Fairway Posts Stronger Q4 Net Sales

Fairway Group Holdings Corp., the parent company of Fairway Market, reported that for its fiscal 2014 fourth quarter ended March 30, net sales increased $21.6 million, or 12.1 percent, to $200.3 million, from $178.7 million in the year-ago period. New York-based Fairway attributed the growth primarily to new stores opened after April 1, 2013, and three months of net sales from the store in the Red Hook section of Brooklyn, N.Y., which was closed for the first nine weeks of the fourth quarter in the prior year, because of damage from Hurricane Sandy.

Same-store sales, excluding the Red Hook store, fell 1.9 percent in the fourth quarter of Fairway's fiscal 2014. According to the grocer, the decrease was largely because of the timing of the Easter/Passover holidays, which occurred in the fourth quarter of fiscal 2013 but not in the fourth quarter of fiscal 2014; sales transfers from existing locations to new stores; and heavy snowfalls, which affected traffic patterns throughout the quarter.

Adjusted EBITDA was $12.7 million in the fourth quarter of fiscal 2014, versus $13.5 million last year. The Adjusted EBITDA margin was 6.4 percent in the 2014 quarter, compared with 7.1 percent, on a pro forma basis, to include the estimated lost sales from the Red Hook store in the fourth quarter of fiscal 2013.

"During the quarter, we made progress on a number of operational initiatives, including leveraging our Central Service expense and reducing direct-store expenses through enhanced cost disciplines," noted interim CEO William Sanford. "Sales and adjusted EBITDA were in line with our expectations."

"Fairway's broad offering, which combines fresh, natural and organic products with hard-to-find specialty items and a full selection of conventional groceries, remains a unique platform in the market," added Co-President and COO Kevin McDonnell. "Our commitment for delivering quality, selection and value to our customers leaves us well positioned to leverage the growing population of health-conscious and value-oriented consumers."

Gross profit for the fourth quarter grew to $64.9 million from $60.1 million last year, while the gross margin dropped 120 basis points to 32.4 percent from 33.6 percent in the year-ago period. Fairway said this decrease was primarily because of higher occupancy costs, as a percentage of sales, at new locations, in addition to higher occupancy costs at several existing locations as a result of the modification of existing leases and a hike in real estate taxes.

Total store-opening costs decreased to $1.2 million in the fourth quarter of fiscal 2014, from $2.4 million last year, because of the timing of new store openings, Fairway noted. Additionally, the company incurred $1.3 million in start-up costs in the fourth quarter of fiscal 2014 in relation to its new production center, which is expected to begin operations early this summer.

Fairway's net loss in the quarter was $8.8 million, compared with $6.7 million in the year-ago period, while the adjusted net loss in the quarter was $0.3 million, a drop of $0.8 million from the adjusted net loss of $1.1 million last year.

Google Express Partnership

In other company news, during the first quarter of fiscal 2015, Fairway began working with Google Express to launch an online shopping platform with same-day delivery throughout Manhattan. The shopping interface will enable shoppers to select from around 12,000 Fairway SKUs seamlessly across multiple devices, providing enhanced convenience for existing customers while introducing the Fairway brand to new ones. Fairway said that the integration of Google Express would allow it to leverage Google's technology and distribution network to increase delivery capacity and grow the grocer's footprint.

This summer, the grocer also plans to open its 15th store, in the town of Lake Grove, N.Y. -- the grocer's first in Suffolk County on New York's Long Island.