Fairway Continues Bold New Store Expansion Program

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Ruetsch earlier assessed the progress of the new depot, which could begin operating early next year. “ Phase I is really produce cross-docking, its core bakery operations that would include bagels, baguettes, bread, things like that, and core commissary operations which are basically the food that you see spread through our deli showcases at our prepared food and hot bar mixes,” Reutsch explained to the financial analysts in August. “That’s Phase I and that’s really our first focus that will be completed. I would say in the eight to nine months area we’ll have all those areas under our belt and in the facility and running. And that’s when we’ll start to see the margin benefit which will result from labor savings in our store operations and also from controls – inventory control, production control thereby yielding shrink benefits. Phase II is really things like quality production, cheese packaging, dry fruit and nut packaging. Those types of items are very, very strong paybacks, as we’ve wanted this as a company. We’re going to accelerate that as quickly as possible at Phase II and there are some Phase III operations and we’re going to move as quickly as possible.”

With significant shareholder capital at hand following its April IPO, Fairway has been actively seeking new locations to offer customers its unique perishables-driven blend of urban chic product mix and merchandising.

Approximately 15.7 million shares of common stock were issued at the initial public offering. The high-volume merchant received approximately $158.8 million in net proceeds after the underwriting discount and expenses related to the IPO.

Fairway said it used the net proceeds to pay approximately $76.8 million of preferred dividends, $9.2 million to terminate a management agreement with Sterling Investment Partners (the private equity firm that acquired control of Fairway in 2007) and approximately $8.1 million to pay contractual bonuses. The remaining approximately $64.7 million is intended for new store growth and general corporate purposes. The retailer also charged $18.1 million of IPO related expenses to operating results in the first quarter of the current fiscal year.

In its first financial posting as a publicly-traded firm in August, Fairway posted a $27.9 million loss in its first quarter, compared with a $3.9 million loss a year ago. However, overall sales increased 21 percent to $187 million in the period ended June 30 and comparable store revenue was up 1.4 percent. Additionally, customer transactions were up 0.8 percent and basket size grew 0.5 percent.

The company noted that its wider loss could be attributed to transaction expenses and fees related to the IPO, a change in the income tax provision and an increase in non-cash equity compensation. The adjusted net loss in the quarter was $2.4 million, compared to the adjusted net loss of $3.8 million in the first quarter of the prior year.

Fairway ended the quarter with approximately $91 million of liquidity, which included approximately $70 million of cash and cash equivalents and approximately $21 million in borrowing capacity under its senior credit facility.