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Roundy's (NYSE:RNDY)

Q1 2014 Earnings Call

May 07, 2014 4:30 pm ET

Executives

James Hyland -

Robert A. Mariano - Chairman, Chief Executive Officer and President

Darren W. Karst - Chief Financial Officer, Executive Vice President and Assistant Secretary, Chief Financial Officer of Rac-Holding and Executive Vice President of Rac-Holding

Analysts

Scott Andrew Mushkin - Wolfe Research, LLC

Mark Wiltamuth - Jefferies LLC, Research Division

Karen F. Short - Deutsche Bank AG, Research Division

Andrew P. Wolf - BB&T Capital Markets, Research Division

Kelly A. Bania - BMO Capital Markets Canada

Kenneth Goldman - JP Morgan Chase & Co, Research Division

Matthew J. Larson - Robert W. Baird & Co. Incorporated, Research Division

Operator

Good afternoon, and welcome to the Roundy's First Quarter 2014 Earnings Conference Call. [Operator Instructions] This conference is being recorded at the request of Roundy's. If anyone has any objections, you may disconnect at this time. I would now like to turn the call over to Mr. James Hyland. Thank you. You may begin.

James Hyland

Thanks, Melissa. Thank you. Good afternoon, ladies and gentlemen, welcome to Roundy's First Quarter 2014 Earnings Conference Call. With me today are Bob Mariano, Chairman and Chief Executive Officer; and Darren Karst, Executive Vice President and Chief Financial Officer.

Our first quarter 2014 earnings release crossed the wire at approximately 4:00 P.M. Eastern Time today. If you've not received the release, it is available on the Investor Relations section at Roundy's website at roundys.com. This call is being webcast, and a replay will also be available on the company's website. A transcript of the call will be available on the website within 48 hours.

Before we begin, we would like to remind everyone that the prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance and therefore, undue reliance should not be placed upon them. We refer all of you to the risk factors contained at Roundy's press release issued today and the company's annual report on Form 10-K and other filings with the Securities and Exchange Commission for more detailed discussions of the factors that could cause actual results to differ materially from those projected in any forward-looking statements.

Roundy's assumes no obligation to revise any forward-looking projections that may be made in today's release or call. Also, and the company's earnings release and today's prepared remarks may include adjusted net income, adjusted EPS and adjusted EBITDA, which are non-GAAP financial measures within the meaning of SEC Regulation G. A reconciliation of adjusted net income, adjusted EPS and adjusted EBITDA to the most directly comparable GAAP financial measures and the other information required by Regulation G are included in the company's press release issued earlier today.

I will now turn the call over to Bob Mariano. Bob?

Robert A. Mariano

Thanks, Jim. Good afternoon, everyone, and thank you for joining us today as we discuss results for the first quarter of 2014. I'll briefly review these results and discuss certain key metrics for the quarter. Darren will then review the financial results for the quarter. And at the end of our remarks, we'll open up the call for questions.

As we announced in our press release this morning, the company entered into definitive agreements to sell 18 Rainbow stores to a group of local Twin Cities grocery retailers, including SUPERVALU. The remaining 9 Rainbow stores will either be sold or closed, and we will be completely exiting the Twin Cities market. Darren will go into more details on the transaction during his remarks.

We entered the Twin Cities in 2003, becoming the #2 grocer in market share. Since then, the competitive landscape has changed dramatically as Target and Wal-mart have both invested significantly in the market. At the same time, our strategic focus has shifted to growing our presence in Chicago.

The economic downturn over the last few years, coupled with the increased competitive footprint in the Twin Cities market, has taken its toll on the Rainbow business. So we made the strategic decision to exit the market.

Our strategy today is to focus our efforts where they will provide the most benefit for all of our stakeholders. This divestiture allows us to focus our management, capital and other resources to grow our Mariano's business in Chicago, our growth market, and to stabilize and grow our Wisconsin market, where we have strong market shares.

Now to the quarter. During this first quarter, we opened 5 additional Mariano's stores, 4 being former Dominick's locations and 1, a newly-built store in Lake Zurich, Illinois. In addition, we opened 3 more stores in the second quarter to date, with the most recent being yesterday's opening of the store at Bridgeport on the city's South Side.

