025 Net Debt / Adj. EBITDA 2.6x 1.6x
Interest Coverage (1) Net Leverage (2)
5.5x
11.2x
2.9x 2.6x
3.7x 1.6x
2019 2020 Pre-IPO Post-IPO FY 2019 FY 2020
Note: Dollars in millions.
(1) Defined as Adj, EBITDA / Net Interest Expense
32 (2) Defined as (Total Debt – Cash) / Adj. EBITDA.Long-Term Targets
Annual Unit Growth ~10%
Comparable Store Sales Growth 1 – 3% annually
Adjusted EBITDA Stable as a % of Sales
Adjusted Net Income Growth Mid-teens %
33APPENDIX
FY 2020 Adjusted EBITDA Reconciliation
2015A 2016A 2017A 2018A 2019A 2020A Location on P&L
Net Income $5 $10 $21 $16 $15 $106
Interest expense, net 46 47 50 55 46 20 Interest Expense
Taxes 3 7 5 6 1 (20) Income Tax
(a )
Depreciation and amortization 31 37 43 47 50 58 COGS/D&A
EBITDA $85 $101 $119 $124 $113 $165
(b)
Stock-based compensation 0 3 2 10 31 38 SBC
(c)
Non-cash rent 10 8 8 8 11 11 SG&A
Asset impairment and gain or loss on disposition (d) 1 1 1 1 2 2 SG&A
(e)
Provision for accounts receivable reserves 1 4 3 1 3 (0.5) SG&A
Other (f) 6 4 2 7 9 8 SG&A
Adjusted EBITDA, revised definition $107 $121 $135 $152 $168 $223
Revised definition no longer adjusts for: SG&A
(g)
New store pre-opening expenses 2 3 2 2 2 2 SG&A
Adjusted EBITDA, previous definition $108 $123 $136 $154 $170 $224
Note: Dollars in millions.
(a) Includes depreciation related to our distribution centers which is included within the cost of sales line item in our consolidated statements of operations and comprehensive income.
(b) Fiscal year ended amounts include non-cash share-based compensation expense and $0.4 million and $3.6 million of cash dividends paid in fiscal 2020 and fiscal 2019, respectively, in respect of vested
options as a result of dividends declared in connection with our 2018 Recapitalization and our 2016 Recapitalization.
(c) Consists of the non-cash portion of rent expense, which represents the difference between our straight-line rent expense recognized under GAAP and cash rent payments. The adjustment can vary
depending on the average age of our lease portfolio, which has been impacted by our significant growth in recent years.
(d) Represents impairment charges with respect to planned store closures and gains or losses on dispositions of assets in connection with store transitions to new IOs.
(e) Represents non-cash changes in reserves related to our IO notes and accounts receivable.
(f) Represents other non-recurring, non-cash or non-operational items, such as transaction related costs, including costs related to employer payroll taxes associated with equity awards, secondary equity
offerings, store closing costs, personnel-related costs, legal expenses, debt extinguishment and modification costs, strategic project costs, and miscellaneous costs.
35 (g) Includes marketing, occupancy and other expenses incurred in connection with store grand openings, including costs that will be the IO’s responsibility after store opening.FY 2020 Adjusted Net Income Reconciliation
FY 2019 FY 2020
Net Income $15.4 $106.7
Stock-based compensation expenses (a ) 31.4 38.1
(b)
Non-cash rent 10.6 10.7
(c)
Asset impairment and gain or loss on disposition 2.0 1.7
Provision for accounts receivable reserves (d) 2.6 (0.5)
(e)
Other 8.9 7.7
(f)
Amortization of purchase accounting assets and deferred financing costs 11.9 11.8
(g)
Tax impact of option exercises and vesting of restricted stock units (3.6) (44.1)
(h)
Tax effect of total adjustments (18.9) (19.5)
Adjusted Net Income, revised definition $60.3 $112.7
Revised definition no longer adjusts for:
New store pre-opening expenses (i ) 1.5 1.5
Revised definition now adjusts for:
Tax impact of option exercises and vesting of restricted stock units (g) 3.6 44.1
(h)
Change in tax effect of total adjustments (0.4) (0.4)
Adjusted Net Income, previous definition $65.0 $157.9
Note: Dollars in millions.
(a) Fiscal year ended amounts include non-cash share-based compensation expense and $0.4 million and $3.6 million of cash dividends paid in fiscal 2020 and fiscal 2019, respectively, in respect of vested options as a
result of dividends declared in connection with our 2018 Recapitalization and our 2016 Recapitalization.
(b) Consists of the non-cash portion of rent expense, which represents the difference between our straight-line rent expense recognized under GAAP and cash rent payments. The adjustment can vary depending on the
average age of our lease portfolio, which has been impacted by our significant growth in recent years.
(c) Represents impairment charges with respect to planned store closures and gains or losses on dispositions of assets in connection with store transitions to new IOs.
(d) Represents non-cash changes in reserves related to our IO notes and accounts receivable.
(e) Represents other non-recurring, non-cash or non-operational items, such as transaction related costs, including costs related to employer payroll taxes associated with equity awards, secondary equity offerings,
store closing costs, personnel-related costs, legal expenses, debt extinguishment and modification costs, strategic project costs, and miscellaneous costs.Represents other non-recurring, non-cash or non-operational
items, such as transaction related costs, including costs related to employer payroll taxes associated with equity awards, secondary equity offerings, store closing costs, personnel-related costs, legal expenses, debt
extinguishment and modification costs, strategic project costs, and miscellaneous costs.
(f) Represents the amortization of debt issuance costs and incremental amortization of an asset step-up resulting from purchase price accounting related to our acquisition in 2014 by an investment fund affiliated with
Hellman & Friedman LLC, which included trademarks, customer lists, and below-market leases.
(g) Represents excess tax benefits related to stock option exercises and vesting of restricted stock units to be recorded in earnings as discrete items in the reporting period in which they occur.
(h) Represents the tax effect of the total adjustments. Because of the increased impact of discrete items on our effective tax rate including the excess tax benefits from the exercise of stock options and vesting of RSU
share-based awards, beginning in the fourth quarter of fiscal 2019, we changed our methodology to calculate the tax effect of the total adjustments on a discrete basis excluding any non-recurring and unusual tax
items. Prior to the fourth quarter of fiscal 2019, the methodology we used was to calculate the tax effect of the total adjustments using our quarterly effective tax rate.
36 (i) Includes marketing, occupancy and other expenses incurred in connection with store grand openings, including costs that will be the IO’s responsibility after store opening.You can also read
