x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 47-1874201 | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
5650 Hollis Street, Emeryville, California | 94608 | |||
(Address of principal executive offices) | (Zip Code) | |||
(510) 845-1999 | ||||
(Registrant’s telephone number, including area code) |
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock, par value $0.001 per share | GO | Nasdaq Global Select Market |
Large accelerated filer | o | Accelerated filer | o |
Non-accelerated filer | x | Smaller reporting company | o |
Emerging growth company | o |
Page | ||
• | 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; |
• | risks associated with economic conditions; |
• | competition in the retail food industry; |
• | 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; |
• | movement of consumer trends toward private labels and away from name-brand products; |
• | inability to maintain sufficient levels of cash flow from our operations; |
• | risks associated with leasing substantial amounts of space; |
• | failure to maintain the security of information we hold relating to personal information or payment card data of our customers, employees and suppliers; |
• | failure to participate effectively or at all in the growing online retail marketplace; |
• | 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; |
• | unexpected costs and negative effects associated with 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; |
• | changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters; |
• | impairment of goodwill and other intangible assets; |
• | any significant decline in our operating profit and taxable income; |
• | risks associated with tax matters; |
• | natural disasters and unusual weather conditions (whether or not caused by climate change), pandemic outbreaks, terrorist acts, global political events and other serious catastrophic events; |
• | economic downturns or natural or man-made disasters in geographies where our stores are located; |
• | management’s limited experience managing a public company; |
• | risks associated with IOs being consolidated into our financial statements; |
• | 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 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; |
• | the significant influence of certain significant investors over us; |
• | our ability to generate cash flow to service our substantial debt obligations; and |
• | the other factors discussed under “Risk Factors.” in our prospectus filed with the Securities and Exchange Commission (the “SEC”) on June 20, 2019. |
June 29, 2019 | December 29, 2018 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 18,677 | $ | 21,063 | ||||
Independent operator receivables and current portion of independent operator notes, net of allowance $1,300 and $1,141 | 6,796 | 5,056 | ||||||
Other accounts receivable, net of allowance $16 and $24 | 1,707 | 2,069 | ||||||
Merchandise inventories | 202,715 | 198,304 | ||||||
Prepaid rent — related party | 512 | 512 | ||||||
Prepaid expenses and other current assets | 17,212 | 13,368 | ||||||
Total current assets | 247,619 | 240,372 | ||||||
Independent operator notes, net of allowance $9,356 and $7,926 | 15,671 | 13,646 | ||||||
Property and equipment — net | 322,472 | 304,032 | ||||||
Operating lease right-of-use asset | 676,191 | — | ||||||
Intangible assets — net | 65,400 | 68,824 | ||||||
Goodwill | 747,943 | 747,943 | ||||||
Other assets | 6,302 | 2,045 | ||||||
Total assets | $ | 2,081,598 | $ | 1,376,862 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Trade accounts payable | $ | 102,482 | $ | 98,123 | ||||
Accrued expenses | 25,973 | 31,194 | ||||||
Accrued compensation | 9,189 | 10,795 | ||||||
Current portion of long-term debt | 267 | 7,349 | ||||||
Current lease liability | 36,149 | — | ||||||
Income and other taxes payable | 2,210 | 3,463 | ||||||
Total current liabilities | 176,270 | 150,924 | ||||||
Long-term liabilities: | ||||||||
Long-term debt — net | 462,119 | 850,019 | ||||||
Deferred income taxes | 12,348 | 15,135 | ||||||
Lease liability | 714,173 | — | ||||||
Deferred rent | — | 60,833 | ||||||
Total liabilities | 1,364,910 | 1,076,911 | ||||||
Commitments and contingencies (see Note 9) | ||||||||
Stockholders’ equity: | ||||||||
Capital stock: | ||||||||
Common stock — par value $0.001, voting common stock, 500,000,000 and 107,536,215 shares authorized as of June 29, 2019 and December 29, 2018, respectively; 88,311,764 and 67,435,288 shares issued and outstanding as of June 29, 2019 and December 29, 2018, respectively | 88 | 67 | ||||||
Common stock — par value $0.001, nonvoting common stock, 0 and 17,463,785 shares authorized as of June 29, 2019 and December 29, 2018, respectively; 0 and 1,038,413 shares issued and outstanding as of June 29, 2019 and December 29, 2018, respectively | — | 1 | ||||||
Series A Preferred stock — par value $0.001, preferred stock, 50,000,000 and 1 share authorized as of June 29, 2019 and December 29, 2018, respectively; 0 and 1 share issued and outstanding as of June 29, 2019 and December 29, 2018, respectively | — | — | ||||||
Additional capital | 711,200 | 287,457 | ||||||
Retained earnings | 5,400 | 12,426 | ||||||
Total stockholders’ equity | 716,688 | 299,951 | ||||||
Total liabilities and stockholders’ equity | $ | 2,081,598 | $ | 1,376,862 | ||||
13 Weeks Ended | 26 Weeks Ended | ||||||||||||||
June 29, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | ||||||||||||
Net sales | $ | 645,289 | $ | 575,058 | $ | 1,251,560 | $ | 1,125,616 | |||||||
Cost of sales | 446,569 | 399,943 | 865,823 | 781,932 | |||||||||||
Gross profit | 198,720 | 175,115 | 385,737 | 343,684 | |||||||||||
Operating expenses: | |||||||||||||||
Selling, general and administrative | 157,641 | 139,743 | 310,495 | 276,479 | |||||||||||
Depreciation and amortization | 12,594 | 11,235 | 24,890 | 22,413 | |||||||||||
Stock-based compensation | 22,750 | 129 | 22,961 | 263 | |||||||||||
Total operating expenses | 192,985 | 151,107 | 358,346 | 299,155 | |||||||||||
Income from operations | 5,735 | 24,008 | 27,391 | 44,529 | |||||||||||
Other expense: | |||||||||||||||
Interest expense, net | 15,452 | 13,974 | 31,890 | 26,886 | |||||||||||
Debt extinguishment and modification costs | 5,162 | — | 5,162 | — | |||||||||||
Total other expense | 20,614 | 13,974 | 37,052 | 26,886 | |||||||||||
Income (loss) before income taxes | (14,879 | ) | 10,034 | (9,661 | ) | 17,643 | |||||||||
Income tax expense (benefit) | (4,247 | ) | 2,748 | (2,803 | ) | 4,832 | |||||||||
Net income (loss) and comprehensive income (loss) | $ | (10,632 | ) | $ | 7,286 | $ | (6,858 | ) | $ | 12,811 | |||||
Basic earnings (net loss) per share | $ | (0.15 | ) | $ | 0.11 | $ | (0.10 | ) | $ | 0.19 | |||||
Diluted earnings (net loss) per share | $ | (0.15 | ) | $ | 0.11 | $ | (0.10 | ) | $ | 0.19 | |||||
Weighted average shares outstanding: | |||||||||||||||
Basic | 70,475 | 68,475 | 69,494 | 68,471 | |||||||||||
Diluted | 70,475 | 68,512 | 69,494 | 68,499 |
Voting Common | Nonvoting Common | Preferred | Additional Capital | Retained Earnings | Stockholders’ Equity | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||
Balance — December 29, 2018 | 67,435,288 | $ | 67 | 1,038,413 | $ | 1 | 1 | $ | — | $ | 287,457 | $ | 12,426 | $ | 299,951 | |||||||||||||||||
Cumulative effect of accounting change related to adoption of ASU 2016-02 | 169 | 169 | ||||||||||||||||||||||||||||||
Issuance of shares under stock incentive plans | 42,438 | — | — | — | ||||||||||||||||||||||||||||
Stock based compensation | 211 | 211 | ||||||||||||||||||||||||||||||
Dividend paid | (254 | ) | (254 | ) | ||||||||||||||||||||||||||||
Net income and comprehensive income | 3,774 | 3,774 | ||||||||||||||||||||||||||||||
Balance — March 30, 2019 | 67,477,726 | $ | 67 | 1,038,413 | $ | 1 | 1 | $ | — | $ | 287,668 | $ | 16,115 | $ | 303,851 | |||||||||||||||||
Issuance of shares under stock incentive plans | 30,000 | — | 314 | 314 | ||||||||||||||||||||||||||||
Issuance of common stock upon initial public offering, net of issuance costs | 19,765,625 | 20 | 400,468 | 400,488 | ||||||||||||||||||||||||||||
Conversion of non-voting to voting common stock | 1,068,413 | 1 | (1,068,413 | ) | (1 | ) | — | |||||||||||||||||||||||||
Redemption of preferred stock | (1 | ) | — | — | ||||||||||||||||||||||||||||
Stock based compensation | 22,750 | 22,750 | ||||||||||||||||||||||||||||||
Dividend paid | (83 | ) | (83 | ) | ||||||||||||||||||||||||||||
Net income and comprehensive income | (10,632 | ) | (10,632 | ) | ||||||||||||||||||||||||||||
Balance — June 29, 2019 | 88,311,764 | $ | 88 | — | $ | — | — | $ | — | $ | 711,200 | $ | 5,400 | $ | 716,688 | |||||||||||||||||
Voting Common | Nonvoting Common | Preferred | Additional Capital | Retained Earnings | Stockholders’ Equity | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||
Balance — December 30, 2017 | 67,381,104 | $ | 67 | 1,038,413 | $ | 1 | 1 | $ | — | $ | 403,289 | $ | 23,776 | $ | 427,133 | |||||||||||||||||
Cumulative effect of accounting change related to adoption of ASU 2014-09 | 133 | 133 | ||||||||||||||||||||||||||||||
Issuance of shares under stock incentive plans | 54,184 | — | — | — | ||||||||||||||||||||||||||||
Stock based compensation | 134 | 134 | ||||||||||||||||||||||||||||||
Dividend paid | (79 | ) | (79 | ) | ||||||||||||||||||||||||||||
Net income and comprehensive income | 5,525 | 5,525 | ||||||||||||||||||||||||||||||
Balance — March 31, 2018 | 67,435,288 | $ | 67 | 1,038,413 | $ | 1 | 1 | $ | — | $ | 403,423 | $ | 29,355 | $ | 432,846 | |||||||||||||||||
Issuance of shares under stock incentive plans | 2,100 | — | 29 | 29 | ||||||||||||||||||||||||||||
Stock based compensation | 129 | 129 | ||||||||||||||||||||||||||||||
Dividend paid | (14 | ) | (14 | ) | ||||||||||||||||||||||||||||
Net income and comprehensive income | 7,286 | 7,286 | ||||||||||||||||||||||||||||||
Balance — June 30, 2018 | 67,437,388 | $ | 67 | 1,038,413 | $ | 1 | 1 | $ | — | $ | 403,581 | $ | 36,627 | $ | 440,276 | |||||||||||||||||
26 Weeks Ended | ||||||||
June 29, 2019 | June 30, 2018 | |||||||
Operating activities: | ||||||||
Net income (loss) | $ | (6,858 | ) | $ | 12,811 | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation and amortization of property and equipment | 20,936 | 18,322 | ||||||
Amortization of intangible assets | 5,069 | 4,877 | ||||||
Amortization of debt issuance costs | 1,295 | 2,185 | ||||||
Amortization of bond discounts | 220 | — | ||||||
Debt extinguishment and modification costs | 5,162 | — | ||||||
Loss on disposal of assets | 415 | (28 | ) | |||||
Stock-based compensation | 22,961 | 263 | ||||||
Accounts receivable reserve | 2,064 | 2,348 | ||||||
Deferred lease liabilities | — | 9,935 | ||||||
Non-cash lease expense | 17,329 | — | ||||||
Deferred income taxes | (2,787 | ) | 4,777 | |||||
Changes in operating assets and liabilities: | ||||||||
Independent operator and other accounts receivable | 3,210 | 1,380 | ||||||
Merchandise inventories | (4,410 | ) | (1,173 | ) | ||||
Prepaid expenses and other current assets | (4,039 | ) | (561 | ) | ||||
Income and other taxes payable | (1,460 | ) | (1,645 | ) | ||||
Trade accounts payable | 3,620 | 1,895 | ||||||
Accrued expenses | (6,159 | ) | 3,452 | |||||
Accrued compensation | (1,606 | ) | (3,621 | ) | ||||
Operating lease liability | (15,244 | ) | — | |||||
Net cash provided by operating activities | 39,718 | 55,217 | ||||||
Investing activities: | ||||||||
Cash advances to independent operators | (5,673 | ) | (3,255 | ) | ||||
Repayments of cash advances from independent operators | 2,026 | 1,679 | ||||||
Purchase of property and equipment | (39,806 | ) | (23,082 | ) | ||||
Proceeds from sales of assets | 611 | 364 | ||||||
Intangible assets, deposits and licenses | (1,681 | ) | (1,207 | ) | ||||
Net cash used in investing activities | (44,523 | ) | (25,501 | ) | ||||
Financing activities: | ||||||||
Proceeds from initial public offering, net of underwriting discounts paid | 407,666 | — | ||||||
Proceeds from issuance of shares under stock incentive plans | 314 | 29 | ||||||
Deferred offering costs paid | (4,950 | ) | — | |||||
Principal payments on 2014 loans | — | (2,645 | ) | |||||
Principal payments on 2018 loans | (399,813 | ) | — | |||||
Payments on other financing | (450 | ) | (47 | ) | ||||
Dividends paid | (337 | ) | (93 | ) | ||||
Debt issuance costs paid | (11 | ) | — | |||||
Net cash provided by (used in) financing activities | 2,419 | (2,756 | ) | |||||
Net increase (decrease) in cash and cash equivalents | (2,386 | ) | 26,960 | |||||
Cash and cash equivalents—Beginning of the period | 21,063 | 5,801 | ||||||
Cash and cash equivalents—End of the period | $ | 18,677 | $ | 32,761 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Property and equipment accrued at end of period | $ | 7,784 | $ | 653 | ||||
Deferred offering costs accrued at end of period | $ | 2,044 | $ | — |
1. | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
June 29, 2019 | December 29, 2018 | ||||||
Financial Liabilities: | |||||||
Long-term debt, long-term portion (Level 2) | $ | 471,777 | $ | 845,327 | |||
Long-term debt, current portion (Level 2) | — | 7,250 | |||||
Total financial liabilities (1) | $ | 471,777 | $ | 852,577 | |||
(1) | The carrying amounts of our bank debt, before reduction of the debt issuance costs, approximate their fair values as the stated rates approximate market rates for loans with similar terms. |
13 Weeks Ended | 26 Weeks Ended | ||||||||||||||
June 29, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | ||||||||||||
Perishable (1) | $ | 221,473 | $ | 196,658 | $ | 428,429 | $ | 383,346 | |||||||
Non-perishable (2) | 423,816 | 378,400 | 823,131 | 742,270 | |||||||||||
Total sales | $ | 645,289 | $ | 575,058 | $ | 1,251,560 | $ | 1,125,616 | |||||||
(1) | Perishable departments include dairy and deli; produce and floral; and fresh meat and seafood. |
(2) | Non-perishable departments include grocery; general merchandise; health and beauty care; frozen foods; and beer and wine. |
• | We did not reassess whether expired or existing contracts are or contain a lease; |
• | We did not reassess the classification of existing leases; and |
• | We did not reassess the accounting treatment for initial direct costs. |
2. | INDEPENDENT OPERATOR NOTES AND RECEIVABLES |
Allowance | Current portion | Long-term portion | |||||||||||||||||||||
Gross | Current portion | Long-term portion | Net | ||||||||||||||||||||
June 29, 2019 | |||||||||||||||||||||||
Independent operator notes | $ | 27,246 | $ | (704 | ) | $ | (9,356 | ) | $ | 17,186 | $ | 1,515 | $ | 15,671 | |||||||||
Independent operator receivables | 5,877 | (596 | ) | — | 5,281 | 5,281 | — | ||||||||||||||||
Total | $ | 33,123 | $ | (1,300 | ) | $ | (9,356 | ) | $ | 22,467 | $ | 6,796 | $ | 15,671 | |||||||||
Allowance | Current portion | Long-term portion | |||||||||||||||||||||
Gross | Current portion | Long-term portion | Net | ||||||||||||||||||||
December 29, 2018 | |||||||||||||||||||||||
Independent operator notes | $ | 23,450 | $ | (577 | ) | $ | (7,926 | ) | $ | 14,947 | $ | 1,301 | $ | 13,646 | |||||||||
Independent operator receivables | 4,319 | (564 | ) | — | 3,755 | 3,755 | — | ||||||||||||||||
Total | $ | 27,769 | $ | (1,141 | ) | $ | (7,926 | ) | $ | 18,702 | $ | 5,056 | $ | 13,646 | |||||||||
3. | LEASES |
Leases | Classification | |||||
Assets: | ||||||
Operating lease assets | Operating Right-of-use Asset | $ | 676,191 | |||
Finance lease assets | Other Assets | 4,360 | ||||
Total leased assets | $ | 680,551 | ||||
Liabilities: | ||||||
Current | ||||||
Operating | Current lease liability | $ | 35,615 | |||
Finance | Current lease liability | 534 | ||||
Noncurrent | ||||||
Operating | Lease liability | 710,260 | ||||
Finance | Lease liability | 3,913 | ||||
Total lease liabilities | $ | 750,322 | ||||
13 Weeks Ended | 26 Weeks Ended | |||||||||
Lease Cost | Classification | June 29, 2019 | June 29, 2019 | |||||||