Our team has opened 6 of the 11 former Dominick's locations that we acquired in December of last year, and we currently have a total of 21 Mariano's locations in the Chicagoland area. The acquired stores have received an enthusiastic reception within their respective communities. We remain on target to open up 4 of the remaining 5 acquired stores over the next 2 quarters and the fully-remodeled Westchester store later on in the year.

Average weekly sales for Mariano's stores for the first quarter of 2014 were approximately $1 million. Comp stores for the Mariano's banner were in the high-single digits for the 9 stores that were opened for 1 year or more at the end of the first quarter. Mariano's finished the quarter with an estimated rate -- run rate of approximately $900 million in sales.

We continue to track with our stated 4-wall EBITDA objectives for Mariano's during the quarter, our mature stores, that is stores that have been opened for 2 to 3 years, are on average exceeding that goal. In July of this year, we will celebrate our 4th year anniversary as an operator in the Chicagoland marketplace. In terms of our stores' maturity, at end of 2014, we'll have 29 stores opened, 4 will have reached full maturity at over 3 years old, 4 over 2 years old and 5 over 1 year old and the remaining 16, just under 1 year old.

We have previously stated that our target is to build out the Chicago marketplace's 45 to 50 stores. Our plate is full for the year as we still have 8 openings yet to accomplish during the remainder of 2014, but we continue to see very good sites introduced to us for future growth, and so our pipeline remains robust.

We are pleased with our progress to date and we continue to believe the banner has legs and can travel well to other markets. Once we have completed our store openings scheduled later this year, we'll begin our research in the possible expansion markets for the Mariano's banner.

As we take a look at the core business, customers in these markets continue to face a difficult economic environment, creating a price-conscious customer, and so there is strong competition for the customer dollar. Cross-shopping at various retail venues for grocery staples at value prices remains the norm and continues to impact our results.

We also continue to experience the ongoing effects of competitive store openings. Our promotional spending in the first quarter was down versus last year because we're trying to balance our margins in a soft market where we thought the upside was limited. Although we anticipated weaker comps for quarter 1 of this year, we experienced a few other issues in our core markets that had an effect on the quarterly performance.

During the first quarter, we experienced adverse weather conditions where heavy snow and unusually cold temperatures continued throughout and even beyond the end of the quarter into April. This impacted not only customer spending, but created additional snowplowing and utility expenses during the quarter.

Also, the impact from the Easter calendar shift came in at the high end of our estimated range of 150 basis points. In addition, we now have captured enough data to estimate the effects on sales from the cuts to the federal SNAP program. And we believe it is providing us with a headwind of approximately 50 basis points, which will be with us until we cycle the cuts.

In terms of our overall business, despite the Easter calendar shift, our first quarter results showed a slight improvement in net sales and gross profit from quarter 1 of 2013.

For the first quarter, net sales increased 2% to $1 billion. The increase in sales was primarily due to new Mariano's stores coming online. However, the increase in total sales is offset by a 5.2% decrease in same-store sales, largely driven by an 8% decrease in customer transactions. Adjusting for the effect of the Easter calendar shift, same-store sales declined 3.7% versus first quarter.

The decrease in the number of customer transactions was partially offset by a 3% increase in the average transaction size, driven by a combination of larger portion of our sales coming from the Mariano's banner, which has a higher basket size, as well as an increase in our core basket size.

We have had a total of 4 competitive openings in our core markets during the quarter 1 of 2014. In Wisconsin, we had 1 supercenter opening and 2 conventional openings. In Minnesota, we had 1 supercenter opening. We estimate the dollar impact to our same-store sales in the quarter from new competitive square footage opened over the last 12 months was approximately 190 basis points. We anticipate 10 competitive openings in our core markets in 2014, down from '14 and '13. We expect the dollar impact to same-store sales to be approximately 60% of what it was in '13.

In terms of our Milwaukee Market Renewal project, the 69 Pick 'n Save stores involved in the renewal had negative same-store sales for the quarter, but did perform better than the rest of the core in terms of sales and EBITDA. The Milwaukee Renewal project, which started in earnest in early 2013 with a group of 14 stores in an ongoing multi-store project with the goal of positioning Pick 'n Save as the best conventional operator in our market.

We have rolled out the project out to the 69 participating Pick 'n Save stores in 3 separate phases in '13. The renewal effort, as you can appreciate, is not static, but rather continuous introduction of product merchandising and service initiatives supported by a brand positioning campaign.

