S-1/A 1 a2242844zs-1a.htm S-1/A

Use these links to rapidly review the document
TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS

As filed with the Securities and Exchange Commission on January 25, 2021.

Registration No. 333-249554


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Amendment No. 5
to

FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933



SOUTHEASTERN GROCERS, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
  5411
(Primary Standard Industrial
Classification Code Number)
  27-1845190
(I.R.S. Employer
Identification Number)

8928 Prominence Parkway #200
Jacksonville, Florida 32256
(904) 783-5000

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)

M. Sandlin Grimm
Chief Legal Officer
8928 Prominence Parkway #200
Jacksonville, Florida 32256
(904) 783-5000

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)



Copies to:
Alexander D. Lynch, Esq.
Barbra J. Broudy, Esq.
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
(212) 310-8000 (Phone)
(212) 310-8007 (Fax)
  Marc D. Jaffe, Esq.
Stelios G. Saffos, Esq.
Latham & Watkins LLP
885 Third Avenue
New York, New York 10022
(212) 906-1200 (Phone)
(212) 751-4864 (Fax)

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

                   If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

                   If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

                   If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

                   If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

                   Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý   Smaller reporting company o

Emerging growth company o

                   If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. o

CALCULATION OF REGISTRATION FEE

               
 
Title of Each Class of Securities
to be Registered

  Amount to be
registered(1)

  Proposed Maximum
Aggregate Offering
Price Per Share

  Proposed Maximum
Aggregate Offering
Price(1)(2)

  Amount of
Registration Fee

 

Common stock, $0.001 par value per share

  10,235,000   $16.00   $163,760,000   $17,866.22(3)

 

(1)
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) promulgated under the Securities Act of 1933, as amended.

(2)
Includes shares of common stock that may be issuable upon exercise of an option to purchase additional shares granted to the underwriters. See "Underwriting (Conflicts of Interest)."

(3)
The filing fee has been previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

   


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion

Preliminary Prospectus dated January 25, 2021

PROSPECTUS

GRAPHIC

8,900,000 Shares

Southeastern Grocers, Inc.

Common Stock



              This is an initial public offering of shares of common stock of Southeastern Grocers, Inc. (the "Company"). The selling stockholders named in this prospectus are offering 8,900,000 shares of our common stock. We will not be selling any shares in this offering and will not receive any proceeds from the sale of our common stock by the selling stockholders.

              It is currently estimated that the initial public offering price per share will be between $14.00 and $16.00. Prior to this offering, there has been a limited market for our common stock. We have been approved to have our common stock listed on the New York Stock Exchange ("NYSE") under the symbol "SEGR."

              Investing in our common stock involves a high degree of risk. See "Risk Factors" beginning on page 25 to read about factors you should consider before buying shares of our common stock.

              Neither the Securities and Exchange Commission (the "SEC") nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.



 
 
Per Share
 
Total
 

Initial public offering price

  $     $    

Underwriting discounts and commissions(1)

  $     $    

Proceeds, before expenses, to the selling stockholders

  $     $    
(1)
See "Underwriting (Conflicts of Interest)" for additional information regarding total underwriting discounts and commission and estimated offering expenses.

              To the extent that the underwriters sell more than 8,900,000 shares of common stock, the underwriters have an option to purchase up to an additional 1,335,000 shares of common stock from the selling stockholders at the initial public offering price less the underwriting discounts and commissions, for 30 days after the date of this prospectus. We will not receive any proceeds from the sale of our common stock by the selling stockholders pursuant to any exercise of the underwriters' option to purchase additional shares.

              The underwriters expect to deliver the shares to investors against payment in New York, New York on or about                                    , 2021.



BofA Securities   Goldman Sachs & Co. LLC

 

Deutsche Bank Securities   BMO Capital Markets   Wells Fargo Securities

 

    Truist Securities    



   

The date of this prospectus is                        , 2021.