Operating lease cost | Selling, general and administrative expenses | $ | 23,663 | $ | 46,874 | |||||
Finance lease cost: | ||||||||||
Amortization of right-of-use assets | Depreciation and amortization | 174 | 347 | |||||||
Interest on leased liabilities | Interest expense, net | 53 | 124 | |||||||
Sublease income | Other income | (297 | ) | (650 | ) | |||||
Net Lease Cost | $ | 23,593 | $ | 46,695 | ||||||
Fiscal Year Ended | |||||||||||
December 29, 2018 | December 30, 2017 | December 31, 2016 | |||||||||
Rent expense—third-party lessors | $ | 79,347 | $ | 72,622 | $ | 56,825 | |||||
Rent expense—related parties | 7,141 | 7,309 | 6,490 | ||||||||
Contingent rentals | 548 | 531 | 619 | ||||||||
Less rentals from subleases | (1,075 | ) | (1,079 | ) | (1,129 | ) | |||||
Total rent expense | $ | 85,961 | $ | 79,383 | $ | 62,805 | |||||
Maturity of Lease Liabilities | Operating Leases | Finance Leases | Total | |||||||||
Remainder of fiscal 2019 | $ | 45,686 | $ | 416 | $ | 46,102 | ||||||
Fiscal 2020 | 92,197 | 756 | 92,953 | |||||||||
Fiscal 2021 | 92,807 | 777 | 93,584 | |||||||||
Fiscal 2022 | 92,156 | 724 | 92,880 | |||||||||
Fiscal 2023 | 91,909 | 622 | 92,531 | |||||||||
Thereafter | 770,151 | 2,429 | 772,580 | |||||||||
Total lease payments | $ | 1,184,906 | $ | 5,724 | $ | 1,190,630 | ||||||
Less: Interest | (439,031 | ) | (1,277 | ) | ||||||||
Present value of lease liabilities | $ | 745,875 | $ | 4,447 | ||||||||
Third Parties | Related Parties | Total | ||||||||||
Fiscal 2019 | $ | 82,971 | $ | 6,152 | $ | 89,123 | ||||||
Fiscal 2020 | 91,538 | 6,201 | 97,739 | |||||||||
Fiscal 2021 | 93,090 | 6,297 | 99,387 | |||||||||
Fiscal 2022 | 92,359 | 6,532 | 98,891 | |||||||||
Fiscal 2023 | 91,955 | 6,410 | 98,365 | |||||||||
Thereafter | 801,832 | 48,914 | 850,746 | |||||||||
Total future lease payments | $ | 1,253,745 | $ | 80,506 | $ | 1,334,251 | ||||||
Lease Term and Discount Rate | |||
Weighted-average remaining lease term (years): | |||
Operating leases | 12.48 | ||
Finance leases | 8.32 | ||
Weighted-average discount rate: | |||
Operating leases | 7.73 | % | |
Finance leases | 6.04 | % |
Other Information | |||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||
Operating cash flows used by operating leases | $ | 43,015 | |||
Leased assets obtained in exchange for new operating lease liabilities — adoption | $ | 641,529 | |||
Leased assets obtained in exchange for new operating lease liabilities — 26 weeks ended June 29, 2019 | $ | 57,020 |
4. | GOODWILL AND INTANGIBLE ASSETS |
Useful Lives (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||
Trademarks | 15 | $ | 58,400 | $ | (18,378 | ) | $ | 40,022 | |||||
Customer lists | 5 | 160 | (151 | ) | 9 | ||||||||
Leasehold interests | 1–20 | 30,468 | (14,412 | ) | 16,056 | ||||||||
Computer software | 3 | 19,227 | (15,725 | ) | 3,502 | ||||||||
Total finite-lived intangibles | 108,255 | (48,666 | ) | 59,589 | |||||||||
Liquor licenses | Indefinite | 5,811 | — | 5,811 | |||||||||
Total intangible assets | 114,066 | (48,666 | ) | 65,400 | |||||||||
Goodwill | 747,943 | — | 747,943 | ||||||||||
Total goodwill and other intangibles | $ | 862,009 | $ | (48,666 | ) | $ | 813,343 | ||||||
Useful Lives (Years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||
Trademarks | 15 | $ | 58,400 | $ | (16,431 | ) | $ | 41,969 | |||||
Customer lists | 5 | 160 | (135 | ) | 25 | ||||||||
Leasehold interests | 1–20 | 30,468 | (12,735 | ) | 17,733 | ||||||||
Computer software | 3 | 18,176 | (14,324 | ) | 3,852 | ||||||||
Total finite-lived intangible assets | 107,204 | (43,625 | ) | 63,579 | |||||||||
Liquor licenses | Indefinite | 5,245 | — | 5,245 | |||||||||
Total intangible assets | 112,449 | (43,625 | ) | 68,824 | |||||||||
Goodwill | 747,943 | — | 747,943 | ||||||||||
Total goodwill and intangible assets | $ | 860,392 | $ | (43,625 | ) | $ | 816,767 | ||||||
Remainder of fiscal 2019 | $ | 4,672 | |
Fiscal 2020 | 8,474 | ||
Fiscal 2021 | 7,417 | ||
Fiscal 2022 | 6,315 | ||
Fiscal 2023 | 5,621 | ||
Thereafter | 27,090 | ||
Total | $ | 59,589 | |
5. | Long-Term Debt |
June 29, 2019 | December 29, 2018 | Contractual Interest Rate | Effective Interest Rate | Maturity Date | |||||||||||
Term loans: | |||||||||||||||
First Lien Credit Agreement | $ | 475,188 | $ | 725,000 | (1) | 3.75% + Eurodollar rate, or 2.75% + ABR rate | (2),(3) | 6.14 | % | (5) | October 2025 | ||||
Second Lien Credit Agreement | — | 150,000 | (1) | 7.25% + Eurodollar rate, or 6.25% + ABR rate | (2),(3) | — | % | (6) | October 2026 | ||||||
Revolving credit facility | — | — | 3.25 % to 3.75% + Eurodollar rate, or 2.25% to 2.75% + ABR rate | (2),(3),(4) | — | % | October 2023 | ||||||||
Notes payable | 357 | — | |||||||||||||
Capital lease | — | 2,019 | |||||||||||||
Long-term debt — gross | 475,545 | 877,019 | |||||||||||||
Less: Debt discounts and debt issuance costs, net of amortization | (13,159 | ) | (19,651 | ) | (1) | ||||||||||
Long-term debt — net | 462,386 | 857,368 | |||||||||||||
Less: Current portion | (267 | ) | (7) | (7,349 | ) | ||||||||||
Long-term debt — noncurrent | $ | 462,119 | $ | 850,019 | |||||||||||
(1) | To conform with current period presentation, unamortized debt discounts of $1.8 million and $1.5 million as of December 29, 2018 have been reclassified from “First Lien Credit Agreement” and “Second Lien Credit Agreement,” respectively, and included in “Debt discounts and debt issuance costs, net of amortization.” This reclassification had no impact on our condensed consolidated financial statements for 2018. |
(2) | Eurodollar rate has a floor rate of 0.00% and is subject to adjustment required under regulations issued by the Federal Reserve Board for determining maximum reserve requirements with respect to Eurocurrency funding. |
(3) | ABR rate is the highest of the prime rate, the federal funds effective rate + 0.50%, or Eurodollar rate +1.00%. |
(4) | Rates vary depending on the applicable first lien secured leverage ratio as defined by the agreement. |
(5) | Represents the effective interest rate as of June 29, 2019. |
(6) | We repaid this term loan balance in full in connection with the closing of our IPO in June 2019 as further discussed below. |
(7) | Represents our note payments due in the next 12 months. As discussed below, the principal payment of our outstanding term loan under the First Lien Credit Agreement will not be due until its maturity date. |
Remainder of fiscal 2019 | $ | 90 | ||
Fiscal 2020 | 267 | |||
Fiscal 2021 | — | |||
Fiscal 2022 | — | |||
Fiscal 2023 | — | |||
Thereafter | 475,188 | |||
Total | $ | 475,545 | ||
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||
June 29, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | |||||||||||||
Interest on term loan debt | $ | 15,158 | $ | 13,147 | $ | 31,256 | $ | 25,240 | ||||||||
Amortization of debt issuance costs | 644 | 1,092 | 1,295 | 2,185 | ||||||||||||
Interest on capital leases | 53 | 29 | 124 | 59 | ||||||||||||
Other | — | — | 7 | — | ||||||||||||
Interest income | (403 | ) | (294 | ) | (792 | ) | (598 | ) | ||||||||
Interest expense, net | $ | 15,452 | $ | 13,974 | $ | 31,890 | $ | 26,886 | ||||||||
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||
June 29, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | |||||||||||||
Write off of debt issuance costs | $ | 3,788 | $ | — | $ | 3,788 | $ | — | ||||||||
Write off of loan discounts | 1,374 | — | 1,374 | — | ||||||||||||
Debt extinguishment and modification costs | $ | 5,162 | $ | — | $ | 5,162 | $ | — | ||||||||
6. | STOCKHOLDERS’ EQUITY |
June 29, 2019 | |||
Time-based options | $ | 7.66 | |
Performance-based options | 6.80 | ||
RSUs | 26.98 |
26 Weeks Ended | ||||
June 29, 2019 | ||||
Exercise price | $ | 21.66 | ||
Volatility | 35.0 | % | ||
Risk-free rate | 2.8 | % | ||
Dividend yield | — | % | ||
Expected life (in years) | 3.22 |
Time-Based Options | Performance-Based Options | |||||||||||
Number of Options | Weighted- Average Exercise Price | Number of Options | Weighted- Average Exercise Price | |||||||||
Outstanding—December 29, 2018 | 5,798,375 | $ | 7.53 | 5,795,330 | $ | 4.40 | ||||||
Granted | 1,363,822 | 21.66 | 99,788 | 17.29 | ||||||||
Exercised | (30,000) | 7.13 | — | — | ||||||||
Forfeitures | (27,635) | 9.42 | (51,775) | 5.41 | ||||||||
Outstanding—June 29, 2019 | 7,104,562 | 10.24 | 5,843,343 | 4.61 | ||||||||
Total exercisable at June 29, 2019 | 4,188,061 | — | ||||||||||
Total vested and expected to vest at June 29, 2019 | 7,004,655 | 5,597,528 | (1) | |||||||||
(1) | No performance-based options had been vested as of June 29, 2019. The number above reflects the 5.8 million unvested outstanding performance-based options, net of estimated forfeitures. |
Number of Shares | Weighted- Average Grant Date Fair Value | ||||||
Nonvested — December 29, 2018 | 80,820 | $ | 8.80 | ||||
Granted | 192,296 | 26.98 | |||||
Vested / Released | (42,464 | ) | 8.36 | ||||
Canceled / forfeited | — | — | |||||
Outstanding — June 29, 2019 | 230,652 | 24.04 | |||||
7. | INCOME TAXES |
13 Weeks Ended | 26 Weeks Ended | ||||||||||||||
June 29, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | ||||||||||||
Income tax expense (benefit) | $ | (4,247 | ) | $ | 2,748 | $ | (2,803 | ) | $ | 4,832 | |||||
Effective tax rate | 28.5 | % | 27.4 | % | 29.0 | % | 27.4 | % |
8. | RELATED PARTY TRANSACTIONS |
9. | COMMITMENTS AND CONTINGENCIES |
10. | EARNINGS PER SHARE |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||
June 29, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | |||||||||||||
Numerator | ||||||||||||||||
Net income (loss) attributable to common stockholders – basic | $ | (10,632 | ) | $ | 7,286 | $ | (6,858 | ) | $ | 12,811 | ||||||
Denominator | ||||||||||||||||
Weighted-average shares of common stock - basic | 70,475 | 68,475 | 69,494 | 68,471 | ||||||||||||
Effect of dilutive RSUs | — | 37 | — | 28 | ||||||||||||
Weighted-average shares of common stock - diluted (1) (2) | 70,475 | 68,512 | 69,494 | 68,499 | ||||||||||||
Earnings (net loss) per share attributable to common stockholders: | ||||||||||||||||
Basic | $ | (0.15 | ) | $ | 0.11 | $ | (0.10 | ) | $ | 0.19 | ||||||
Diluted | $ | (0.15 | ) | $ | 0.11 | $ | (0.10 | ) | $ | 0.19 |
(1) | As discussed in Note 6, we determined that the ultimate vesting of the 5.8 million granted but not yet vested performance-based options was not probable as of June 29, 2019 and June 30, 2018. Accordingly, these options were not included in the weighted-average diluted shares for the periods presented as the ultimate vesting of the performance options was deemed an unresolved contingent event. If and when vesting occurs, any vested performance-based options will be included in the weighted-average diluted shares at that time. See Note 6 for additional information. |
(2) | The weighted-average diluted shares for the 13 and 26 weeks ended June 30, 2018 did not include time-based options as the occurrence of a contingent event (involuntary termination, change in control or initial public offering) was not deemed probable. See Note 6 for more information. Upon the completion of the IPO in June 2019, the contingent event had occurred and therefore time-based options were included in the weighted-average diluted shares for the 13 and 26 weeks ended June |
13 Weeks Ended | 26 Weeks Ended | |||||||||||
June 29, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | |||||||||
RSUs | 79 | — | 59 | — | ||||||||
Options | 5,935 | — | 5,838 | — | ||||||||
Total | 6,014 | — | 5,897 | — | ||||||||
• | Net sales increased by 12.2% to $645.3 million from $575.1 million in the second quarter of fiscal 2018; comparable store sales increased by 5.8% over a 2.7% increase last year |
• | We opened eight new stores and closed one, ending the quarter with 330 stores in six states. |
• | Net loss was $10.6 million, or $(0.15) per diluted share, compared to net income of $7.3 million, or $0.11 per diluted share in the second quarter of fiscal 2018. |
• | Adjusted EBITDA(1) increased 15.0% to $45.0 million compared to $39.1 million in the second quarter of fiscal 2018. |
• | Adjusted net income(1) increased 12.1% to $14.5 million, or $0.20 per diluted share, compared to $12.9 million, or $0.19 per diluted share last year. |
(1) | Adjusted EBITDA and Adjusted net income are non-GAAP financial measures and should be considered as a supplement to, and not as a substitute for, or superior to, financial measures calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”). See GAAP to non-GAAP reconciliation in “Results of Operations” section below. |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||
June 29, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | |||||||||||||
Net Sales | $ | 645,289 | $ | 575,058 | $ | 1,251,560 | $ | 1,125,616 | ||||||||
Cost of Sales | 446,569 | 399,943 | 865,823 | 781,932 | ||||||||||||
Gross Profit | 198,720 | 175,115 | 385,737 | 343,684 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 157,641 | 139,743 | 310,495 | 276,479 | ||||||||||||
Depreciation and amortization | 12,594 | 11,235 | 24,890 | 22,413 | ||||||||||||
Stock-based compensation | 22,750 | 129 | 22,961 | 263 | ||||||||||||
Total operating expenses | 192,985 | 151,107 | 358,346 | 299,155 | ||||||||||||
Income from operations | 5,735 | 24,008 | 27,391 | 44,529 | ||||||||||||
Other expense: | ||||||||||||||||
Interest expense, net | 15,452 | 13,974 | 31,890 | 26,886 | ||||||||||||
Debt extinguishment and modification | 5,162 | — | 5,162 | — | ||||||||||||
Total other expense | 20,614 | 13,974 | 37,052 | 26,886 | ||||||||||||
Income (loss) before income taxes | (14,879 | ) | 10,034 | (9,661 | ) | 17,643 | ||||||||||
Income tax expense (benefit) | (4,247 | ) | 2,748 | (2,803 | ) | 4,832 | ||||||||||
Net income (loss) | $ | (10,632 | ) | $ | 7,286 | $ | (6,858 | ) | $ | 12,811 | ||||||
13 Weeks Ended | 26 Weeks Ended | |||||||||||
June 29, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | |||||||||
Percentage of Sales (1) | ||||||||||||
Net Sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||
Cost of Sales | 69.2 | % | 69.5 | % | 69.2 | % | 69.5 | % | ||||
Gross Profit | 30.8 | % | 30.5 | % | 30.8 | % | 30.5 | % | ||||
Operating expenses: | ||||||||||||
Selling, general and administrative | 24.4 | % | 24.3 | % | 24.8 | % | 24.6 | % | ||||
Depreciation and amortization | 2.0 | % | 2.0 | % | 2.0 | % | 2.0 | % | ||||
Stock-based compensation | 3.5 | % | — | % | 1.8 | % | — | % | ||||
Total operating expenses | 29.9 | % | 26.3 | % | 28.6 | % | 26.6 | % | ||||
Income from operations | 0.9 | % | 4.2 | % | 2.2 | % | 4.0 | % | ||||
Other expense: | ||||||||||||
Interest expense, net | 2.4 | % | 2.4 | % | 2.5 | % | 2.4 | % | ||||
Debt extinguishment and modification | 0.8 | % | — | % | 0.4 | % | — | % | ||||
Total other expense | 3.2 | % | 2.4 | % | 3.0 | % | 2.4 | % | ||||
Income (loss) before income taxes | (2.3 | )% | 1.7 | % | (0.8 | )% | 1.6 | % | ||||
Income tax expense (benefit) | (0.7 | )% | 0.5 | % | (0.2 | )% | 0.4 | % | ||||
Net income (loss) | (1.6 | )% | 1.3 | % | (0.5 | )% | 1.1 | % | ||||
(1) | Components may not sum to totals due to rounding. |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||
June 29, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | |||||||||||||
Other Financial and Operation Data (1) | ||||||||||||||||
Number of new stores | 8 | 4 | 16 | 7 | ||||||||||||
Number of stores open at end of period | 330 | 300 | 330 | 300 | ||||||||||||
Comparable store sales growth (2) | 5.8 | % | 2.7 | % | 5.0 | % | 3.5 | % | ||||||||
EBITDA (3) | $ | 13,729 | $ | 35,670 | $ | 48,234 | $ | 67,726 | ||||||||
Adjusted EBITDA (3) | $ | 45,007 | $ | 39,122 | $ | 84,130 | $ | 75,234 | ||||||||
Adjusted net income (3) | $ | 14,460 | $ | 12,897 | $ | 24,407 | $ | 24,448 |
(1) | In addition to the measures of financial performance presented in our condensed consolidated financial statements, we use certain non-GAAP measures to establish budgets and operational goals, and to evaluate and manage our business internally. We believe these key non-GAAP measures included in this table provide investors with consistency and comparability with our past financial performance and facilitates period-to-period comparisons of our operating results and our competitors’ operating results. |