To that end, we have additionally stepped up our efforts in the original 14 stores with our merchandising and pricing initiatives. While these initiatives have been informed both by our success in the Chicago marketplace, as well as our information from our frequent shopper card. The objective here is to build additional traffic, increase incremental sales per customer and increase our market share in Milwaukee 14 group of stores.

We began these most recent initiatives in early April. Since then, we have seen very encouraging customer response. Assuming that we see this continued type of response, we see this translating to more favorable metrics. We then will expect to roll this out into many of our other stores in the Milwaukee metropolitan area.

Our 2 major cornerstone initiatives, which are growing our perishable business and our Own Brand products, had strong performance during the quarter. Our perishable business accounted for 36.1% of total sales, which is about 150 basis points higher than a year ago.

Our Own Brands ended the first quarter at 23.5%, a 100 basis point improvement over the last year's first quarter. We consider ourselves a market leader in Own Brand value and quality, with a brand family consisting of 11 diverse brands and over 6,800 products, ranging from our Roundy's Fresh to our Simply Organic brands.

Our teams have made great strides in increasing digital engagement with our customers and there are a number of enhancements I want to share with you today. First of all, 5 of our banners have been -- first off, 5 of our banners have been updated with new websites, utilizing the latest and responsive design technology. Second, we are introducing a new mobile app for all of our banners, giving our customers an additional digital connection to our stores.

Third, one of the benefits of our Fresh Perks cards that we introduced last year is the ability to download coupons and load these directly to the customer card. Although the download initiative is in its early stages, there has been a steady increase in the download traffic since we introduced the program.

And finally, our web and social analytics continue to show strong growth in site visits and social media engagement at all banners. The increase in social media traffic at our Mariano's banner increased approximately 600% year-over-year. We continue to grow in the digital space whereas we believe, in turn, builds customer loyalty.

In summarization, Mariano's continues its successful growth in the Chicago marketplace. We have had a total of 16 Mariano's store openings this year, and 2014 is shaping up to be a breakout year for our growth plan, and we look forward to continued expansion over the next few years.

Although the core markets continue to present challenges, we continue to make the necessary adjustments and refinements. With our announced departure from the Twin Cities markets, our team will be better able to focus on executing on our Milwaukee Market Renewal efforts and our Mariano's growth strategy.

Now let me turn the call over to Darren to provide you with some additional financial details for the quarter. Darren?

Darren W. Karst

Thanks, Bob, and good afternoon, everyone. As Bob noted, net sales for the first quarter of 2014 were $1 billion, an increase of $19 million or 2% from $984 million for the first quarter of 2013. Gross profit for the first quarter of 2014 increased 3.1% to $271 million from $263 million in the same period last year.

Gross profit as a percentage of net sales was 27% for the first quarter compared to 26.7% in the same period last year. The increase in gross profit as a percentage of net sales primarily reflects a reduced promotional spend during the quarter and an increased perishable sales mix. That was partially offset by increased shrink due in part to 5 new and acquired stores that opened during the quarter.

Operating and administrative expenses for the first quarter of 2014 increased to $255 million from $236 million in the same period last year. Operating administrative expenses as a percentage of net sales increased to 25.4% in the first quarter of 2014 from 24% in the same period last year. This increase was primarily due to increased occupancy and labor costs related to new stores, startup costs associated with acquired stores, increased snow removal and utility costs of approximately $2 million due to poor weather conditions, as well as reduced fixed cost leverage in the company's core business resulting from lower sales.

Total interest expense for the first quarter was $14.9 million compared to $12.2 million last year. The increase was primarily due to interest expense on the second lien notes, offset somewhat by reduced interest expense on our term loan.

For the first quarter of 2014, we incurred a net loss of $4.5 million or $0.10 diluted loss per share compared to net income of $8.7 million or $0.19 diluted earnings per share for the first quarter of 2013. Adjusted net loss for the first quarter of 2014 was $500,000 or $0.01 adjusted diluted earnings per share compared to $8.6 million or $0.19 earnings per share for the first quarter of 2013.

Adjusted net income for the first quarter of 2014 excludes a $5 million aftertax or $0.11 per diluted share for the early extinguishment of debt that occurred during the first quarter of 2014.

Adjusted EBITDA for the first quarter of 2013 was $34.1 million compared to $44 million in the first quarter of 2013. The decrease was driven by the Easter calendar shift, which we estimate impacted EBITDA by $2.3 million, the continued underperforming core business and startup costs of $3.2 million associated with the acquired stores. The decrease was partially offset by improved results in our existing Mariano's stores. Our effective income tax rate was a tax benefit of 44% for the first quarter of 2014 versus a tax expense of approximately 41% for the first quarter of 2013.