Table of Contents

GRAPHIC


Table of Contents

GRAPHIC


Table of Contents

GRAPHIC


TABLE OF CONTENTS

 
  Page  

Prospectus Summary

    1  

Risk Factors

    25  

Cautionary Note Regarding Forward-Looking Statements

    55  

Use of Proceeds

    57  

Dividend Policy

    58  

Capitalization

    59  

Dilution

    61  

Selected Historical Consolidated Financial Data

    62  

Management's Discussion and Analysis of Financial Condition and Results of Operations

    64  

Business

    84  

Management

    101  

Executive and Director Compensation

    107  

Principal and Selling Stockholders

    133  

Certain Relationships and Related Party Transactions

    137  

Description of Material Indebtedness

    140  

Description of Capital Stock

    143  

Shares Eligible for Future Sale

    146  

Certain Material U.S. Federal Income Tax Considerations for Non-U.S. Holders

    148  

Underwriting (Conflicts of Interest)

    152  

Legal Matters

    160  

Experts

    160  

Where You Can Find More Information

    160  

Index to Financial Statements

    F-1  



              Through and including                        , 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.



              Neither we, the selling stockholders nor the underwriters (or any of our or their respective affiliates) have authorized anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or on behalf of us or to which we have referred you. Neither we, the selling stockholders nor the underwriters (or any of our or their respective affiliates) take any responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We, the selling stockholders and the underwriters (or any of our or their respective affiliates) are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus or any free-writing prospectus is only accurate as of its date, regardless of its time of delivery or the time of any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

Trademarks and Trade Names

              We and our subsidiaries own or have the rights to various trademarks, trade names, service marks and copyrights, including the following: Winn-Dixie, Harveys, Fresco y Más, BI-LO, Chek, SE Grocers and Prestige. Solely for convenience, the trademarks, trade names, service marks and copyrights referred to herein are listed without the ©, ® and ™ symbols, but such references are not intended to

i


indicate, in any way, that we, or the applicable owner, will not assert, to the fullest extent under applicable law, our or their, as applicable, rights to these trademarks, trade names, service marks and copyrights. Other trademarks, trade names, service marks or copyrights appearing in this prospectus are the property of their respective owners.

Market and Industry Information

              Unless otherwise indicated, market data and industry information used throughout this prospectus is based on management's knowledge of the industry and the good faith estimates of management. We also relied, to the extent available, upon management's review of independent industry surveys and publications, other publicly available information prepared by a number of sources, including IRI Worldwide industry data, Moody's Analytics and U.S. Census Bureau. All of the market data and industry information used in this prospectus involves a number of assumptions and limitations and you are cautioned not to give undue weight to such estimates. Although we believe that these sources are reliable, neither we, the selling stockholders nor the underwriters can guarantee the accuracy or completeness of this information and neither we, the selling stockholders nor the underwriters have independently verified this information. While we believe the estimated market position, market opportunity and market size information included in this prospectus is generally reliable, such information, which is derived in part from management's estimates and beliefs, is inherently uncertain and imprecise. Projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in "Risk Factors," "Cautionary Note Regarding Forward-Looking Statements" and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in our estimates and beliefs and in the estimates prepared by independent parties.

              After giving effect to the Planned Dispositions (as defined below), we will operate 419 stores in Florida, Alabama, Louisiana, Georgia and Mississippi. The six major markets in which we compete, as grouped by IRI Worldwide industry data, are (i) Birmingham and Montgomery, Alabama, (ii) Jacksonville, Florida, (iii) Miami and Ft. Lauderdale, Florida, (iv) New Orleans, Louisiana and Mobile, Alabama, (v) Orlando, Florida and (vi) Tampa and St. Petersburg, Florida (collectively, the "six major markets"). References to "MULO" refer to one of the markets available from IRI. MULO stands for "Multi Outlet" and includes the following channels: Food/Grocery, Drug, Mass Merchandisers, Walmart, Club Stores, Dollar Stores, Military DECA (commissaries).

Basis of Presentation

              We report our year-end financial position, results of operations and cash flows on the last Wednesday in December. The last five fiscal years consisted of the 52-week periods ended December 25, 2019 ("fiscal year 2019"), the 30 weeks ended December 26, 2018 and the 22 weeks ended May 30, 2018 (combined, "fiscal year 2018"), December 27, 2017 ("fiscal year 2017"), December 28, 2016 ("fiscal year 2016") and December 30, 2015 ("fiscal year 2015"). The first quarter of each fiscal year includes 16 weeks while the remaining quarters include 12 weeks each quarter.