(2) | Comparable store sales consist of sales from our stores beginning on the first day of the fourteenth full fiscal month following the store’s opening, which is when we believe comparability is achieved. |
(3) | The following table provides a reconciliation from our net income to EBITDA and adjusted EBITDA, net income to adjusted net income, and our GAAP to non-GAAP earnings (net loss) per share for the periods presented: |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||
June 29, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | |||||||||||||
Net income (loss) | $ | (10,632 | ) | $ | 7,286 | $ | (6,858 | ) | $ | 12,811 | ||||||
Interest expense, net | 15,452 | 13,974 | 31,890 | 26,886 | ||||||||||||
Income tax expense | (4,247 | ) | 2,748 | (2,803 | ) | 4,832 | ||||||||||
Depreciation and amortization expenses | 13,156 | 11,662 | 26,005 | 23,197 | ||||||||||||
EBITDA | 13,729 | 35,670 | 48,234 | 67,726 | ||||||||||||
Stock-based compensation expenses (a) | 22,750 | 129 | 22,961 | 263 | ||||||||||||
Debt extinguishment and modification costs (b) | 5,162 | — | 5,162 | — | ||||||||||||
Non-cash rent (c) | 1,816 | 1,683 | 3,678 | 3,523 | ||||||||||||
Asset impairment and gain or loss on disposition (d) | 233 | 24 | 415 | (28 | ) | |||||||||||
New store pre-opening expenses (e) | 321 | 431 | 742 | 701 | ||||||||||||
Provision for accounts receivable reserves (f) | 581 | 810 | 2,064 | 2,348 | ||||||||||||
Other (g) | 415 | 375 | 874 | 701 | ||||||||||||
Adjusted EBITDA | $ | 45,007 | $ | 39,122 | $ | 84,130 | $ | 75,234 | ||||||||
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||
June 29, 2019 | June 30, 2018 | June 29, 2019 | June 30, 2018 | |||||||||||||
Net income (loss) | $ | (10,632 | ) | $ | 7,286 | $ | (6,858 | ) | $ | 12,811 | ||||||
Stock-based compensation expenses (a) | 22,750 | 129 | 22,961 | 263 | ||||||||||||
Debt extinguishment and modification costs (b) | 5,162 | — | 5,162 | — | ||||||||||||
Non-cash rent (c) | 1,816 | 1,683 | 3,678 | 3,523 | ||||||||||||
Asset impairment and gain or loss on disposition (d) | 233 | 24 | 415 | (28 | ) | |||||||||||
New store pre-opening expenses (e) | 321 | 431 | 742 | 701 | ||||||||||||
Provision for accounts receivable reserves (f) | 581 | 810 | 2,064 | 2,348 | ||||||||||||
Other (g) | 415 | 375 | 874 | 701 | ||||||||||||
Amortization of purchase accounting assets and deferred financing costs (h) | 3,835 | 4,274 | 7,751 | 8,517 | ||||||||||||
Tax effect of total adjustments (i) | (10,021 | ) | (2,115 | ) | (12,382 | ) | (4,388 | ) | ||||||||
Adjusted net income | $ | 14,460 | $ | 12,897 | $ | 24,407 | $ | 24,448 | ||||||||
GAAP earnings (net loss) per share | ||||||||||||||||
Basic and diluted | $ | (0.15 | ) | $ | 0.11 | $ | (0.10 | ) | $ | 0.19 | ||||||
Non-GAAP adjusted earnings per share | ||||||||||||||||
Basic | $ | 0.21 | $ | 0.19 | $ | 0.35 | $ | 0.36 | ||||||||
Diluted | $ | 0.20 | $ | 0.19 | $ | 0.35 | $ | 0.36 | ||||||||
GAAP weighted average shares outstanding | ||||||||||||||||
Basic | 70,475 | 68,475 | 69,494 | 68,471 | ||||||||||||
Diluted | 70,475 | 68,512 | 69,494 | 68,499 | ||||||||||||
Non-GAAP weighted average shares outstanding | ||||||||||||||||
Basic | 70,475 | 68,475 | 69,494 | 68,471 | ||||||||||||
Diluted (j) | 71,315 | 68,512 | 69,641 | 68,499 | ||||||||||||
(a) | Includes immaterial cash dividends paid in the second quarter and the first half of 2019 and 2018 in respect of vested options as a result of dividends declared in connection with our recapitalizations in 2018 and 2016. As of June 29, 2019, we expect to pay an additional $4.2 million in the aggregate on options as they vest in respect of such dividends, of which $3.4 million is expected to be paid in the remainder of fiscal 2019. |
(b) | Represents the write off of debt issuance costs and debt discounts related to the full repayment of the principal outstanding for our second lien term loan (“Second Lien Term Loan”) and the termination of the related agreement (“Second Lien Credit Agreement). See Note 5 to the condensed consolidated financial statements. |
(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) | 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. |
(f) | Represents non-cash changes in reserves related to our IO notes and accounts receivable. |
(g) | Other non-recurring, non-cash or discrete items as determined by management, including personnel-related costs, strategic project costs, legal expenses, transaction related costs and miscellaneous costs. |
(h) | In 2014, affiliates of Hellman & Friedman LLC (“H&F”) acquired approximately 80% of our common stock from Berkshire Partners (the “2014 H&F Acquisition”). The amount here represents the amortization of debt issuance costs and incremental amortization of an asset step-up resulting from purchase price accounting related to the 2014 H&F Acquisition which included trademarks, customer lists and below-market leases. |
(i) | Represents the tax effect of the total adjustments at our quarterly effective tax rate. |
(j) | To calculate the diluted adjusted earnings per share, we adjusted the weighted-average shares outstanding for the dilutive effect of all potential shares of common stock. In a period when we record an adjusted net loss, the diluted adjusted net loss per share is the same as basic adjusted net loss per share because the effects of potentially dilutive items were anti-dilutive given the adjusted net loss position. |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||||||
June 29, 2019 | June 30, 2018 | $ Change | % Change | June 29, 2019 | June 30, 2018 | $ Change | % Change | |||||||||||||||||||||||
Net sales | $ | 645,289 | $ | 575,058 | $ | 70,231 | 12.2 | % | $ | 1,251,560 | $ | 1,125,616 | $ | 125,944 | 11.2 | % |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||||||
June 29, 2019 | June 30, 2018 | $ Change | % Change | June 29, 2019 | June 30, 2018 | $ Change | % Change | |||||||||||||||||||||||
Cost of sales | $ | 446,569 | $ | 399,943 | $ | 46,626 | 11.7 | % | $ | 865,823 | $ | 781,932 | $ | 83,891 | 10.7 | % | ||||||||||||||
% of net sales | 69.2 | % | 69.5 | % | 69.2 | % | 69.5 | % |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||||||
June 29, 2019 | June 30, 2018 | $ Change | % Change | June 29, 2019 | June 30, 2018 | $ Change | % Change | |||||||||||||||||||||||
Gross profit | $ | 198,720 | $ | 175,115 | $ | 23,605 | 13.5 | % | $ | 385,737 | $ | 343,684 | $ | 42,053 | 12.2 | % | ||||||||||||||
Gross margin | 30.8 | % | 30.5 | % | 30.8 | % | 30.5 | % |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||||||
June 29, 2019 | June 30, 2018 | $ Change | % Change | June 29, 2019 | June 30, 2018 | $ Change | % Change | |||||||||||||||||||||||
Selling, general and administrative | $ | 157,641 | $ | 139,743 | $ | 17,898 | 12.8 | % | $ | 310,495 | $ | 276,479 | $ | 34,016 | 12.3 | % | ||||||||||||||
% of net sales | 24.4 | % | 24.3 | % | 24.8 | % | 24.6 | % |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||||||
June 29, 2019 | June 30, 2018 | $ Change | % Change | June 29, 2019 | June 30, 2018 | $ Change | % Change | |||||||||||||||||||||||
Depreciation and amortization | $ | 12,594 | $ | 11,235 | $ | 1,359 | 12.1 | % | $ | 24,890 | $ | 22,413 | $ | 2,477 | 11.1 | % | ||||||||||||||
% of net sales | 2.0 | % | 2.0 | % | 2.0 | % | 2.0 | % |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||||||
June 29, 2019 | June 30, 2018 | $ Change | % Change | June 29, 2019 | June 30, 2018 | $ Change | % Change | |||||||||||||||||||||||
Stock-based compensation | $ | 22,750 | $ | 129 | $ | 22,621 | 17,535.7 | % | $ | 22,961 | $ | 263 | $ | 22,698 | 8,630.4 | % | ||||||||||||||
% of net sales | 3.5 | % | — | % | 1.8 | % | — | % |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||||||
June 29, 2019 | June 30, 2018 | $ Change | % Change | June 29, 2019 | June 30, 2018 | $ Change | % Change | |||||||||||||||||||||||
Interest expense, net | $ | 15,452 | $ | 13,974 | $ | 1,478 | 10.6 | % | $ | 31,890 | $ | 26,886 | $ | 5,004 | 18.6 | % | ||||||||||||||
% of net sales | 2.4 | % | 2.4 | % | 2.5 | % | 2.4 | % |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||
June 29, 2019 | June 30, 2018 | $ Change | % Change | June 29, 2019 | June 30, 2018 | $ Change | % Change | |||||||||||||||||||
Debt extinguishment and modification costs | $ | 5,162 | — | $ | 5,162 | 100% | $ | 5,162 | — | $ | 5,162 | 100% | ||||||||||||||
% of net sales | 0.8 | % | — | % | 0.4 | % | — | % |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||||||
June 29, 2019 | June 30, 2018 | $ Change | % Change | June 29, 2019 | June 30, 2018 | $ Change | % Change | |||||||||||||||||||||||
Income tax (benefit) expense | $ | (4,247 | ) | $ | 2,748 | $ | 6,995 | 254.5 | % | $ | (2,803 | ) | $ | 4,832 | $ | 7,635 | 158.0 | % | ||||||||||||
% of net sales | (0.7 | )% | 0.5 | % | (0.2 | )% | 0.4 | % |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||||||
June 29, 2019 | June 30, 2018 | $ Change | % Change | June 29, 2019 | June 30, 2018 | $ Change | % Change | |||||||||||||||||||||||
Adjusted EBITDA | $ | 45,007 | $ | 39,122 | $ | 5,885 | 15.0 | % | $ | 84,130 | $ | 75,234 | $ | 8,896 | 11.8 | % |
13 Weeks Ended | 26 Weeks Ended | |||||||||||||||||||||||||||||
June 29, 2019 | June 30, 2018 | $ Change | % Change | June 29, 2019 | June 30, 2018 | $ Change | % Change | |||||||||||||||||||||||
Adjusted net income | $ | 14,460 | $ | 12,897 | $ | 1,563 | 12.1 | % | $ | 24,407 | $ | 24,448 | $ | (41 | ) | (0.2 | )% |
26 Weeks Ended | ||||||||||||||
June 29, 2019 | June 30, 2018 | $ Change | % Change | |||||||||||
Net cash provided by operating activities | $ | 39,718 | $ | 55,217 | $ | (15,499 | ) | (28 | )% | |||||
Net cash used in investing activities | (44,523 | ) | (25,501 | ) | (19,022 | ) | (75 | )% | ||||||
Net cash provided by (used in) financing activities | 2,419 | (2,756 | ) | 5,175 | 188 | % | ||||||||
Net increase (decrease) in cash and cash equivalents | $ | (2,386 | ) | $ | 26,960 | $ | (29,346 | ) | (109 | )% | ||||
Payment Due by Fiscal Year End | |||||||||||||||||||
Total | 2019 | 2020 - 2021 | 2022 - 2023 | Thereafter | |||||||||||||||
Lease obligations including interest (1) | $ | 1,190,630 | $ | 46,102 | $ | 186,537 | $ | 185,411 | $ | 772,580 | |||||||||
Principal payments of long-term debt | 475,545 | 90 | 267 | — | 475,188 | ||||||||||||||
Interest on long-term debt (2) | 175,843 | 13,878 | 56,047 | 55,513 | 50,405 | ||||||||||||||
Purchase commitments (3) | 33,206 | 5,000 | 20,000 | 8,206 | — | ||||||||||||||
Total | $ | 1,875,224 | $ | 65,070 | $ | 262,851 | $ | 249,130 | $ | 1,298,173 | |||||||||
(1) | Represents the future minimum lease payments of our operating and finance leases as disclosed in Note 3 to the condensed consolidated financial statements. |
(2) | Represents the expected cash payments for interest on our long-term debt based on the amounts outstanding as of the end of each period and the interest rates applicable on such debt as of June 29, 2019. As described above, we entered into the Incremental Agreement in July 2019 to refinance the term loans outstanding under the First Lien Credit Agreement with a replacement $475.2 million senior secured term loan credit facility and reduced the applicable margin rates on our borrowings. The maturity date remains the same as provided under the First Lien Credit Agreement. The interest amounts in this table do not reflect the decrease in margin rates related to the Incremental Agreement as it was not in effect as of June 29, 2019. |
(3) | Represents our purchase commitment for fresh meat with our primary fresh meat vendor. |
Exhibit Number | Description | |
3.1 | ||
3.2 | ||
4.1 | ||
4.2 | ||
10.1 | ||
10.2† | ||
10.3† | ||
10.4† | ||
10.5† | ||
10.6† | ||
10.7 | ||
31.1* | ||
31.2* | ||
32.1** | ||
32.2** | ||
101.INS | XBRL Instant Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Extension Calculation Linkbase Document | |
101.DEF | XBRL Extension Definition Linkbase Document | |
101.LAB | XBRL Extension Labels Linkbase Document | |
101.PRE | XBRL Extension Presentation Linkbase Document |
† | Management contract or compensatory plan or arrangement. |
* | Filed herewith. |
** | Furnished herewith. The certifications attached as Exhibit 32.1 and 32.2 that accompany this Quarterly Report on Form 10-Q are deemed furnished and not filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Grocery Outlet Holding Corp. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Quarterly Report on Form 10-Q, irrespective of any general incorporation language contained in such filing. |
Grocery Outlet Holding Corp. | ||||
Date: | August 13, 2019 | By: | /s/ Charles Bracher | |
Charles Bracher Chief Financial Officer (Principal Financial Officer) | ||||
Date: | August 13, 2019 | By: | /s/ Lindsay Gray | |
Lindsay Gray Vice President Corporate Controller (Principal Accounting Officer) |
1. | I have reviewed this quarterly report on Form 10-Q of Grocery Outlet Holding Corp.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
c. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | August 13, 2019 | By: | /s/ Eric J. Lindberg, Jr. | ||
Eric J. Lindberg, Jr. | |||||
Chief Executive Officer | |||||
(Principal Executive Officer) |
1. | I have reviewed this quarterly report on Form 10-Q of Grocery Outlet Holding Corp.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
c. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: | August 13, 2019 | By: | /s/ Charles Bracher | ||
Charles Bracher | |||||
Chief Financial Officer | |||||
(Principal Financial Officer) |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | August 13, 2019 | By: | /s/ Eric J. Lindberg, Jr. | ||
Eric J. Lindberg, Jr. | |||||
Chief Executive Officer | |||||
(Principal Executive Officer) |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: | August 13, 2019 | By: | /s/ Charles Bracher | ||
Charles Bracher | |||||
Chief Financial Officer | |||||
(Principal Financial Officer) |
Cover Page - shares |
6 Months Ended | |
---|---|---|
Jun. 29, 2019 |
Aug. 06, 2019 |
|
Cover page. | ||
Entity Registrant Name | Grocery Outlet Holding Corp. | |
Entity Central Index Key | 0001771515 | |
Current Fiscal Year End Date | --12-28 | |
Entity Current Reporting Status | No | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Jun. 29, 2019 | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q2 | |
Amendment Flag | false | |
Entity Emerging Growth Company | false | |
Entity Small Business | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 88,355,118 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 29, 2019 |
Jun. 30, 2018 |
Jun. 29, 2019 |
Jun. 30, 2018 |
|
Statement of Comprehensive Income [Abstract] | ||||
Net sales | $ 645,289 | $ 575,058 | $ 1,251,560 | $ 1,125,616 |
Cost of sales | 446,569 | 399,943 | 865,823 | 781,932 |
Gross profit | 198,720 | 175,115 | 385,737 | 343,684 |
Operating expenses: | ||||
Selling, general and administrative | 157,641 | 139,743 | 310,495 | 276,479 |
Depreciation and amortization | 12,594 | 11,235 | 24,890 | 22,413 |
Stock-based compensation | 22,750 | 129 | 22,961 | 263 |
Total operating expenses | 192,985 | 151,107 | 358,346 | 299,155 |
Income from operations | 5,735 | 24,008 | 27,391 | 44,529 |
Other expense: | ||||
Interest expense, net | 15,452 | 13,974 | 31,890 | 26,886 |
Debt extinguishment and modification costs | 5,162 | 0 | 5,162 | 0 |
Total other expense | 20,614 | 13,974 | 37,052 | 26,886 |
Income (loss) before income taxes | (14,879) | 10,034 | (9,661) | 17,643 |
Income tax expense (benefit) | (4,247) | 2,748 | (2,803) | 4,832 |
Net income (loss) | (10,632) | 7,286 | (6,858) | 12,811 |
Comprehensive income (loss) | $ (10,632) | $ 7,286 | $ (6,858) | $ 12,811 |
Basic earnings (net loss) per share (in usd per share) | $ (0.15) | $ 0.11 | $ (0.10) | $ 0.19 |