Capital expenditures for the first quarter of 2014 were $16 million compared to $12 million in the first quarter of 2013. The change year-over-year was primarily attributable to the timing of new store openings and investments in the acquired stores.

Our total debt at the end of the first quarter of 2014 was $713 million versus $742 million at the end of fiscal 2013. The reduction was largely related to the debt refinancing transactions and equity offering we completed in the first quarter. As of March 29, 2014, we had $32 million of cash and cash equivalents and $142 million of availability under our asset base revolving credit facility, providing us with liquidity to operate our business.

During the first quarter of 2014, we refinanced our existing credit facilities with proceeds from the new covenant-light term loan and a new asset base revolving credit facility. In connection with the proposed refinancing, the company recognized a pretax charge for a loss on debt extinguishment of $9 million, which included the write-off of previously capitalized financing costs, the write-off of a portion of the unamortized discount on the existing term loan and certainties and expenses related to the new credit facilities.

We also completed a $10.2 million share follow-on equity offering during the first quarter that consisted of both the primary and a nondiluted secondary equity offering. Willis Stein, our private equity partner for the last 12 years, was the only selling shareholder in the secondary offering. The secondary offering reduced their ownership in the company from approximately 33% to approximately 15%. In terms of the primary offering, net proceeds to the company were approximately $19 million net of underwriting discounts and other expenses.

As Bob mentioned, we've signed definitive agreements to sell 18 Rainbow stores to a group of local Twin Cities grocery retailers, including SUPERVALU. Proceeds from the transaction are expected to be approximately $65 million in cash for the store assets plus inventory proceeds that will also be acquired at the closing of the transaction.

The buyers will assume the lease obligations of certain multi-employer pension liabilities related to the acquired stores. The transaction is expected to be relatively leverage neutral as we expect to use net proceeds to repay debt. The remaining 9 Rainbow stores not included in the deal are currently being marketed for sale and will either be sold or closed as it is our intent to fully exit the Twin Cities market.

We currently anticipate the transaction to close in the third quarter. We expect the remaining 9 stores to be sold or closed in the third or fourth quarter. Also, over the remainder of the second quarter, we expect to put in place plans to rightsize our operations and infrastructure to better reflect our needs after we exit the Twin Cities. We will also be able to better identify a more accurate closing timetable for the transactions.

As such, with the exception of 2 key metrics, which are same-store sales and total sales for the continuing operations of the business, the company has temporarily withdrawn its prior guidance and expects to resume issuing quarterly and annual guidance when the Rainbow store sale is completed.

Excluding the Rainbow stores, the company's same-store sales guidance for the second quarter is expected to be in the range of negative 2% to negative 1% and for the full year, is expected to be in a range of negative 2.75% to negative 1.75%. Excluding the Rainbow stores, the company's total sales guidance for the second quarter is expected to be in a range of $940 million to $950 million and for the full year, is expected to be in a range of $3.85 billion to $3.9 billion.

Since the decision to sell was reached just today and which is after the end of the first quarter, the Rainbow results are included within continuing operations for the first quarter. We anticipate that Rainbow will be accounted for as a discontinued operation in the second quarter of 2014.

For modeling purposes, we felt it would be helpful to provide you with 2 key Rainbow metrics in order to give you some perspective of Rainbow's effect on our performance. On an LTM basis, net sales for Rainbow were approximately $600 million, and EBITDA was approximately $23 million. But these results had been trending down for some time, and we would have expected that trend to continue.

That concludes my comments. And let me now turn the call back to Bob for some final comments before we go to Q&A.

Robert A. Mariano

Thanks, Darren. As Darren said, with the sale of the Rainbow banner and our exit from the Twin Cities market, we can now focus our capital and our management talent in markets that are more strategic to us. We continue to meet or exceed our expectations at our Mariano's banner. We have opened 6 of the 11 acquired locations and store teams have done a tremendous job on all fronts to make these store openings successful.

Our runway remains a long one with double-digit locations in our pipeline, and we look forward to sharing the Mariano's experience with many more communities and neighborhoods over the long term.

