Yahoo Finance Why Smart & Final Stores’ Extra! Format Is Key to Fiscal 2016
What Led to Smart & Final Stores' 19% Sales Growth in 4Q15?
How does Smart & Final Stores plan to continue its growth?
Smart & Final Stores (SFS) is fully geared to continue its strong growth spree in the next fiscal year. The company outlined some of its focus areas during its earnings call on March 9. We’ll discuss two prime focus areas of the company below.
Extra! store expansion
The cornerstone of Smart & Final Stores’ growth strategy has been the continued development of the Extra! stores through new store openings, conversions, and relocations. In fiscal 2015, the company added 20 new Extra! stores and completed nine store conversions from the legacy format to the Extra! format, including three relocations. At the end of fiscal 2015, the company had 127 Extra! stores (of the total of 221 stores in the Smart & Final banner), accounting for nearly 60% of the S&F store base as compared to 40% two years ago.
In fiscal 2016, SFS is looking to convert the 32 stores acquired from the Haggen banner in late 2015 to the Extra! format. In addition, it plans to open four new Extra! stores and convert or relocate an additional eight stores to the Extra! format. By the end of fiscal 2016, nearly 70% of the S&F store base will be under the Extra! banner.
Store relocations and conversions to the Extra! format have resulted in significant increases in comparable store sales and gross margin for SFS. Between fiscal 2008 and 2014, the company converted 52 stores to the Extra! format, generating an average sales increase of approximately 30% in the first 12 months following conversion.
Private label penetration
SFS also has a strong focus on developing its private product line. In 2015, the company added over 300 private label items to its 2,900-item private label portfolio. Private label sales made up almost 30% of the Smart & Final banner’s sales in 2015.
SFS’s private label penetration is comparable to that of other supermarkets and mass merchandisers. Kroger (KR) had a private brand penetration of 26% for the fiscal year ending January 31, 2015, while Whole Foods Market’s (WFM) exclusive brands accounted for ~13% of its total retail sales. Costco’s (COST) private brand, Kirkland Signature, represented ~25% of the company’s sales in fiscal 2014.
The company is looking to expand its private label offerings in fiscal 2016. It plans to add new items to its flagship First Street label (which accounts for more than 75% of total private label sales) and to Sun Harvest, its natural and organic product label.
SFS constitutes 0.26% of the SPDR S&P Retail ETF (XRT) and 0.1% of the iShares Morningstar Small-Cap ETF (JKJ).
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