              We completed our reorganization on May 31, 2018, and elected to apply fresh start accounting effective May 30, 2018, to coincide with the timing of a normal weekly close. Therefore, the historical consolidated financial data is presented in this prospectus on a Predecessor and Successor basis. The events between May 30, 2018 and May 31, 2018 were evaluated and management concluded that the use of an accounting convenience date did not have a material impact on our results of operations or financial position. References to "Successor" relate to our results of operations and financial position subsequent to May 30, 2018, the day prior to our emergence from bankruptcy. References to "Predecessor" relate to our results of operations and financial position prior to, and including, May 30, 2018. Our historical consolidated financial results as of and for periods ending after May 30, 2018 may

ii


not be comparable to our historical consolidated financial results as of and for periods ending on or before May 30, 2018. See "Prospectus Summary—Reorganization."

Non-GAAP Financial Measures

              As used in this prospectus, (i) "Adjusted EBITDA" is defined as generally accepted accounting principles ("GAAP") net income before interest expense, income taxes, and depreciation and amortization ("EBITDA"), adjusted for loss (gain) on sale or disposition of assets; expenses associated with the closing or disposition of stores; impairment expense; franchise taxes; expenses (income) in connection with the Reorganization (as defined below), business optimization and other strategic initiatives, primarily consisting of professional and consulting fees related to a review of our pricing and promotional strategy, cost savings initiatives, as well as activities relating to the Planned Dispositions and public company preparation costs; loss on extinguishment of debt; incremental costs attributable to opening, remodeling or converting a store; (gain) loss from natural disasters, net of insurance recoveries; share-based compensation expense; fresh start accounting adjustments; fees and expense reimbursement to LSF Southeastern Grocery Holdings LLC; and board of directors fees, (ii) "Net Sales Adjusted for the Planned Dispositions" is defined as net sales less the net sales of the stores to be sold in connection with the Planned Dispositions (as defined below) or closed in the normal course since the beginning of fiscal year 2019, (iii) "Total Debt" is defined as the sum of long-term debt (including the current portion thereof), unamortized debt issuance costs, unamortized debt discount (premium) and finance/capital lease obligations (including the current portion thereof) and other financing obligations for fiscal year 2015 through fiscal year 2018, (iv) "Total Net Debt" is defined as Total Debt less cash, and (v) Net Debt Leverage is defined as Total Net Debt divided by Adjusted EBITDA.

              Adjusted EBITDA, Net Sales Adjusted for the Planned Dispositions, Total Debt, Total Net Debt and Net Debt Leverage (collectively, the "Non-GAAP Measures") are performance measures that provide supplemental information. We believe that these supplemental Non-GAAP Measures provide management and other users with additional meaningful financial information that should be considered when assessing our ongoing performance. Our management regularly uses our supplemental Non-GAAP Measures internally to understand, manage and evaluate our business and make operating decisions. These Non-GAAP Measures are among the factors management uses in planning for and forecasting future periods. In addition, the instruments governing our indebtedness use Adjusted EBITDA (with additional adjustments) to measure our compliance with covenants such as interest coverage and debt incurrence. Non-GAAP Measures should be viewed in addition to, and not as an alternative to, our reported results prepared in accordance with GAAP. For a reconciliation of these Non-GAAP Measures to the most directly comparable GAAP financial measures, see "Prospectus Summary—Summary Historical Consolidated Financial and Other Data."

              Non-GAAP Measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our operating results or cash flows as reported under GAAP. The primary material limitations associated with the use of Non-GAAP Measures include the following: (i) they may not be comparable to similarly titled measures used by other companies, including those in our industry, (ii) they may exclude financial information and events, such as the effects of fresh start accounting adjustments and expenses in connection with the Reorganization, business optimization, and other strategic initiatives, that some may consider important in evaluating our performance, value or prospects for the future, (iii) they may exclude items or types of items that may continue to occur from period to period in the future and (iv) they may not exclude all unusual or non-recurring items, which could increase or decrease these measures, which investors may consider to be unrelated to our long-term operations. These Non-GAAP measures are not, and should not be viewed as, substitutes for their U.S. GAAP equivalents. We encourage investors to review our consolidated financial statements in their entirety and caution investors to use U.S. GAAP measures as the primary means of evaluating

iii


our performance, value and prospects for the future, and Non-GAAP Measures for supplemental purposes.

