NEW YORK — In its first quarter as a public company, Fairway Group Holdings Corp., the parent company of Fairway Market, reported tepid financial results for its fiscal 2014 first quarter ended June 30.
Same-store sales in the quarter increased 1.4% over the prior year with customer transactions increasing 0.8% and basket size increasing 0.5%. Customer transactions and average basket size grew 0.8% and 0.5%, respectively. According to the company, the same store sales metric for the quarter was negatively affected by approximately 90 basis points due to the first quarter of the prior year having the benefit of the Easter/Passover holidays.
The company's net sales increased 21% to $187 million in the first quarter of fiscal 2014. Sales growth in the quarter was driven primarily by new store openings which contributed approximately 93% of the total sales growth.
"We are pleased to report strong operating results for the quarter, our first as a public company," said Charles Santoro, Fairway's executive chairman. "Fairway remains on track with our long-term strategy designed to expand our store count and increase our margins. We remain confident in our ability to execute these plans."
"We executed well this quarter with improved gross margin performance and good control of our operating expenses despite the added costs associated with being a public company," added CEO Herb Ruetsch. "We feel good about our ability to continue to enhance gross margins and leverage our Central Services expenses over the full fiscal year."
The company opened its 13th location July 24 in the Chelsea neighborhood of Manhattan. The store has 17,000 sq. ft. of retail space and is Fairway's fifth Manhattan location.
On April 22, Fairway completed an initial public offering of approximately 15.7 million shares of common stock, including 2.3 million shares sold by existing stockholders. The company received approximately $158.8 million in net proceeds after deducting the underwriting discount and expenses related to the IPO which were charged directly to additional paid-in capital in the first quarter of fiscal 2014. The company 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 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.
Gross profit in the first quarter increased 21% to $61.4 million from $50.7 million and gross margin improved to 32.9% from 32.8% in the prior year. The increase in gross margin was primarily due to an increase in the merchandise margin partially offset by higher occupancy rates at the company's new locations.
Store-opening costs in the first quarter included approximately $2.9 million for the Chelsea location and $0.1 million for the Nanuet, N.Y., location expected to open in the fall of 2013. These expenses decreased to $3 million from $5.8 million in the first quarter of the prior year. In addition, the company incurred $0.5 million of start-up costs for the new production center. Approximately $0.8 million and $0.5 million of store opening and production center start-up costs in the first quarter of fiscal 2014 and in the first quarter of fiscal 2013, respectively, were non-cash charges primarily due to deferred rent.
The net loss in the first quarter was $27.9 million, compared to a net loss of $3.9 million in the first quarter of fiscal 2013. The company says the increase in the net loss was primarily due 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, a decrease of $1.5 million from the adjusted net loss of $3.8 million in the first quarter of the prior year.