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Fairway Group Holdings Corporation (FWM)
Q4 2014 Earnings Conference Call
May 29, 2014 4:30 p.m. ET
Bill Sanford – Interim Chief Executive Officer
Ed Arditte – Co-President and Chief Financial Officer
Kevin McDonnell – Co-President and Chief Operating Officer
Nico Gutierrez – Manager of Finance and Investor Relations
Mark Wiltamuth – Jefferies & Co.
Edward Kelly – Credit Suisse
John Heinbockel – Guggenheim Securities
Kelly Bania – BMO Capital Markets
Rupesh Parikh – Oppenheimer & Co
Scott Mushkin – Wolfe Research
Barry Haimes – Sage Asset Management
Previous Statements by FWM
» Fairway Group Holdings Management Discusses Q3 2014 Results - Earnings Call Transcript
» Fairway Group Holdings Management Discusses Q2 2014 Results - Earnings Call Transcript
» Fairway's CEO Discusses F1Q 2014 Results - Earnings Call Transcript
I'd now like to turn the call over to Mr. Nico Gutierrez, Manager of Finance and Investor Relations. Sir, the floor is yours.
Thank you. Good afternoon, ladies and gentlemen, and welcome to Fairway’s earnings call for the fourth fiscal quarter. With me today are Bill Sanford, our Interim Chief Executive Officer; Kevin McDonnell, Co-President and Chief Operating Officer; Ed Arditte, Co-President and Chief Financial Officer.
By now, everyone should have had access to the fourth quarter earnings release, which went out this afternoon. The release and accompanying slides are available on the Investor Relations section of Fairway's website at www.fairwaymarket.com. This call is being webcasted, and the replay will be available on the company's website as well.
Before we begin, we would like to remind everybody that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, and therefore undue reliance should not be placed upon them. We refer all of you to the risk factors contained in Fairway's annual report on Form 10-K filed with the Securities and Exchange Commission earlier today. Fairway assumes no obligation to revise any forward-looking statements that may be made in today's release or call.
And with that, I would like to turn the call over to Bill Sanford.
Thanks, Nico. Good afternoon everyone and thank you, all, for joining us today. I’d like to start the call by providing a brief overview of our financial results, followed by a discussion of the larger strategic initiatives we’re working on. I’ll then hand the call over to Kevin McDonnell who will provide you with an update on merchandizing and operations, and Ed Arditte will wrap up with a more detailed financial review and a framework for thinking about the balance of the year.
During the quarter we reported net sales of just over $200 million, an increase of approximately $22 million over last year’s reported number, largely driven by the contribution from the two new stores opened during the year as well as the incremental sales from our Red Hook location which was closed during the first nine weeks of the fourth quarter. Our stores that were open for all of fiscal 2014 generated in excess of $1,700 per selling square foot, while our new stores continue to show positive sales momentum as a result of Fairway’s unique merchandizing mix and value proposition. Our merchandising initiatives at the Chelsea location for example have begun to resonate with our customers as we have seen the average basket size increase nearly 10% compared to the third quarter.
Same-store sales for the quarter were down 1.9%, in part due to a 100 basis point head wind as a result of the timing of the Easter Passover holidays which fell into the fourth quarter of fiscal 2013, but not fiscal 2014. We also had sales transfer of approximately 50 basis points from existing Fairway stores to our new location. Poor weather conditions and heavy snow fall negatively impacted customer count throughout the quarter. Our adjusted EBITDA for the fourth quarter was $12.7 million and our adjusted EBITDA margin was 6.4%, in line with our guidance.
Operationally, we made progress on a number of cost saving initiatives during the quarter, including reducing store expenses, excluding depreciation and amortization, by 70 basis points year over year. We also reduced our central service expense by another 40 basis points on a pro forma basis after adding back our estimate of the lost sales from our Red Hook location during the fourth quarter of fiscal 2013. We will continue to invest in process improvement and talent development to ensure that we have the right platform and personnel for disciplined growth. However, we expect to continue to leverage the central service expense as our store base expands.
We have found that with each new store opening, we learn more about Fairway’s core customer and constantly seek to leverage our experience and integrate lessons learned into both our new and existing stores. The team has spent a great deal of time examining the new store operating core structure and we have designed a more efficient layout at the new Lake Grove store to improve workflow and lower operating expenses without compromising the Fairway customer experience. As an example, we have reduced the distance between service departments and their respective backrooms and have positioned similar departments such as cheese and Deli adjacent to each other and cross trained employees for optimal staffing during peak business hours.
For those of you who are currently Fairway customers, you’ll notice the new look and feel in our Lake Grove store. We have spent the past several months developing a new signage system with new design elements to enhance in-store communications with customers. Fairway has always had a unique and distinct signage. We believe this new approach will more effectively highlight our unique merchandising strategy and value proposition to those less familiar with the Fairway format. Although Lake Grove will be a pilot store for this initiative, we will soon integrate the new design into our existing stores.