Comparable Store Sales

              As used in this prospectus, the term "comparable store sales growth" refers to the percentage change in our comparable store sales as compared to the prior comparable period. We define comparable store sales as sales from all stores that have been operated by us and open for at least a full year, including stores that we remodeled, enlarged or relocated during the period, and excluding stores that opened or closed during the period. Remodeled stores include banner conversions. This definition may differ from the methods that other retailers use to calculate comparable store sales. In this prospectus, when we give quarterly comparable store sales, we adjust such sales for the estimated impact of the timing of Easter.

Explanatory Notes

Planned Dispositions

              On May 29, 2020, we entered into an agreement (the "Food Lion Store Sales Agreement") to sell 62 stores (comprised of 46 BI-LO stores and 16 Harveys stores) to Food Lion, LLC. We also entered into an agreement with Ahold Delhaize USA Distribution, LLC ("Ahold Delhaize") to transition our distribution center located in Mauldin, South Carolina to Ahold Delhaize. Under the terms of these agreements, we will sell substantially all of the store-related assets (including the owned and leased real property), exclusive of certain assets including inventory and pharmacy prescription files. The initial closings under the Food Lion Store Sales Agreement commenced on January 15, 2021 and are expected to continue through the first week of April 2021.

              Also in May 2020, we entered into agreements to sell the pharmacy prescription files for 58 of the in-store pharmacies that we operate, included in the dispositions mentioned in the above and below paragraphs, to CVS and Walgreens, which sales closed in the late part of the second quarter of fiscal year 2020. The total sale price was $56.3 million for the pharmacy prescription files and $6.8 million for the acquired inventory.

              In addition, in June 2020, we announced our intention to sell an additional 63 stores, comprised of 61 BI-LO stores and two Harveys stores, in North Carolina, South Carolina and Georgia by the end of first half of fiscal year 2021. In September 2020, we announced an agreement to sell 23 of the 63 stores (together with the Food Lion Store Sales Agreement, the "Store Sales Agreements"), comprised of 22 BI-LO stores and one Harveys, in South Carolina and Georgia to Alex Lee, Inc. and its affiliates Floco Foods, Inc. and Lowes Foods, LLC (together, "Alex Lee"), under which Alex Lee will purchase 20 stores and Brunson and Triplett Enterprises LLC ("B&T Foods") will purchase three stores pursuant to a right of assignment held by Alex Lee. After these dispositions, we will no longer operate stores under the BI-LO banner. Approximately 87% of our remaining portfolio will consist of the Winn-Dixie banner subsequent to the dispositions.

              In this prospectus we refer to the planned disposition by sale or closure of the 40 remaining stores, together with the 85 stores that are being sold pursuant to the Store Sales Agreements, as the "Planned Dispositions." Unless otherwise stated, historical financial data provided in this prospectus does not give effect to the Planned Dispositions. Unless otherwise stated, or the context otherwise requires, descriptions of our business and operational data provided in this prospectus give effect to the Planned Dispositions.

              We expect to receive approximately $135 million of net proceeds from the Planned Dispositions, including the sale of the pharmacy prescription files discussed above, which includes $65 million of proceeds received through the end of 2020 and an estimated $70 million in remaining

iv


net proceeds to be received in future periods, net of all transition and exit costs and approximately $14 million of potential future unmitigated lease carry costs beyond 2021 if a buyer for the 40 stores is not identified and the stores close instead.