During the first quarter, we completed the 3 financings necessary to strengthen our balance sheet and provide us with the capital structure that supports our future growth. We now have the financial flexibility to better execute our strategic initiatives. In our core markets, we continue to face challenges, but we believe our renewal initiatives are making a difference.

In closing, we continue to review all areas of our business, guided by our long-term strategic plan, and we are committed to take a prudent action to optimize our operational and financial performance for the benefit of all our stakeholders.

This concludes our comments. And at this time, I'd like to open up the call for questions. Alyssa?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Scott Mushkin with Wolfe Research.

Scott Andrew Mushkin - Wolfe Research, LLC

I guess my first question, Bob, is that you look -- you take a step back and you look at what's happening in the different markets. As we get particularly to '15, Pick 'n Save is going to start facing openings of Meijer. And in the Chicago market, we're going to see Whole Foods opening up, I think, 7 stores, but we also -- I think Jewel has announced the $200 million refresh. So I guess I'm trying to fast-forward to '15 and kind of get in your head how you're thinking about these events and what -- kind of what EBITDA generation you think the business can throw off with all the competitive openings?

Robert A. Mariano

Well, I think, in the case of Illinois, I think we've talked about this before that a few of those sites are sites that we were interested in and so had minimal impact on our existing store base. But I will tell you this. From the perspective of Whole Foods, we have yet to see them impact us in a negative way. Secondly, you still have to factor in that in the Chicago marketplace, I think it's what -- there's still 30 Dominick's stores that are closed and did not reopen. And so that business still went in other parts of our -- it's still available in other parts. And Jewel has been doing things ongoing that have yet to have an impact on us. So I mean, as far as Chicago, I think we continue to work our plan, and we continue to see strong results from our base -- our core stores in Chicago, as well as the newly-opened acquired stores. So I have no pause here to come off of where we think -- where we said we could grow the business. Now with respect to Meijer, when I see the first Meijer store has already been pushed from '14 into '15, pretty typical of what happens with them when they come into a marketplace. They keep pushing it back. I don't see them as particularly differentiated nor a major effect on the marketplace. I think this is the competitive set and the Wisconsin market is pretty well built out.

Scott Andrew Mushkin - Wolfe Research, LLC

Okay. I know we've been trying to stabilize Pick 'n Save. I know we've been trying to stabilize Pick 'n Save or the Wisconsin market broadly for a while. You started with the '14 renewal. It sounds like you have a new program. I was actually just in Southern Wisconsin, at some of your stores not too long ago. And honestly, I actually think the produce and the perishable areas are pretty darn good. But the pricing still is about 10% over down from 12%, 10% over Wal-mart and about 15% over Woodman's when we were doing our checks. I mean, do you have to drive those prices basically to parity on KVI items? I mean, is that where this is going? I know we talked about this before, and I think maybe you can sustain a slight premium. But it doesn't seem like it. And I mean, I -- stores are pretty darn good, especially in perishables. Are you just going to have to bite the bullet and get down to where everyone else is.

Robert A. Mariano

Well, I think in my remarks, I've kind of alluded to some additional efforts into '14, and those would be more centered around some pricing initiatives that we've taken. So to answer your question, I think, if you check today, you might find a different answer in those '14 stores.

Operator

Our next question comes from Mark Wiltamuth with Jefferies.

Mark Wiltamuth - Jefferies LLC, Research Division

I wanted to ask about what you were seeing on inflation out there in the marketplace. And are you able to tap it through because we have seen some big moves in meat and dairy? And also, on weather, did you have any weather disruption in the quarter or anything that affected your comps in the quarter?

Robert A. Mariano

Sure. Let me take first the -- your inflation question. You're right in the assessment of the inflation in milk and dairy -- excuse me, in meat and dairy. It's been pretty significant. I would tell you, it has created some margin compression, so we have not been able to pass everything through. And this is not unusual having been through these cycles before. You typically aren't able to pass it all through the -- through to the customer. So that's creating some margin compression. With respect to disruptions within the quarter, there were -- I mean, I know there was a time we had a distribution center closed for at least 1 day, 1.5 days or so, storage closed for -- early. I would tell you, we had a fair amount of business disruptions through the quarter, business as a result of the weather. And that would include our Minnesota stores, as well as all of our Wisconsin stores. And in fact, in Chicago, too, we closed early in some of the areas for some of the days.

Darren W. Karst

And I guess [indiscernible]

Mark Wiltamuth - Jefferies LLC, Research Division

Bob, will you quantify how much it was on comps in terms of the impact?