Diluted earnings (net loss) per share (in usd per share) | $ (0.15) | $ 0.11 | $ (0.10) | $ 0.19 |
Weighted average shares outstanding: | ||||
Basic (in shares) | 70,475 | 68,475 | 69,494 | 68,471 |
Diluted (in shares) | 70,475 | 68,512 | 69,494 | 68,499 |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization and Summary of Significant Accounting Policies | ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business — Based in Emeryville, California, and incorporated in Delaware in 2014, Grocery Outlet Holding Corp. (together with our wholly owned subsidiaries, collectively, “Grocery Outlet,” “we,” or the “Company”) is a high-growth, extreme value retailer of quality, name-brand consumables and fresh products sold through a network of independently operated stores. As of June 29, 2019, Grocery Outlet had 330 stores in California, Washington, Oregon, Pennsylvania, Idaho and Nevada. Initial Public Offering — In June 2019, we completed an initial public offering (“IPO”) of 19,765,625 shares of our common stock at a public offering price of $22.00 per share for net proceeds of $407.7 million, after deducting underwriting discounts and commissions of $27.1 million. We also incurred estimated offering costs payable by us of $7.2 million of which a total of $5.1 million had been paid as of June 29, 2019. We expect to pay out the remainder of these estimated offering costs in the third fiscal quarter ending September 28, 2019. The shares of common stock sold in the IPO and the net proceeds from the IPO included the full exercise of the underwriters’ option to purchase additional shares. Our Amended and Restated Certificate of Incorporation (the “Charter”) became effective in connection with the completion of the IPO on June 24, 2019. The Charter, among other things, provided that all of our outstanding shares of nonvoting common stock were automatically converted into shares of voting common stock on a one-for-one basis and that our authorized capital stock consisted of 500,000,000 shares of common stock, and 50,000,000 shares of preferred stock, par value $0.001 per share. Our bylaws were also amended and restated as of June 24, 2019. Additionally, upon the closing of the IPO, we redeemed all of our outstanding preferred stock for an aggregate of $1.00. On June 24, 2019, we used the net proceeds from the IPO to repay $150.0 million in principal on the outstanding term loans under our second lien credit agreement, dated as of October 22, 2018 (as amended, the “Second Lien Credit Agreement”), as well as accrued and unpaid interest as of that date of $3.6 million, and terminated the Second Lien Credit Agreement. In addition, using the remainder of net proceeds, together with excess cash on hand, we prepaid a portion of our outstanding first lien term loan totaling $248.0 million plus accrued interest of $3.8 million. Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. Accordingly, certain information and note disclosures included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted. The condensed consolidated balance sheet as of December 29, 2018 has been derived from our audited consolidated financial statements, which are included in the prospectus dated June 19, 2019, as filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on June 20, 2019 (File No. 333-231428) (the “Prospectus”). The accompanying condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes included in the Prospectus. Our unaudited condensed consolidated financial statements include the accounts of Grocery Outlet Holding Corp. and its wholly owned subsidiaries. All intercompany balances and transactions were eliminated. In the opinion of management, these condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The interim results of operations and cash flows are not necessarily indicative of those results and cash flows expected for any future annual or interim period. Forward Stock Split — On June 6, 2019, we effected a 1.403 for 1 forward stock split. All share amounts have been adjusted retroactively for the impact of this forward stock split. Use of Estimates — The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results can differ from these estimates depending upon certain risks and uncertainties, and changes in these estimates are recorded when known. Merchandise Inventories — Merchandise inventories are valued at the lower of cost or net realizable value. Cost is determined by the first-in, first-out weighted-average cost method for warehouse inventories and the retail inventory method for store inventories. We provide for estimated inventory losses between physical inventory counts based on historical averages. This provision is adjusted periodically to reflect the actual shrink results of the physical inventory counts. Leases — We adopted Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), and all subsequent amendments, effective December 30, 2018 using the modified retrospective approach under which we recorded the cumulative effect of transition as of the effective date and did not restate comparative periods. Under this transition method we determine if an arrangement is a lease at inception. Operating leases are included in right-of-use (“ROU”) assets, current lease liability, and lease liability on the condensed consolidated balance sheets. Finance leases are included in other assets, current lease liability, and lease liability on our condensed consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease over the same term. ROU assets and liabilities are recognized at commencement date based on the present value of the lease payments over the lease term, reduced by landlord incentives. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate, which is estimated to approximate the interest rate on a collateralized basis with similar terms and payments based on the information available at the commencement date to determine the present value of our lease payments. The ROU asset also excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Amortization of the ROU asset, interest expense on the lease liability and operating and financing cash flows for finance leases is immaterial. We have lease agreements with retail facilities for store locations, distribution centers, office space and equipment with lease and non-lease components, which are accounted for separately. Leases with an initial term of 12 months or less are not recorded on the balance sheet; lease expense for these leases is recognized on a straight-line basis over the lease term. The short-term lease expense is reflective of the short-term lease commitments on a go forward basis. We sublease certain real estate to unrelated third parties under non-cancelable leases and the sublease portfolio consists of operating leases for retail stores. Segment Reporting — We manage our business on the basis of one reportable and operating segment. All of our sales were made to customers located in the United States and all property and equipment is located in the United States. Fair Value Measurements — The fair value of financial instruments is categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is measured using inputs from the three levels of the fair value hierarchy, which are described as follows: Level 1 — Quoted prices in active markets for identical assets or liabilities Level 2 — Quoted prices for similar assets and liabilities in active markets or inputs that are observable Level 3 — Unobservable inputs in which there is little or no market data, which requires us to develop our own assumptions when pricing the financial instruments. For example, cash flow modeling inputs based on management’s assumptions. The assets’ or liabilities’ fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The following table sets forth the fair value of our financial liabilities by level within the fair value hierarchy (in thousands):
Cash and cash equivalents, IO receivables, other accounts receivable and accounts payable — The carrying value of such financial instruments approximates their fair value due to factors such as the short-term nature or their variable interest rates. Independent operator notes (net) — The carrying value of such financial instruments approximates their fair value. Revenue Recognition Net Sales — We recognize revenue from the sale of products at the point of sale, net of any taxes or deposits collected and remitted to governmental authorities. Our performance obligations are satisfied upon the transfer of goods to the customer, at the point of sale, and payment from customers is also due at the time of sale. Discounts provided to customers by us are recognized at the time of sale as a reduction in sales as the products are sold. Discounts provided by independent operators are not recognized as a reduction in sales as these are provided solely by the independent operator who bears the incidental costs arising from the discount. We do not accept manufacturer coupons. We do not have any material contract assets or receivables from contracts with customers, any revenue recognized in the current year from performance obligations satisfied in previous periods, any performance obligations, or any material costs to obtain or fulfill a contract as of June 29, 2019 and December 29, 2018. Gift Cards — We record a deferred revenue liability when a Grocery Outlet gift card is sold. Revenue related to gift cards is recognized as the gift cards are redeemed, which is when we have satisfied our performance obligation. While gift cards are generally redeemed within 12 months, some are never fully redeemed. We reduce the liability and recognize revenue for the unused portion of the gift cards (“breakage”) under the proportional method, where recognition of breakage income is based upon the historical run-off rate of unredeemed gift cards. Our gift card deferred revenue liability was $1.3 million as of June 29, 2019 and $1.7 million as of December 29, 2018. Breakage amounts were immaterial for the 13 and 26 weeks ended June 29, 2019 and June 30, 2018. Disaggregated Revenues — The following table presents sales revenue by type of product for the periods indicated (in thousands):
Variable Interest Entities — In accordance with the variable interest entities sub-section of ASC Topic 810, Consolidation, we assess at each reporting period whether we, or any consolidated entity, are considered the primary beneficiary of a variable interest entity (“VIE”) and therefore required to consolidate it. Determining whether to consolidate a VIE may require judgment in assessing (i) whether an entity is a VIE, and (ii) if a reporting entity is a VIE’s primary beneficiary. A reporting entity is determined to be a VIE’s primary beneficiary if it has the power to direct the activities that most significantly impact a VIE’s economic performance and the obligation to absorb losses or rights to receive benefits that could potentially be significant to a VIE. We had 324, 308 and 292 stores operated by independent operators as of June 29, 2019, December 29, 2018 and June 30, 2018, respectively. We had agreements in place with each independent operator. The independent operator orders its merchandise exclusively from us which is provided to the independent operator on consignment. Under the independent operator agreement, the independent operator may select a majority of merchandise that we consign to the independent operator, which the independent operator chooses from our merchandise order guide according to the independent operator’s knowledge and experience with local customer purchasing trends, preferences, historical sales and similar factors. The independent operator agreement gives the independent operator discretion to adjust our initial prices if the overall effect of all price changes at any time comports with the reputation of our Grocery Outlet retail stores for selling quality, name-brand consumables and fresh products and other merchandise at extreme discounts. Independent operators are required to furnish initial working capital and to acquire certain store and safety assets. The independent operator is required to hire, train and employ a properly trained workforce sufficient in number to enable the independent operator to fulfill its obligations under the independent operator agreement. The independent operator is responsible for expenses required for business operations, including all labor costs, utilities, credit card processing fees, supplies, taxes, fines, levies and other expenses. Either party may terminate the independent operator agreement without cause upon 75 days’ notice. As consignor of all merchandise to each independent operator, the aggregate net sales proceeds from merchandise sales belongs to us. Sales related to independent operator stores were $629.7 million and $557.1 million for the 13 weeks ended June 29, 2019 and June 30, 2018, respectively, and $1,219.0 million and $1,089.8 million for the 26 weeks ended June 29, 2019 and June 30, 2018, respectively. We, in turn, pay independent operators a commission based on a share of the gross profit of the store. Inventories and related sales proceeds are our property, and we are responsible for store rent and related occupancy costs. Independent operator commissions were expensed and included in selling, general and administrative expenses. Independent operator commissions were $95.8 million and $85.4 million for the 13 weeks ended June 29, 2019 and June 30, 2018, respectively, and $187.0 million and $168.1 million for the 26 weeks ended June 29, 2019 and June 30, 2018, respectively. Independent operator commissions of $1.8 million and $3.9 million were included in accrued expenses as of June 29, 2019 and December 29, 2018, respectively. Independent operators may fund their initial store investment from existing capital, a third-party loan or most commonly through a loan from us, as further discussed in Note 2. To ensure independent operator performance, the operator agreements grant us the security interests in the assets owned by the independent operator. The total investment at risk associated with each independent operator is not sufficient to permit each independent operator to finance its activities without additional subordinated financial support and, as a result, the independent operators are VIEs which we have variable interests in. To determine if we are the primary beneficiary of these VIEs, we evaluate whether we have (i) the power to direct the activities that most significantly impact the independent operator’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits of the independent operator that could potentially be significant to the independent operator. Our evaluation includes identification of significant activities and an assessment of its ability to direct those activities. Activities that most significantly impact the independent operator economic performance relate to sales and labor. Sales activities that significantly impact the independent operators’ economic performance include determining what merchandise the independent operator will order and sell and the price of such merchandise, both of which the independent operator controls. The independent operator is also responsible for all of their own labor. Labor activities that significantly impact the independent operator’s economic performance include hiring, training, supervising, directing, compensating (including wages, salaries and employee benefits) and terminating all of the employees of the independent operator, activities which the independent operator controls. Accordingly, the independent operator has the power to direct the activities that most significantly impact the independent operator’s economic performance. Furthermore, the mutual termination rights associated with the operator agreements do not give the Company power over the independent operator. Our maximum exposure to the independent operators is generally limited to the gross receivable due from these entities, which was $33.1 million and $27.8 million as of June 29, 2019 and December 29, 2018, respectively. See Note 2 for additional information. Recently Issued Accounting Standards In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13, which was further updated and clarified by the FASB through issuance of additional related ASUs, amends the guidance surrounding measurement and recognition of credit losses on financial assets measured at amortized cost, including trade receivables and debt securities, by requiring recognition of an allowance for credit losses expected to be incurred over an asset’s lifetime based on relevant information about past events, current conditions, and supportable forecasts impacting its ultimate collectability. This “expected loss” model will result in earlier recognition of credit losses than the current “as incurred” model, under which losses are recognized only upon an occurrence of an event that gives rise to the incurrence of a probable loss. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and is to be adopted on a modified retrospective basis. We will adopt ASU 2016-13 beginning in the first quarter of fiscal 2020 and are currently evaluating the impact on our consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective retrospectively for fiscal years and interim periods within those years beginning after December 15, 2019. We will adopt ASU 2018-15 beginning in the first quarter of fiscal 2020. We do not expect the adoption of ASU 2018-15 to have a material effect on our consolidated financial statements. Recently Adopted Accounting Standards We adopted ASU 2016-02, Leases (Topic 842), on December 30, 2018, using the modified retrospective approach with the cumulative effect of transition. The modified retrospective approach provides a method for recording existing leases at adoption with the comparative reporting periods being presented in accordance with ASU No. 2018-11, Leases (Topic 840). We elected a number of the practical expedients permitted under the transition guidance within the new standard. This included the election to apply the practical expedient package upon transition, which comprised the following:
