99 Cents Only Stores LLC's (99 Cents Only) near-term liquidity should remain adequate in fiscal 2017 (January) given significantly reduced inventory, further lowering of capex and Fitch Ratings' expectation that the company's gross margin will expand.
Moreover, the extension of the company's $165 million asset-based revolving credit facility (ABL) secures an important source of near-term liquidity. The ABL now expires April 8, 2021 or the earlier of 90 days prior to the term loan maturity date of Jan. 13, 2019 and 90 days prior to the 11% senior unsecured notes maturity date of Dec. 15, 2019. Near-term maturities are limited to roughly $6 million of annual term loan amortization payments until 2019.
99 Cents Only reported fourth quarter and full year earnings for fiscal 2016. As anticipated, same-store sales (SSS) declined 2.7% for the year and EBITDA as calculated by Fitch approximated $18 million, down substantially from $130 million in the prior year period.
Cash flow declines were mitigated by improved working capital and capex reductions as the pace of new store openings has slowed. Therefore, 99 Cent Only's year-end liquidity position was better than Fitch had anticipated at $93.2 million ($2.3 million in cash and $90.9 million revolver availability).
Fitch currently projects that EBITDA will approximate $50 million in fiscal 2017 as SSS turn slightly positive and gross margins approach 30%, resulting in estimated year-end liquidity of approximately $50 million. FCF is expected to be negative $20 million absent further improvements in working capital. If the gross margin is flat versus last year, EBITDA would approximate $25 million, FCF would be negative $50 million and year-end liquidity would be around $20 million.
SSS have shown sequential improvement for the last six months and were positive 1.7% in March, according to management. In addition, seasonal inventory has been significantly reduced, and efforts to reduce shrink are in place. Transportation cost pressure should also ease as the number of third-party providers has been consolidated.
Fitch currently maintains a 'ccc*' credit opinion (CO) on 99 Cent Only. COs are provided primarily for the purpose of their inclusion in CLO transactions rated by Fitch. COs are not ratings and are not substitutes for ratings. COs use a published rating scale but either omit certain analytical characteristics of a rating or match them to a materially lower standard than in a credit rating. The limitations compared to a rating include: 'point-in-time' coverage, limited information availability and review, and an abbreviated review process, and reduced robustness of Outlooks and Rating Watch status. These limitations are consistent with the terms of their application within a pooled asset context. For more information, please consult Fitch's list of published COs.