Robert A. Mariano

It's kind of tough to -- as you start getting to how many hours you close and stuff like that, it's tough. I mean, I can't say -- it took us a good 5 days to get back on sequence with the distribution center because the trucks -- not only did we have the problems that our employees couldn't get to our distribution center. Then once our employees got to the distribution center and we had it, trucks couldn't get because I-80 was closed coming out of, well, both from the east and the west. Trucks couldn't get to us. So it was -- and you kind of live through it and you forget about it. But upon reflection, it was a significant impact on our operations.

Mark Wiltamuth - Jefferies LLC, Research Division

Okay. And then just getting back to the core market there, Wisconsin, you said, is fairly built out. What you think the competitors see there? You keep adding stores. I mean, you have -- Meijer is talking about bringing 12 stores in there, and we're still seeing the supercenters come in from Wal-mart. What is the attraction given that there's already some over capacities that the market's been digesting?

Robert A. Mariano

I don't want to be a smart aleck about it, but I guess, if you've got an answer, I'd love to hear it because I can't figure it out. I mean, there is absolutely no reason for there to be another 250,000 square foot general merchandise food retailer opening in Southeastern Wisconsin. I mean, and people can say, "Well, I'm just a transplanted Chicagoan." But I -- a lot of the teams here lives and have lived in this community for years and years and years, and they don't get it either. So I don't know. I honestly do not know.

Mark Wiltamuth - Jefferies LLC, Research Division

What do you do to react when one of those shows up in the market near you, one of your stores?

Robert A. Mariano

Well, we're not trying to react. Now, see, that's a part of what we're trying to -- the whole renewal is based on we're not going to wait for it to happen. We want to be proactive and get ourselves -- as I said alluded to in the prior question, we're taking more pricing action. I think our pricing action, which is, as I said in my remarks, is being informed by what's working in Chicago, as well as the loyalty card, of our consumer information, it's helping us to get sharper, and we will continue to get sharper over the ensuing year in the Wisconsin market.

Operator

Our next question comes from Karen Short with Deutsche Bank.

Karen F. Short - Deutsche Bank AG, Research Division

Just a couple of questions on Mariano's. You gave us the comp. I'm wondering if you could actually give us a breakout of traffic versus ticket in the comp in Mariano's?

Robert A. Mariano

I don't have that, Karen.

Darren W. Karst

Yes. Karen, I think we're not going to break it out. But it's both -- what I would say is it's both traffic and basket size.

Karen F. Short - Deutsche Bank AG, Research Division

Okay, okay. And then in terms of the -- and the multi-employer pension liability associated with the stores that you're selling, do you -- can you give us a dollar amount of what may be associated if you can sell -- well, you'll still be 18, but then also are successful at selling the additional 9?

Darren W. Karst

Yes. I think that's something we're going to be probably disclosing down the road. But what I would tell you is that they took a good deal of the multi-employer liability associated with the stores, not all of it. And then we, of course, will need to deal with the multi-employer liabilities for the other stores and a portion of the sold stores.

Karen F. Short - Deutsche Bank AG, Research Division

Sorry. The buyers took a portion of the multi-employer but not all, and so you're -- you will continue to have that, some portion?

Darren W. Karst

Correct.

Karen F. Short - Deutsche Bank AG, Research Division

And you will retain some portion of it, but it will be in...

Darren W. Karst

You're correct.

Karen F. Short - Deutsche Bank AG, Research Division

Okay. And that's the same thing with the 9 stores?

Darren W. Karst

Correct.

Karen F. Short - Deutsche Bank AG, Research Division

Okay. And then I'm just wondering, in terms of your capacity utilization, on your distribution, how should I think about how that might impact margins in general or costs of delivery if you're losing the throughput on your distribution from those facilities?

Robert A. Mariano

Well, I think Darren mentioned that we'll be spending a fair amount of effort and work to rightsize the entire operation. Of course, one of the elements that we need to rightsize will be distribution and transportation. So that effort is -- since we've just announced and actually closed -- not closed, but came to conclusion on the deal today. We're beginning that work in earnest now to see what we have and what's the most optimal way to operate in Wisconsin with all of our facilities.

Karen F. Short - Deutsche Bank AG, Research Division

Okay. And then just last question. A lot of companies that have reported comps throughout the first quarter definitely saw accelerating trends throughout the quarter. So wondering if you could just give some color and how the comp trended throughout the first quarter, and then how you're -- how it trended into the second? Because again, it seems like it really has been accelerating for most retailers.