In addition, we elected the practical expedient related to short-term leases, which allows us not to recognize a ROU asset and lease liability for leases with an initial expected term of 12 months or less. Adoption of the new standard resulted in the recordation of additional lease assets of $646.0 million and lease liabilities of $709.0 million on the consolidated balance sheets as of December 30, 2018, which includes the reclassification of amounts presented in comparative periods as deferred rent as a reduction to the ROU assets. The adoption of the new standard did not result in a material cumulative-effect adjustment to the opening balance of retained earnings. The standard did not materially impact the consolidated statement of operations and other comprehensive income (loss) or the consolidated statement of cash flows. See Note 3 for further discussion on the adoption of ASU 2016-02. |
INDEPENDENT OPERATOR NOTES AND RECEIVABLES |
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Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INDEPENDENT OPERATOR NOTES AND RECEIVABLES | INDEPENDENT OPERATOR NOTES AND RECEIVABLES The amounts included in independent operator notes and accounts receivable consist primarily of funds we loaned to independent operators, net of estimated uncollectible amounts. Independent operator notes are payable on demand and, where applicable, typically bear interest at a rate of 9.95%. Independent operator notes and receivables are also subjected to estimations of collectability based on an evaluation of overall credit quality, the estimated value of the underlying collateral and historical collections experience, including the fact that, typically, independent operators pay third-party operations-related payables prior to paying down their note with us. While estimates are required in making this determination, we believe the independent operator notes and receivables balances, net of allowances, represent what we expect to collect from independent operators. Amounts due from independent operators and the related allowances and accruals for estimated losses as of June 29, 2019 and December 29, 2018 consisted of the following (in thousands):
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LEASES |
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Leases [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LEASES, OPERATING | LEASES We generally lease retail facilities for store locations, distribution centers, office space and equipment and account for these leases as operating leases. We account for one retail store lease and certain equipment leases as finance leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet; lease expense for these leases is recognized on a straight-line basis over the lease term. We account for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the non-lease components (e.g., common-area maintenance costs). Leases for 16 of our store locations and one warehouse location are controlled by related parties. As of June 29, 2019, the ROU asset and lease liability related to these properties was $45.6 million and $49.9 million, respectively. As of June 29, 2019, we had executed leases for 33 store locations that we had not yet taken possession of with total undiscounted future lease payments of $196.5 million over approximately 15 years. Our lease terms may include options to extend the lease when we are reasonably certain that we will exercise such options. Based upon our initial investment in store leasehold improvements, we utilize an initial reasonably certain lease life of 15 years. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 5 years or more. Our leases do not include any material residual value guarantees or material restrictive covenants. We also have non-cancelable subleases with unrelated third parties with future minimum rental receipts as of June 29, 2019 totaling $2.6 million ending in various years through 2024, and as of December 29, 2018 totaling $3.6 million ending in various years through 2023, which have not been deducted from the future minimum payments. The balance sheet classification of our right-of-use assets and lease liabilities as of June 29, 2019 was as follows (in thousands):
The components of lease expense for the 13 and 26 weeks ended June 29, 2019 were as follows (in thousands):
Short-term lease expense and variable lease payments recorded in operating expenses were immaterial for the 13 and 26 weeks ended June 29, 2019. Rental expense for all operating leases for fiscal years ended December 29, 2018, December 30, 2017 and December 31, 2016 (under ASC 840) was as follows (in thousands):
The undiscounted future lease payments under the lease liability as of June 29, 2019 were as follows (in thousands):
The undiscounted future lease payments under the lease liability as of December 29, 2018 (under ASC 840) were as follows (in thousands):
The weighted-average lease term and discount rate as of June 29, 2019 were as follows:
Supplemental cash flow information for the 26 weeks ended June 29, 2019 related to leases was as follows (in thousands):
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LEASES, FINANCE | LEASES We generally lease retail facilities for store locations, distribution centers, office space and equipment and account for these leases as operating leases. We account for one retail store lease and certain equipment leases as finance leases. Leases with an initial term of 12 months or less are not recorded on the balance sheet; lease expense for these leases is recognized on a straight-line basis over the lease term. We account for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the non-lease components (e.g., common-area maintenance costs). Leases for 16 of our store locations and one warehouse location are controlled by related parties. As of June 29, 2019, the ROU asset and lease liability related to these properties was $45.6 million and $49.9 million, respectively. As of June 29, 2019, we had executed leases for 33 store locations that we had not yet taken possession of with total undiscounted future lease payments of $196.5 million over approximately 15 years. Our lease terms may include options to extend the lease when we are reasonably certain that we will exercise such options. Based upon our initial investment in store leasehold improvements, we utilize an initial reasonably certain lease life of 15 years. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 5 years or more. Our leases do not include any material residual value guarantees or material restrictive covenants. We also have non-cancelable subleases with unrelated third parties with future minimum rental receipts as of June 29, 2019 totaling $2.6 million ending in various years through 2024, and as of December 29, 2018 totaling $3.6 million ending in various years through 2023, which have not been deducted from the future minimum payments. The balance sheet classification of our right-of-use assets and lease liabilities as of June 29, 2019 was as follows (in thousands):
The components of lease expense for the 13 and 26 weeks ended June 29, 2019 were as follows (in thousands):
Short-term lease expense and variable lease payments recorded in operating expenses were immaterial for the 13 and 26 weeks ended June 29, 2019. Rental expense for all operating leases for fiscal years ended December 29, 2018, December 30, 2017 and December 31, 2016 (under ASC 840) was as follows (in thousands):
The undiscounted future lease payments under the lease liability as of June 29, 2019 were as follows (in thousands):
The undiscounted future lease payments under the lease liability as of December 29, 2018 (under ASC 840) were as follows (in thousands):
The weighted-average lease term and discount rate as of June 29, 2019 were as follows:
Supplemental cash flow information for the 26 weeks ended June 29, 2019 related to leases was as follows (in thousands):
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GOODWILL AND INTANGIBLE ASSETS |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND INTANGIBLE ASSETS | GOODWILL AND INTANGIBLE ASSETS Information regarding our goodwill and intangible assets as of June 29, 2019 was as follows (in thousands):
Information regarding our goodwill and intangible assets as of December 29, 2018 was as follows (in thousands):
Amortization expense on finite-lived intangible assets was $2.3 million and $2.5 million for the 13 weeks ended June 29, 2019 and June 30, 2018, respectively, and $5.1 million and $4.9 million for the 26 weeks ended June 29, 2019 and June 30, 2018, respectively. Liquor license assets have been classified as indefinite-lived intangible assets and accordingly, are not subject to amortization. We had no impairments of goodwill or intangible assets recorded in the 26 weeks ended June 29, 2019 and June 30, 2018. The estimated future amortization expense related to finite-lived intangible assets at June 29, 2019 was as follows (in thousands):
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LONG-TERM DEBT |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-Term Debt | Long-Term Debt Long-term debt consisted of the following (in thousands):
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First Lien Credit Agreement On October 22, 2018, GOBP Holdings, Inc (“GOBP Holdings”), our wholly owned subsidiary, together with another of our wholly owned subsidiary, entered into a first lien credit agreement (the “First Lien Credit Agreement”) with a syndicate of lenders for a $725.0 million senior term loan and a revolving credit facility for an amount up to $100.0 million, with a sub-commitment for a $35.0 million letter of credit and a sub-commitment for $20.0 million of swingline loans. Borrowings under the First Lien Credit Agreement is secured by substantially all the assets of the borrower subsidiary and its guarantors. The term loan proceeds were primarily used for retiring the prior first lien credit agreement and paying the dividends related to our 2018 recapitalization. As of June 29, 2019, we had standby letters of credit outstanding totaling $3.6 million under the First Lien Credit Agreement. Starting April 1, 2019, a minimum interest payment of $1.8 million is payable quarterly with the remainder due on the maturity date. We are required to pay a quarterly commitment fee ranging from 0.25% to 0.50% on the daily unused amount of the commitment under the revolving credit facility based upon the leverage ratio defined in the agreement and certain criteria specified in the agreement. We are also required to pay fronting fees and other customary fees for letters of credit issued under the revolving credit facility. The First Lien Credit Agreement permits voluntarily prepayment on borrowings without premium or penalty. In connection with the closing of our IPO, we prepaid $248.0 million of principal and $3.8 million of interest on June 24, 2019 and elected to apply the prepayment against the remaining principal installments in the direct order of maturity. No further principal payment on the term loan will be due until the maturity date of this term loan. The terms of the First Lien Credit Agreement include mandatory prepayment requirements on the term loan if certain conditions are met (as described in the First Lien Credit Agreement). On July 23, 2019, GOBP Holdings together with another of our wholly owned subsidiary entered into an incremental agreement (the “Incremental Agreement”) to amend the First Lien Credit Agreement. The Incremental Agreement refinanced the term loan outstanding under the First Lien Credit Agreement with a replacement $475.2 million senior secured term loan credit facility with an applicable margin of 3.50% or 3.25% for eurodollar loans and 2.50% or 2.25% for base rate loans, in each case depending on the public corporate family rating of GOBP Holdings. This new term loan matures on October 22, 2025, which is the same maturity date as provided under our First Lien Credit Agreement. Second Lien Credit Agreement On October 22, 2018, a wholly owned subsidiary of the Company entered into a second lien credit agreement with a syndicate of lenders for a $150.0 million senior term loan. The proceeds were primarily used for retiring the prior second lien credit agreement and paying the dividends related to our 2018 recapitalization. The term loan under the Second Lien Credit Agreement did not require minimum quarterly principal payment. The Second Lien Credit Agreement did require mandatory prepayment if certain conditions were met and permitted voluntarily prepayment on borrowings without premium or penalty. On June 24, 2019, we terminated the Second Lien Credit Agreement and repaid in full the outstanding principal balance of $150.0 million and accrued interest of $3.6 million. Accordingly, we wrote off the remaining debt issuance costs of $3.8 million and loan discounts of $1.4 million on June 24, 2019. Debt Covenant The First Lien and Second Lien Credit Agreements contain certain customary representations and warranties, subject to limitations and exceptions, and affirmative and customary covenants. The First Lien and Second Lien Credit Agreements have the ability to restrict us from entering into certain types of transactions and making certain types of payments including dividends and stock repurchase and other similar distributions, with certain exceptions. Additionally, the revolving credit facility under our First Lien Credit Agreement is subject to a first lien secured leverage ratio of 7.00 to 1:00, tested quarterly if, and only if, the aggregate principal amount from the revolving facility, letters of credit (to the extent not cash collateralized or backstopped or, in the aggregate, not in excess of the greater of $10.0 million and the stated face amount of letters of credit outstanding on the closing date) and swingline loans outstanding and/or issued, as applicable, 35% of the total amount of the revolving credit facility commitments. As of June 29, 2019, we were not subject to the first lien secured leverage ratio testing requirement. Additionally, we were in compliance with all applicable covenant requirements as of June 29, 2019 for our First Lien Credit Agreement and as of June 24, 2019, the agreement termination date, for our Second Lien Credit Agreement. Schedule of Principal Maturities Principal maturities of our debt as of June 29, 2019 were as follows (in thousands):