Robert A. Mariano

I would say it would be the opposite for us.

Karen F. Short - Deutsche Bank AG, Research Division

It has not accelerated?

Robert A. Mariano

No.

Karen F. Short - Deutsche Bank AG, Research Division

And that's a function of the -- of what? And forget the Easter shift, but aside from that?

Robert A. Mariano

Well, aside from the Easter shift, I think we've kind of talked about all the elements as far as what we've seen. So I mean, we haven't seen the customer breakout yet if that's what the question is.

Operator

Our next question comes from Andrew Wolf with BB&T Capital Markets.

Andrew P. Wolf - BB&T Capital Markets, Research Division

I just wanted to follow-up on Scott's line of questioning on pricing and trying to get closer to Wal-mart and the price leader, Woodman. Given the unionized cost structures, that's impossible. Even Kroger can't get there. So when I look at Kroger, they have other programs like obviously digital and the loyalty-driven, data-driven programs and fuel programs. So just those, among others, what else are you thinking about bringing to, to keep -- increase loyalty and maintain loyalty with customers? And what's a realistic timetable for some of these programs?

Robert A. Mariano

Well, we have begun the effort in terms of what I would characterize digital offers to customers that are very targeted. We're in a very early stage of that. We've been at that now actually since December of last year on a very, very small basis. And we seem to have some good impact on our initial look at it. So we are working with our loyalty card information to do more targeted offers. But the other side of that too is also to make our stores more competitive with everyday shelf pricing. So yes, I think that's still a piece of work that we've got to get closer to Wal-mart on, over the next year and 1.5 years. But I mean, I am not a big fan of saying, "We're going to throw 13 programs out there to see what works." I think you've got to be prudent in what you try, measure it. If it works, keep doing it and see how much impact you can make in the business. So I mean, you mentioned Kroger, Kroger has been at this for 12 years. We've been at it for 4 months. So there's a lot more learnings to be had.

Andrew P. Wolf - BB&T Capital Markets, Research Division

Okay. And the targeted marketing, whether it's digital -- is it only digital or you also using mail?

Robert A. Mariano

We're using mail somewhat. We prefer -- because it's costly to use mail. We do use mail, but our -- we've got -- I think we've stated this in -- a couple of times. We've got 600,000 email addresses. And that was part of the [indiscernible] we had last year when we introduced Fresh Perks. That was part of the effort there, is to get the email addresses. We were exercising those email addresses to talking to the customer. And that's what we're trying to do, is to get much closer to the customer via email. And so again -- and it's a transition for the customer. They are used to go into the newspaper and look for what the offers are. Now we're shifting them to look at their -- the website, to the computer to look at the kind of offers they might be looking for. So it's a process. It's not something that occurs real quickly.

Andrew P. Wolf - BB&T Capital Markets, Research Division

Yes. I understand, you probably sort of duplicate both. Are you -- last thing, it has been [ph] -- are you working with a consultancy or this is purely an in-house effort?

Robert A. Mariano

EYC Symphony is helping us with the data analytics.

Andrew P. Wolf - BB&T Capital Markets, Research Division

As you -- where you're at now, is this something you think is going to be greenlighted? And I'm not saying it's a beta test, but whatever stage it's at, do you think it's going to continue to...

Robert A. Mariano

We're working very hard in it, Andy. We are very working very hard at it.

Operator

Our next question comes from Kelly Bania.

Kelly A. Bania - BMO Capital Markets Canada

Just first on same-store sales, the outlook there. It looks like the guidance, I guess, now excluding Rainbow stores, looks -- calls for a deceleration in same-store sales during the year. And the prior guidance called for an improvement in same-store sales during the year. And I'm wondering, is that just due to Rainbow or is there anything else going on that would explain that change in trend that you're expecting during the year?

Darren W. Karst

Well, Kelly, I mean, I think it's a few different things. One, I think the same-store sales for the first quarter ended up weaker than we had expected. Certainly, I think weather was a factor and continues to be probably a little bit of a factor early on in this second quarter. I think we've got our hands around what the effect of the SNAP changes were in a better way that I don't think we were thinking about before, or at least it was not discernible early on in that -- after those cuts. So I think these numbers probably reflect that, reflect all of those, all of that kind of thinking. I also think, by the way -- and there was an inflation question earlier, I think we were probably expecting fairly subdued inflation for this year, and I think that probably is not. I mean, I think it's going to be higher than we expected. And it's going to be spikier than we expected, particularly in some areas like where we were, already seeing it in meat. So I don't think that necessarily helps comps per se.