Interest Expense Interest expense, net, consisted of the following (in thousands):
Debt Extinguishment and Modification Costs Debt extinguishment and modification costs consisted of following (in thousands):
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STOCKHOLDERS’ EQUITY |
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Share-based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
STOCKHOLDERS’ EQUITY | STOCKHOLDERS’ EQUITY Equity Incentive Plans Our 2014 Stock Incentive Plan (the “2014 Plan”) became effective on October 21, 2014. Under the 2014 Plan, we granted stock options and restricted stock units (“RSUs”) to purchase shares of our common stock. Effective as of June 19, 2019, we terminated the 2014 Plan and no further equity awards may be issued under the 2014 Plan. Any outstanding awards granted under the 2014 Plan will remain subject to the terms of the 2014 Plan and the applicable equity award agreements. On June 4, 2019, our board of directors and stockholders approved the 2019 Incentive Plan (the “2019 Plan”). An aggregate of 4,597,862 shares of common stock were reserved for issuance under the 2019 Plan. In addition, on the first day of each fiscal year beginning in 2020 and ending in 2029, the 2019 Plan provides for an annual automatic increase of the shares reserved for issuance in an amount equal to the positive difference between (i) 4% of the outstanding common stock on the last day of the immediately preceding fiscal year and (ii) the plan share reserve on the last day of the immediately preceding fiscal year, or a lesser number as determined by our board of directors. Fair Value Determination The fair value of option and RSU awards is determined as of the grant date. For time-based options, a Black-Scholes valuation model is utilized. For performance-based options, a Monte Carlo simulation approach implemented in a risk-neutral framework is utilized. For RSUs, the current stock price estimate was utilized prior to the IPO. Following the pricing of the IPO, the stock price based on the market closing price on the date of grant has been utilized to determine the fair value of the awards. The respective models resulted in a weighted-average fair value for time-based and performance-based options and RSUs granted as of June 29, 2019 were as follows:
The fair values of time-based options were estimated as of the grant date using the Black-Scholes valuation model with the following assumptions:
The valuation models require the input of highly subjective assumptions. Expected volatility of the options is based on companies of similar growth and maturity and our peer group in the industry in which we do business because we do not have sufficient historical volatility data for our own shares. The expected term of the options represents the period of time that options granted were expected to be outstanding. The risk-free rate was based on the U.S. treasury zero-coupon issues, with a remaining term equal to the expected term of the options used in the respective valuation model. In the future, our expected volatility and expected term may change, which could change the grant-date fair value of future awards and, ultimately, the expense we record. Grant Activity The following table summarizes our stock option activity under all equity incentive plans during the 26 weeks ended June 29, 2019:
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The following table summarizes our RSU activity under all equity incentive plans during the 26 weeks ended June 29, 2019:
On June 4, 2019, our board of directors approved the grant of 1,364,348 options with an exercise price equal to the IPO price and 161,221 RSUs under our 2019 Plan. These grants were effective on the pricing of the IPO, with respect to options, and upon the effectiveness of our Registration Statement on Form S-8, with respect to RSUs. Our IPO price was $22.00 per share of common stock. Stock-Based Compensation We recognize compensation expense on options and RSUs by amortizing the grant date fair value over the expected vesting period to the extent we determine the vesting of the grant is probable. Time-Based Options We did not record compensation expense for time-based options held by employees granted prior to our IPO because involuntary termination, change in control or initial public offering were not deemed probable. These time-based options were subject to a post-termination repurchase right by us until the aforementioned contingent events occurred. As a result, other than in limited circumstances, stock issued upon the exercise of these options could be repurchased at our discretion. This repurchase feature resulted in deferred stock-based compensation expenses on these options. Accordingly, upon the completion of our IPO, we began recognizing stock-based compensation expense related to these outstanding time-based options as the contingent event had occurred and the repurchase feature had lapsed. During the 13 and 26 weeks ended June 29, 2019, we recognized stock-based compensation expense totaling $22.5 million for all outstanding time-based options, of which $22.4 million related to those granted prior to the IPO. Unamortized compensation cost was $13.2 million as of June 29, 2019, which is expected to be amortized over a weighted average period of 3.49 years. Performance-Based Options We determined that the ultimate vesting of the 5,843,343 shares of outstanding performance-based options was not probable because the performance target’s achievement was not probable as of June 29, 2019 and, accordingly, did not recognize any expense related to these awards. Unamortized compensation cost was $26.1 million for outstanding performance-based options as of June 29, 2019, which will be amortized over the remaining requisite service period if and when we determine that vesting is probable. Restricted Stock Units We recognized compensation expense for RSUs held by directors and employees of $0.2 million and $0.3 million in the 13 and 26 weeks ended June 29, 2019, respectively, and $0.1 million and $0.2 million in the same periods of 2018. Unamortized compensation expense for the RSUs was $5.3 million as of June 29, 2019, which is expected to be amortized over a weighted average period of 2.00 years. For time-based options and RSUs that were outstanding on the dividend dates of June 23, 2016 and October 22, 2018 and that are expected to vest in fiscal year 2019 and beyond, we intend to make dividend payments as these time-based options and RSUs vest. Pursuant to the 2014 Plan, if we are unable to make those payments, we may instead elect to reduce the per share exercise price of each such option by an amount equal to the dividend amount in lieu of making the applicable option payment. As such, our dividends are not considered declared and payable and are not accrued as a liability in our condensed consolidated balance sheet as of June 29, 2019. We paid an immaterial amount of dividends during the 13 and 26 weeks ended June 29, 2019, which was included in the stock-based compensation expense. |
INCOME TAXES |
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INCOME TAXES | INCOME TAXES Income tax expense (benefit) and effective tax rate for the periods presented were as follows (dollars in thousands):
The effective tax rate is higher than the U.S. statutory tax rate of 21% primarily due to state income taxes and permanently nondeductible expenses. The changes in the effective tax rates for the 13 and 26 weeks ended June 29, 2019 compared to the corresponding periods of 2018 were mainly due to the decrease in forecasted income for 2019, driven primarily by the recognition of stock-based compensation expense in connection with our IPO as discussed in Note 6. As a result, this increased our estimated annual effective tax rate for 2019 and thus the effective tax rates for the 13 and 26 weeks ended June 29, 2019. Our policy is to recognize interest and penalties associated with uncertain tax benefits as part of the income tax provision and include accrued interest and penalties with the related income tax liability on our condensed consolidated balance sheets. To date, we have not recognized any interest and penalties in our condensed consolidated statements of operations, nor have we accrued for or made payments for interest and penalties. We had no unrecognized tax benefits as of June 29, 2019 and December 29, 2018. |
RELATED PARTY TRANSACTIONS |
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Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | RELATED PARTY TRANSACTIONS We leased property from entities affiliated with certain of our non-controlling stockholders for 16 store locations and one warehouse location as of June 29, 2019 and for 19 store locations and one warehouse location as of June 30, 2018. As of June 29, 2019 and June 30, 2018, one independent operator store was operated by family members of one employee. Independent operator commissions for this store totaled $0.3 million for each of the 13 weeks ended June 29, 2019 and June 30, 2018, and $0.6 million for each of the 26 weeks ended June 29, 2019 and June 30, 2018. We offer interest-bearing notes to independent operators and the gross receivable due from these entities was $33.1 million and $27.8 million as of June 29, 2019 and December 29, 2018, respectively. See Note 2 for additional information. |
COMMITMENTS AND CONTINGENCIES |
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Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES We are involved from time to time in claims, proceedings, and litigation arising in the normal course of business. We do not believe the impact of such litigation will have a material adverse effect on our consolidated financial statements taken as a whole. |
EARNINGS PER SHARE |
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EARNINGS PER SHARE | EARNINGS PER SHARE Earnings Per Share Attributable to Common Stockholders A reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share attributable to common stockholders is as follows (dollars and shares in thousands, except per share amounts):
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The following weighted-average common stock equivalents were excluded from the calculation of diluted earnings (net loss) per share because their effect would have been anti-dilutive (in thousands):
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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||
Basis of Presentation | The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the requirements of the U.S. Securities and Exchange Commission (the “SEC”) for interim reporting. Accordingly, certain information and note disclosures included in our annual financial statements prepared in accordance with GAAP have been condensed or omitted. The condensed consolidated balance sheet as of December 29, 2018 has been derived from our audited consolidated financial statements, which are included in the prospectus dated June 19, 2019, as filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on June 20, 2019 (File No. 333-231428) (the “Prospectus”). The accompanying condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes included in the Prospectus. |
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Consolidation | Our unaudited condensed consolidated financial statements include the accounts of Grocery Outlet Holding Corp. and its wholly owned subsidiaries. All intercompany balances and transactions were eliminated. In the opinion of management, these condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. |
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Use of Estimates | The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results can differ from these estimates depending upon certain risks and uncertainties, and changes in these estimates are recorded when known. |
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Merchandise Inventories | Merchandise inventories are valued at the lower of cost or net realizable value. Cost is determined by the first-in, first-out weighted-average cost method for warehouse inventories and the retail inventory method for store inventories. We provide for estimated inventory losses between physical inventory counts based on historical averages. This provision is adjusted periodically to reflect the actual shrink results of the physical inventory counts. |
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Leases | We adopted Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), and all subsequent amendments, effective December 30, 2018 using the modified retrospective approach under which we recorded the cumulative effect of transition as of the effective date and did not restate comparative periods. Under this transition method we determine if an arrangement is a lease at inception. Operating leases are included in right-of-use (“ROU”) assets, current lease liability, and lease liability on the condensed consolidated balance sheets. Finance leases are included in other assets, current lease liability, and lease liability on our condensed consolidated balance sheets. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease over the same term. ROU assets and liabilities are recognized at commencement date based on the present value of the lease payments over the lease term, reduced by landlord incentives. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate, which is estimated to approximate the interest rate on a collateralized basis with similar terms and payments based on the information available at the commencement date to determine the present value of our lease payments. The ROU asset also excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term. Amortization of the ROU asset, interest expense on the lease liability and operating and financing cash flows for finance leases is immaterial. We have lease agreements with retail facilities for store locations, distribution centers, office space and equipment with lease and non-lease components, which are accounted for separately. Leases with an initial term of 12 months or less are not recorded on the balance sheet; lease expense for these leases is recognized on a straight-line basis over the lease term. The short-term lease expense is reflective of the short-term lease commitments on a go forward basis. We sublease certain real estate to unrelated third parties under non-cancelable leases and the sublease portfolio consists of operating leases for retail stores. Leases with an initial term of 12 months or less are not recorded on the balance sheet; lease expense for these leases is recognized on a straight-line basis over the lease term. We account for lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) separately from the non-lease components (e.g., common-area maintenance costs). |
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Segment Reporting | We manage our business on the basis of one reportable and operating segment. All of our sales were made to customers located in the United States and all property and equipment is located in the United States. |
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Fair Value Measurements | The fair value of financial instruments is categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is measured using inputs from the three levels of the fair value hierarchy, which are described as follows: Level 1 — Quoted prices in active markets for identical assets or liabilities Level 2 — Quoted prices for similar assets and liabilities in active markets or inputs that are observable Level 3 — Unobservable inputs in which there is little or no market data, which requires us to develop our own assumptions when pricing the financial instruments. For example, cash flow modeling inputs based on management’s assumptions. The assets’ or liabilities’ fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Cash and cash equivalents, IO receivables, other accounts receivable and accounts payable — The carrying value of such financial instruments approximates their fair value due to factors such as the short-term nature or their variable interest rates. Independent operator notes (net) — The carrying value of such financial instruments approximates their fair value. |
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Revenue Recognition | Net Sales — We recognize revenue from the sale of products at the point of sale, net of any taxes or deposits collected and remitted to governmental authorities. Our performance obligations are satisfied upon the transfer of goods to the customer, at the point of sale, and payment from customers is also due at the time of sale. Discounts provided to customers by us are recognized at the time of sale as a reduction in sales as the products are sold. Discounts provided by independent operators are not recognized as a reduction in sales as these are provided solely by the independent operator who bears the incidental costs arising from the discount. We do not accept manufacturer coupons. We do not have any material contract assets or receivables from contracts with customers, any revenue recognized in the current year from performance obligations satisfied in previous periods, any performance obligations, or any material costs to obtain or fulfill a contract as of June 29, 2019 and December 29, 2018. Gift Cards — We record a deferred revenue liability when a Grocery Outlet gift card is sold. Revenue related to gift cards is recognized as the gift cards are redeemed, which is when we have satisfied our performance obligation. While gift cards are generally redeemed within 12 months, some are never fully redeemed. We reduce the liability and recognize revenue for the unused portion of the gift cards (“breakage”) under the proportional method, where recognition of breakage income is based upon the historical run-off rate of unredeemed gift cards. |
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Variable Interest Entities | In accordance with the variable interest entities sub-section of ASC Topic 810, Consolidation, we assess at each reporting period whether we, or any consolidated entity, are considered the primary beneficiary of a variable interest entity (“VIE”) and therefore required to consolidate it. Determining whether to consolidate a VIE may require judgment in assessing (i) whether an entity is a VIE, and (ii) if a reporting entity is a VIE’s primary beneficiary. A reporting entity is determined to be a VIE’s primary beneficiary if it has the power to direct the activities that most significantly impact a VIE’s economic performance and the obligation to absorb losses or rights to receive benefits that could potentially be significant to a VIE. We had 324, 308 and 292 stores operated by independent operators as of June 29, 2019, December 29, 2018 and June 30, 2018, respectively. We had agreements in place with each independent operator. The independent operator orders its merchandise exclusively from us which is provided to the independent operator on consignment. Under the independent operator agreement, the independent operator may select a majority of merchandise that we consign to the independent operator, which the independent operator chooses from our merchandise order guide according to the independent operator’s knowledge and experience with local customer purchasing trends, preferences, historical sales and similar factors. The independent operator agreement gives the independent operator discretion to adjust our initial prices if the overall effect of all price changes at any time comports with the reputation of our Grocery Outlet retail stores for selling quality, name-brand consumables and fresh products and other merchandise at extreme discounts. Independent operators are required to furnish initial working capital and to acquire certain store and safety assets. The independent operator is required to hire, train and employ a properly trained workforce sufficient in number to enable the independent operator to fulfill its obligations under the independent operator agreement. The independent operator is responsible for expenses required for business operations, including all labor costs, utilities, credit card processing fees, supplies, taxes, fines, levies and other expenses. Either party may terminate the independent operator agreement without cause upon 75 days’ notice. As consignor of all merchandise to each independent operator, the aggregate net sales proceeds from merchandise sales belongs to us. Sales related to independent operator stores were $629.7 million and $557.1 million for the 13 weeks ended June 29, 2019 and June 30, 2018, respectively, and $1,219.0 million and $1,089.8 million for the 26 weeks ended June 29, 2019 and June 30, 2018, respectively. We, in turn, pay independent operators a commission based on a share of the gross profit of the store. Inventories and related sales proceeds are our property, and we are responsible for store rent and related occupancy costs. Independent operator commissions were expensed and included in selling, general and administrative expenses. Independent operator commissions were $95.8 million and $85.4 million for the 13 weeks ended June 29, 2019 and June 30, 2018, respectively, and $187.0 million and $168.1 million for the 26 weeks ended June 29, 2019 and June 30, 2018, respectively. Independent operator commissions of $1.8 million and $3.9 million were included in accrued expenses as of June 29, 2019 and December 29, 2018, respectively. Independent operators may fund their initial store investment from existing capital, a third-party loan or most commonly through a loan from us, as further discussed in Note 2. To ensure independent operator performance, the operator agreements grant us the security interests in the assets owned by the independent operator. The total investment at risk associated with each independent operator is not sufficient to permit each independent operator to finance its activities without additional subordinated financial support and, as a result, the independent operators are VIEs which we have variable interests in. To determine if we are the primary beneficiary of these VIEs, we evaluate whether we have (i) the power to direct the activities that most significantly impact the independent operator’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits of the independent operator that could potentially be significant to the independent operator. Our evaluation includes identification of significant activities and an assessment of its ability to direct those activities. Activities that most significantly impact the independent operator economic performance relate to sales and labor. Sales activities that significantly impact the independent operators’ economic performance include determining what merchandise the independent operator will order and sell and the price of such merchandise, both of which the independent operator controls. The independent operator is also responsible for all of their own labor. Labor activities that significantly impact the independent operator’s economic performance include hiring, training, supervising, directing, compensating (including wages, salaries and employee benefits) and terminating all of the employees of the independent operator, activities which the independent operator controls. Accordingly, the independent operator has the power to direct the activities that most significantly impact the independent operator’s economic performance. Furthermore, the mutual termination rights associated with the operator agreements do not give the Company power over the independent operator. Our maximum exposure to the independent operators is generally limited to the gross receivable due from these entities |
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Recently Issued Accounting Standards and Recently Adopted Accounting Standards | In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13, which was further updated and clarified by the FASB through issuance of additional related ASUs, amends the guidance surrounding measurement and recognition of credit losses on financial assets measured at amortized cost, including trade receivables and debt securities, by requiring recognition of an allowance for credit losses expected to be incurred over an asset’s lifetime based on relevant information about past events, current conditions, and supportable forecasts impacting its ultimate collectability. This “expected loss” model will result in earlier recognition of credit losses than the current “as incurred” model, under which losses are recognized only upon an occurrence of an event that gives rise to the incurrence of a probable loss. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and is to be adopted on a modified retrospective basis. We will adopt ASU 2016-13 beginning in the first quarter of fiscal 2020 and are currently evaluating the impact on our consolidated financial statements. In August 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective retrospectively for fiscal years and interim periods within those years beginning after December 15, 2019. We will adopt ASU 2018-15 beginning in the first quarter of fiscal 2020. We do not expect the adoption of ASU 2018-15 to have a material effect on our consolidated financial statements. We adopted ASU 2016-02, Leases (Topic 842), on December 30, 2018, using the modified retrospective approach with the cumulative effect of transition. The modified retrospective approach provides a method for recording existing leases at adoption with the comparative reporting periods being presented in accordance with ASU No. 2018-11, Leases (Topic 840). We elected a number of the practical expedients permitted under the transition guidance within the new standard. This included the election to apply the practical expedient package upon transition, which comprised the following:
In addition, we elected the practical expedient related to short-term leases, which allows us not to recognize a ROU asset and lease liability for leases with an initial expected term of 12 months or less. Adoption of the new standard resulted in the recordation of additional lease assets of $646.0 million and lease liabilities of $709.0 million on the consolidated balance sheets as of December 30, 2018, which includes the reclassification of amounts presented in comparative periods as deferred rent as a reduction to the ROU assets. The adoption of the new standard did not result in a material cumulative-effect adjustment to the opening balance of retained earnings. The standard did not materially impact the consolidated statement of operations and other comprehensive income (loss) or the consolidated statement of cash flows. |
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Income Taxes | Our policy is to recognize interest and penalties associated with uncertain tax benefits as part of the income tax provision and include accrued interest and penalties with the related income tax liability on our condensed consolidated balance sheets. |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Liabilities | The following table sets forth the fair value of our financial liabilities by level within the fair value hierarchy (in thousands):
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Disaggregated Revenues | The following table presents sales revenue by type of product for the periods indicated (in thousands):
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INDEPENDENT OPERATOR NOTES AND RECEIVABLES (Tables) |
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Jun. 29, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amounts Due From Independent Operators and the Related Allowances and Accruals for Estimated Losses | Amounts due from independent operators and the related allowances and accruals for estimated losses as of June 29, 2019 and December 29, 2018 consisted of the following (in thousands):
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LEASES (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 29, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance Sheet Classification of Right-of-Use Assets and Lease Liabilities | The balance sheet classification of our right-of-use assets and lease liabilities as of June 29, 2019 was as follows (in thousands):
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Components of Lease Expense, Lease Term and Discount Rate, and Other Information | The components of lease expense for the 13 and 26 weeks ended June 29, 2019 were as follows (in thousands):
The weighted-average lease term and discount rate as of June 29, 2019 were as follows:
Supplemental cash flow information for the 26 weeks ended June 29, 2019 related to leases was as follows (in thousands):
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Rental Expense Under ASC 840 | Rental expense for all operating leases for fiscal years ended December 29, 2018, December 30, 2017 and December 31, 2016 (under ASC 840) was as follows (in thousands):
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Maturity of Lease Liabilities, Operating Leases | The undiscounted future lease payments under the lease liability as of June 29, 2019 were as follows (in thousands):
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Maturity of Lease Liabilities, Finance Leases | The undiscounted future lease payments under the lease liability as of June 29, 2019 were as follows (in thousands):
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Undiscounted Future Lease Payments Under Lease Liability (Under ASC 840) | The undiscounted future lease payments under the lease liability as of December 29, 2018 (under ASC 840) were as follows (in thousands):
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GOODWILL AND INTANGIBLE ASSETS (Tables) |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Information Regarding Goodwill and Intangible Assets | Information regarding our goodwill and intangible assets as of June 29, 2019 was as follows (in thousands):
Information regarding our goodwill and intangible assets as of December 29, 2018 was as follows (in thousands):
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Estimated Future Amortization Expense Related to Finite-Lived Intangible Assets | The estimated future amortization expense related to finite-lived intangible assets at June 29, 2019 was as follows (in thousands):
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LONG-TERM DEBT (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt | Long-term debt consisted of the following (in thousands):
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Schedule of Principal Maturities | Principal maturities of our debt as of June 29, 2019 were as follows (in thousands):
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Interest Expense | Interest expense, net, consisted of the following (in thousands):
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Debt Extinguishment and Modification Costs | Debt extinguishment and modification costs consisted of following (in thousands):
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STOCKHOLDERS’ EQUITY (Tables) |