Kelly A. Bania - BMO Capital Markets Canada

That's helpful. And then on the competitive openings, are those -- I think you gave the numbers. But just curious if those are trending in line with your expectations, or any update there in terms of expected competitive openings?

Darren W. Karst

No, we're really not seeing anything change there. What I think we generally had expected during the quarter, as well as for the rest of the year, is pretty much in line with before. Maybe the only exception was something, I think Bob alluded to earlier, which is, I think we had expected a Meijer store later in the year, that doesn't look like that's going to happen. It's being pushed out into next year.

Operator

Our next question comes from Kenneth Goldman with JPMorgan.

Kenneth Goldman - JP Morgan Chase & Co, Research Division

You guys may have addressed this and I missed it, but can you talk a little bit about the transaction size? Pretty strong on top of a pretty tough comp, but can you elaborate a little bit on what you saw there that would bring that up a little higher than what I expected? Was it all pricing or was it something else?

Robert A. Mariano

I don't think it's all pricing. I mean, I think we've consistently tried to increase the size of basket, so that's been an ongoing effort. And the other thing I would tell you, Ken, in the area of nonfood grocery items, we have made a significant effort to try to get those categories in the customer's basket. And frankly, we've been pretty successful in getting it done. So things like beverage bag liners, bleach, household cleaners have been very much emphasized in merchandising, I would tell you, at store level, and we see some very positive effects as a consequence.

Darren W. Karst

Ken, this is Darren. One other thing I would add. I think we mentioned it somewhere in the call. The Mariano's basket size tends to run about 10% higher than our core. So as that becomes a bigger part of the business, that's going to drive basket size to some degree as well.

Kenneth Goldman - JP Morgan Chase & Co, Research Division

Yes, that make sense. A couple more if I can. Is there anything abnormal in the seasonality of Rainbow stores' sales or EBITDA that we should consider when we model?

Darren W. Karst

Not really. I mean, I would say seasonality, it tracks pretty much like the rest of our business.

Kenneth Goldman - JP Morgan Chase & Co, Research Division

Okay. And then last one, you're not necessarily all in on Mariano's yet, but your hands, I guess, are on the pile of chips, right? We continue to see actions that would allow you more fuel to build out that store base faster. So is there even a remote possibility, as I think about you selling off the Wisconsin business or the Minneapolis business, is there even a remote possibility you would divest some of your Wisconsin stores? I mean, the more competitive that, that area gets, obviously, the less attractive it is. I'm just thinking what would you do to give yourself even more ammunition to grow Chicago as fast as you possibly can?

Robert A. Mariano

That's a good question. But I think we've taken one step today and will continue to look at where -- which strategic plans we have to make in the future. This year, we're opening up, if my count is right, a total of 16 stores. So I think you for fiscal 2014, we get this behind us, we did a pretty handsome job. So we'll continue to evaluate what's the best place to go, but your question is well put.

Operator

Our last question comes from Matthew Larson with Robert W Baird.

Matthew J. Larson - Robert W. Baird & Co. Incorporated, Research Division

Kind of building off of Ken's last question there, if you were to do something strategic with other parts of the core, would you run faster in Chicago, or would do take Mariano's to other geographies? How would you kind of think about that?

Robert A. Mariano

I mean, I think we're basing hypothesis upon hypothesis now. So I mean, I think we've got our -- we've got plenty to do this year in terms of getting things accomplished. I think we've stated, subsequent to getting done what we need to do this year, we'll take a step back and take a look at where we're at. So I think our near-term assignment is consolidate our business as a consequence of the Rainbow divestiture, get that done, get all these Mariano's stores opened, get them running right and while that's moving, we'll assess where we want to go next. So I think that's work that doesn't need to be done yet.

Thanks, everybody, for your participation today. I just like to take a moment to thank all of our employees, our trade partners, our shareholders and most importantly, our customers, for all their support. We do appreciate your interest in Roundy's and look forward to sharing our progress with you over the next quarter. Thank you very much.

Operator

That concludes today's conference. Thank you for participating. You may disconnect at this time.

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