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Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Weighted-Average Fair Value for Time-Based and Performance-Based Options and RSUs Granted | The respective models resulted in a weighted-average fair value for time-based and performance-based options and RSUs granted as of June 29, 2019 were as follows:
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Assumptions Used to Estimate Fair Values of Time-Based Options | The fair values of time-based options were estimated as of the grant date using the Black-Scholes valuation model with the following assumptions:
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Summary of Stock Option Activity | The following table summarizes our stock option activity under all equity incentive plans during the 26 weeks ended June 29, 2019:
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Summary of RSU Activity | The following table summarizes our RSU activity under all equity incentive plans during the 26 weeks ended June 29, 2019:
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INCOME TAXES (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 29, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Expense (Benefit) and Effective Tax Rate | Income tax expense (benefit) and effective tax rate for the periods presented were as follows (dollars in thousands):
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EARNINGS PER SHARE (Tables) |
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Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share Attributable to Common Stockholders | A reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share attributable to common stockholders is as follows (dollars and shares in thousands, except per share amounts):
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Anti-dilutive Weighted-Average Common Stock Equivalents Excluded from Calculation of Diluted Earnings (Net Loss) Per Share | The following weighted-average common stock equivalents were excluded from the calculation of diluted earnings (net loss) per share because their effect would have been anti-dilutive (in thousands):
|
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Fair Value of Financial Liabilities (Details) - Level 2 - USD ($) $ in Thousands |
Jun. 29, 2019 |
Dec. 29, 2018 |
---|---|---|
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||
Long-term debt, long-term portion | $ 471,777 | $ 845,327 |
Long-term debt, current portion | 0 | 7,250 |
Total financial liabilities | $ 471,777 | $ 852,577 |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Disaggregated Revenues (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 29, 2019 |
Jun. 30, 2018 |
Jun. 29, 2019 |
Jun. 30, 2018 |
|
Disaggregation of Revenue [Line Items] | ||||
Total sales | $ 645,289 | $ 575,058 | $ 1,251,560 | $ 1,125,616 |
Perishable | ||||
Disaggregation of Revenue [Line Items] | ||||
Total sales | 221,473 | 196,658 | 428,429 | 383,346 |
Non-perishable | ||||
Disaggregation of Revenue [Line Items] | ||||
Total sales | $ 423,816 | $ 378,400 | $ 823,131 | $ 742,270 |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Variable Interest Entities (Details) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 29, 2019
USD ($)
store
|
Jun. 30, 2018
USD ($)
store
|
Jun. 29, 2019
USD ($)
store
|
Jun. 30, 2018
USD ($)
store
|
Dec. 29, 2018
USD ($)
store
|
|
Variable Interest Entity [Line Items] | |||||
Total sales | $ 645,289 | $ 575,058 | $ 1,251,560 | $ 1,125,616 | |
Variable Interest Entity, Not Primary Beneficiary | |||||
Variable Interest Entity [Line Items] | |||||
Number of stores operated by independent operators | store | 324 | 292 | 324 | 292 | 308 |
Termination period | 75 days | ||||
Total sales | $ 629,700 | $ 557,100 | $ 1,219,000 | $ 1,089,800 | |
Independent operator commissions | 95,800 | $ 85,400 | 187,000 | $ 168,100 | |
Independent operator commissions included in accrued expenses | 1,800 | 1,800 | $ 3,900 | ||
Maximum exposure to the independent operators | $ 33,100 | $ 33,100 | $ 27,800 |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Recently Adopted Accounting Standards (Details) - USD ($) $ in Thousands |
Jun. 29, 2019 |
Dec. 30, 2018 |
---|---|---|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Lease assets | $ 680,551 | |
Lease liabilities | $ 750,322 | |
ASU 2016-02, Leases (Topic 842) | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Lease assets | $ 646,000 | |
Lease liabilities | $ 709,000 |
INDEPENDENT OPERATOR NOTES AND RECEIVABLES - Narrative (Details) |
Jun. 29, 2019 |
---|---|
Receivables [Abstract] | |
Interest rate | 9.95% |
INDEPENDENT OPERATOR NOTES AND RECEIVABLES - Amounts Due From Independent Operators and the Related Allowances and Accruals for Estimated Losses (Details) - USD ($) $ in Thousands |
Jun. 29, 2019 |
Dec. 29, 2018 |
---|---|---|
Independent operator notes | ||
Gross | $ 27,246 | $ 23,450 |
Allowance: Current portion | (704) | (577) |
Allowance: Long-term portion | (9,356) | (7,926) |
Net | 17,186 | 14,947 |
Current portion | 1,515 | 1,301 |
Long-term portion | 15,671 | 13,646 |
Independent operator receivables | ||
Gross | 5,877 | 4,319 |
Allowance: Current portion | (596) | (564) |
Allowance: Long-term portion | 0 | 0 |
Net | 5,281 | 3,755 |
Current portion | 5,281 | 3,755 |
Long-term portion | 0 | 0 |
Total | ||
Gross | 33,123 | 27,769 |
Allowance: Current portion | (1,300) | (1,141) |
Allowance: Long-term portion | (9,356) | (7,926) |
Net | 22,467 | 18,702 |
Current portion | 6,796 | 5,056 |
Long-term portion | $ 15,671 | $ 13,646 |
LEASES - Balance Sheet Classification of Right-of-Use Assets and Lease Liabilities (Details) $ in Thousands |
Jun. 29, 2019
USD ($)
|
---|---|
Assets: | |
Operating lease assets | $ 676,191 |
Finance lease assets | 4,360 |
Total leased assets | 680,551 |
Current | |
Operating | 35,615 |
Finance | 534 |
Noncurrent | |
Operating | 710,260 |
Finance | 3,913 |
Total lease liabilities | $ 750,322 |
LEASES - Components of Lease Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended |
---|---|---|
Jun. 29, 2019 |
Jun. 29, 2019 |
|
Leases [Abstract] | ||
Operating lease cost | $ 23,663 | $ 46,874 |
Finance lease cost: | ||
Amortization of right-of-use assets | 174 | 347 |
Interest on leased liabilities | 53 | 124 |
Sublease income | (297) | (650) |
Net Lease Cost | $ 23,593 | $ 46,695 |
LEASES - Rental Expense Under ASC 840 (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 29, 2018 |
Dec. 30, 2017 |
Dec. 31, 2016 |
|
Operating Leased Assets [Line Items] | |||
Contingent rentals | $ 548 | $ 531 | $ 619 |
Less rentals from subleases | (1,075) | (1,079) | (1,129) |
Total rent expense | 85,961 | 79,383 | 62,805 |
Third-party lessors | |||
Operating Leased Assets [Line Items] | |||
Rent expense | 79,347 | 72,622 | 56,825 |
Related parties | |||
Operating Leased Assets [Line Items] | |||
Rent expense | $ 7,141 | $ 7,309 | $ 6,490 |
LEASES - Maturity of Lease Liabilities (Details) $ in Thousands |
Jun. 29, 2019
USD ($)
|
---|---|
Operating Leases | |
Remainder of fiscal 2019 | $ 45,686 |
Fiscal 2020 | 92,197 |
Fiscal 2021 | 92,807 |
Fiscal 2022 | 92,156 |
Fiscal 2023 | 91,909 |
Thereafter | 770,151 |
Total lease payments | 1,184,906 |
Less: Interest | (439,031) |
Present value of lease liabilities | 745,875 |
Finance Leases | |
Remainder of fiscal 2019 | 416 |
Fiscal 2020 | 756 |
Fiscal 2021 | 777 |
Fiscal 2022 | 724 |
Fiscal 2023 | 622 |
Thereafter | 2,429 |
Total lease payments | 5,724 |
Less: Interest | (1,277) |
Present value of lease liabilities | 4,447 |
Total | |
Remainder of fiscal 2019 | 46,102 |
Fiscal 2020 | 92,953 |
Fiscal 2021 | 93,584 |
Fiscal 2022 | 92,880 |
Fiscal 2023 | 92,531 |
Thereafter | 772,580 |
Total lease payments | $ 1,190,630 |
LEASES - Undiscounted Future Lease Payments Under Lease Liability (Under ASC 840) (Details) $ in Thousands |
Dec. 29, 2018
USD ($)
|
---|---|
Operating Leased Assets [Line Items] | |
Fiscal 2019 | $ 89,123 |
Fiscal 2020 | 97,739 |
Fiscal 2021 | 99,387 |
Fiscal 2022 | 98,891 |
Fiscal 2023 | 98,365 |
Thereafter | 850,746 |
Total future lease payments | 1,334,251 |
Third Parties | |
Operating Leased Assets [Line Items] | |
Fiscal 2019 | 82,971 |
Fiscal 2020 | 91,538 |
Fiscal 2021 | 93,090 |
Fiscal 2022 | 92,359 |
Fiscal 2023 | 91,955 |
Thereafter | 801,832 |
Total future lease payments | 1,253,745 |
Related Parties | |
Operating Leased Assets [Line Items] | |
Fiscal 2019 | 6,152 |
Fiscal 2020 | 6,201 |
Fiscal 2021 | 6,297 |
Fiscal 2022 | 6,532 |
Fiscal 2023 | 6,410 |
Thereafter | 48,914 |
Total future lease payments | $ 80,506 |
LEASES - Lease Term and Discount Rate (Details) |
Jun. 29, 2019 |
---|---|
Weighted-average remaining lease term (years): | |
Operating leases | 12 years 5 months 23 days |
Finance leases | 8 years 3 months 25 days |
Weighted-average discount rate: | |
Operating leases | 7.73% |
Finance leases | 6.04% |
LEASES - Cash Flow Information (Details) - USD ($) $ in Thousands |
6 Months Ended | |
---|---|---|
Dec. 30, 2018 |
Jun. 29, 2019 |
|
Leases [Abstract] | ||
Operating Lease, Payments | $ 43,015 | |
Right-of-Use Asset Obtained in Exchange for Operating Lease Liability | $ 641,529 | $ 57,020 |
GOODWILL AND INTANGIBLE ASSETS - Narrative (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 29, 2019 |
Jun. 30, 2018 |
Jun. 29, 2019 |
Jun. 30, 2018 |
|
Goodwill and Intangible Assets Disclosure [Abstract] | ||||
Amortization of intangible assets | $ 2,300,000 | $ 2,500,000 | $ 5,069,000 | $ 4,877,000 |
Impairments of goodwill or intangible assets | $ 0 | $ 0 |
GOODWILL AND INTANGIBLE ASSETS - Estimated Future Amortization Expense Related to Finite-Lived Intangible Assets (Details) - USD ($) $ in Thousands |
Jun. 29, 2019 |
Dec. 29, 2018 |
---|---|---|
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Remainder of fiscal 2019 | $ 4,672 | |
Fiscal 2020 | 8,474 | |
Fiscal 2021 | 7,417 | |
Fiscal 2022 | 6,315 | |
Fiscal 2023 | 5,621 | |
Thereafter | 27,090 | |
Net Carrying Amount | $ 59,589 | $ 63,579 |
LONG-TERM DEBT - Schedule of Principal Maturities (Details) $ in Thousands |
Jun. 29, 2019
USD ($)
|
---|---|
Debt Disclosure [Abstract] | |
Remainder of fiscal 2019 | $ 90 |
Fiscal 2020 | 267 |
Fiscal 2021 | 0 |
Fiscal 2022 | 0 |
Fiscal 2023 | 0 |
Thereafter | 475,188 |
Total | $ 475,545 |
LONG-TERM DEBT - Interest Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 29, 2019 |
Jun. 30, 2018 |
Jun. 29, 2019 |
Jun. 30, 2018 |
|
Debt Disclosure [Abstract] | ||||
Interest on term loan debt | $ 15,158 | $ 13,147 | $ 31,256 | $ 25,240 |
Amortization of debt issuance costs | 644 | 1,092 | 1,295 | 2,185 |
Interest on capital leases | 53 | 124 | ||
Interest on capital leases | 29 | 59 | ||
Other | 0 | 0 | 7 | 0 |
Interest income | (403) | (294) | (792) | (598) |
Interest expense, net | $ 15,452 | $ 13,974 | $ 31,890 | $ 26,886 |
LONG-TERM DEBT - Debt Extinguishment and Modification Costs (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 29, 2019 |
Jun. 30, 2018 |
Jun. 29, 2019 |
Jun. 30, 2018 |
|
Debt Disclosure [Abstract] | ||||
Write off of debt issuance costs | $ 3,788 | $ 0 | $ 3,788 | $ 0 |
Write off of loan discounts | 1,374 | 0 | 1,374 | 0 |
Debt extinguishment and modification costs | $ 5,162 | $ 0 | $ 5,162 | $ 0 |
STOCKHOLDERS’ EQUITY - Weighted-Average Fair Value for Time-Based and Performance-Based Options and RSUs Granted (Details) |
6 Months Ended |
---|---|
Jun. 29, 2019
$ / shares
| |
Time-based options | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Weighted-average fair value (usd per share) | $ 7.66 |
Performance-based options | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Weighted-average fair value (usd per share) | 6.80 |
RSUs | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Weighted-average fair value (usd per share) | $ 26.98 |
STOCKHOLDERS’ EQUITY - Assumptions Used to Estimate Fair Values of Time-Based Options (Details) - Time-based Options |
6 Months Ended |
---|---|
Jun. 29, 2019
$ / shares
| |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Exercise price (usd per share) | $ 21.66 |
Volatility | 35.00% |
Risk-free rate | 2.80% |
Dividend yield | 0.00% |
Expected life (in years) | 3 years 2 months 19 days |
STOCKHOLDERS’ EQUITY - Summary of RSU Activity (Details) - RSUs |
6 Months Ended |
---|---|
Jun. 29, 2019
$ / shares
shares
| |
Number of Shares | |
Nonvested - beginning of period (shares) | shares | 80,820 |
Granted (shares) | shares | 192,296 |
Vested / Released (shares) | shares | (42,464) |
Canceled / forfeited (shares) | shares | 0 |
Nonvested - end of period (shares) | shares | 230,652 |
Weighted- Average Grant Date Fair Value | |
Nonvested - beginning of period (usd per share) | $ / shares | $ 8.80 |
Granted (usd per share) | $ / shares | 26.98 |
Vested / Released (usd per share) | $ / shares | 8.36 |
Canceled / forfeited (usd per share) | $ / shares | 0.00 |
Nonvested - end of period | $ / shares | $ 24.04 |
INCOME TAXES - Income Tax Expense (Benefit) and Effective Tax Rate (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 29, 2019 |
Jun. 30, 2018 |
Jun. 29, 2019 |
Jun. 30, 2018 |
|
Income Tax Disclosure [Abstract] | ||||
Income tax expense (benefit) | $ (4,247) | $ 2,748 | $ (2,803) | $ 4,832 |
Effective tax rate | 28.50% | 27.40% | 29.00% | 27.40% |
INCOME TAXES - Narrative (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 29, 2019 |
Jun. 30, 2018 |
Jun. 29, 2019 |
Jun. 30, 2018 |
Dec. 29, 2018 |
|
Income Tax Disclosure [Abstract] | |||||
Interest and penalties recognized | $ 0 | $ 0 | $ 0 | $ 0 | |
Unrecognized tax benefits | $ 0 | $ 0 | $ 0 |
RELATED PARTY TRANSACTIONS (Details) $ in Thousands |
3 Months Ended | 6 Months Ended | ||||||
---|---|---|---|---|---|---|---|---|
Jun. 29, 2019
USD ($)
warehouse
|
Jun. 30, 2018
USD ($)
warehouse
|
Jun. 29, 2019
USD ($)
warehouse
|
Jun. 30, 2018
USD ($)
warehouse
|
Jun. 29, 2019
USD ($)
|
Jun. 29, 2019
store
|
Dec. 29, 2018
USD ($)
|
Jun. 30, 2018
store
|
|
Related Party Transaction [Line Items] | ||||||||
Number of locations | store | 330 | |||||||
Notes and gross receivable due | $ | $ 33,123 | $ 27,769 | ||||||
Entities affiliated with certain non-controlling stockholders | ||||||||
Related Party Transaction [Line Items] | ||||||||
Number of locations | 1 | 1 | 1 | 1 | 16 | 19 | ||
Family member of employee | ||||||||
Related Party Transaction [Line Items] | ||||||||
Number of locations | store | 1 | 1 | ||||||
Independent operator commissions | $ | $ 300 | $ 300 | $ 600 | $ 600 |
EARNINGS PER SHARE - Earnings Per Share Attributable to Common Stockholders (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 6 Months Ended | |||||
---|---|---|---|---|---|---|---|
Jun. 29, 2019 |
Mar. 30, 2019 |
Jun. 30, 2018 |
Mar. 31, 2018 |
Jun. 29, 2019 |
Jun. 30, 2018 |
Dec. 29, 2018 |
|
Numerator | |||||||
Net income (loss) attributable to common stockholders – basic | $ (10,632) | $ 3,774 | $ 7,286 | $ 5,525 | $ (6,858) | $ 12,811 | |
Denominator | |||||||
Weighted-average shares of common stock - basic (in shares) | 70,475,000 | 68,475,000 | 69,494,000 | 68,471,000 | |||
Effect of dilutive RSUs (in shares) | 0 | 37,000 | 0 | 28,000 | |||
Weighted-average shares of common stock - diluted (in shares) | 70,475,000 | 68,512,000 | 69,494,000 | 68,499,000 | |||
Earnings (net loss) per share attributable to common stockholders: | |||||||
Basic (in usd per share) | $ (0.15) | $ 0.11 | $ (0.10) | $ 0.19 | |||
Diluted (in usd per share) | $ (0.15) | $ 0.11 | $ (0.10) | $ 0.19 | |||
Performance-based options | |||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||||||
Shares granted but not yet vested (shares) | 5,843,343 | 5,843,343 | 5,795,330 |
Label | Element | Value |
---|---|---|
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | $ 133,000 |
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | 169,000 |
Retained Earnings [Member] | ||
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | 133,000 |
Cumulative Effect of New Accounting Principle in Period of Adoption | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | $ 169,000 |
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