Reorganization

              On March 27, 2018, Southeastern Grocers, LLC and 26 of its subsidiaries filed voluntary petitions for reorganization under chapter 11 of the federal bankruptcy laws ("Chapter 11") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") pursuant to a prepackaged plan of reorganization. On May 30, 2018, we converted from a limited liability company to a corporation. As a result, all of our membership interests were canceled and new equity interests were issued in the form of common stock. We emerged from bankruptcy on May 31, 2018 (the "Emergence Date"). We refer to this reorganization as the "Reorganization" in this prospectus. Although we emerged from bankruptcy on May 31, 2018, we elected to apply fresh start accounting effective May 30, 2018, to coincide with the timing of a normal weekly close. The events between May 30, 2018 and May 31, 2018 were evaluated and management concluded that the use of an accounting convenience date did not have a material impact on our results of operations or financial position. In addition, on the Emergence Date, we entered into (i) an ABL credit agreement, among BI-LO Holding, LLC, BI-LO, LLC, the lenders party thereto, Suntrust Bank, as administrative agent, Joint FILO Lead Arrangers and Joint FILO Bookrunners, Joint Tranche A Lead Arrangers and Joint Tranche A Bookrunners and Documentation Agents (the "ABL Credit Agreement"), which included both a $550 million revolving credit facility (the "Revolving Credit Facility") and a $50 million first-in, last out facility (the "FILO Facility") and (ii) a term loan credit agreement, among BI-LO Holding, LLC, BI-LO, LLC, the lenders party thereto, Suntrust Bank, as administrative agent, and Joint Lead Arrangers and Joint Bookrunners (the "Term Loan Agreement"), governing our $475 million term loan (the "Term Loan"). On August 6, 2020, we repaid in full and terminated the FILO Facility. In addition, on October 9, 2020, we repaid and terminated our Term Loan.

Refinancing Transactions

              On October 9, 2020, we repaid the outstanding balance of our Term Loan and terminated our Term Loan Agreement with proceeds from the issuance of $325 million aggregate principal amount of 5.625% Senior Secured Notes due 2028 (the "Notes") together with cash on hand and drawings under the Revolving Credit Facility of approximately $30.2 million. We refer to the Notes offering, the use of cash on hand and the drawdown of amounts under the Revolving Credit Facility and the use of proceeds thereof to fund the repayment of the Term Loan in full and pay associated fees and expenses as the "Refinancing Transactions" in this prospectus.

              In connection with the Refinancing Transactions, we amended the ABL Credit Agreement to, among other things, provide any necessary consents to consummate the Refinancing Transactions, reduce the commitments under the Revolving Credit Facility from $550 million to $450 million and join SEG Holding Finance, LLC as a guarantor under the ABL Credit Agreement.

v


Table of Contents

 

PROSPECTUS SUMMARY

              This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read this entire prospectus, including our consolidated financial statements and the related notes included elsewhere in this prospectus. You should also consider the matters described under the sections titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," in each case included elsewhere in this prospectus. Unless otherwise stated, the terms "Southeastern Grocers," "SEG," the "Company," "we," "us" and "our" refer to Southeastern Grocers, Inc. and its consolidated subsidiaries. Unless otherwise stated, historical financial data provided in this prospectus does not give effect to the Planned Dispositions. Unless otherwise stated, or the context otherwise requires, descriptions of our business and operational data provided in this prospectus give effect to the Planned Dispositions.


Company Overview

              We are a leading regional food retailer based on revenue and number of stores we operate with a long-standing history in the Southeastern United States, serving highly attractive markets throughout Florida, Georgia, Alabama, Louisiana and Mississippi. We operate 419 stores under the "Winn-Dixie," "Harveys" and "Fresco y Más" supermarket banners. We believe we are the sixth largest conventional supermarket operator in the United States and the second largest conventional supermarket operator in the five states in which we operate, respectively, based on aggregate number of stores we operate. According to IRI Worldwide industry data, we maintain the #2 market share position by revenue among conventional supermarkets within the six major markets in which we compete in the five states in which we operate. Additionally, we operate 140 liquor stores, 231 in-store pharmacies and one centralized specialty pharmacy, which supplement our product assortment and drive incremental sales.

              We operate our business as a single unit with a single management team, but execute our go-to-market strategy through three well-positioned banners with differentiated strengths and distinct heritages. Over our more than 95+ year history, we have established a difficult to replicate network of attractive, well-maintained stores, which are often located in high-traffic areas in close proximity to densely populated residential neighborhoods. We strive to build a strong connection with our customers and differentiate ourselves from our competitors by providing a compelling shopping experience that combines a full-service, one-stop shop, emphasizing high-quality, fresh and locally tailored offerings, with excellent customer service and competitive prices. While our stores account for the vast majority of our sales today, we also utilize third-party partners to provide eCommerce shopping—allowing us to serve our customers when, where and how they choose to shop. In addition, our sophisticated loyalty program currently covers more than seven million active customers who generated more than 85% (excluding pharmacy sales) of our net sales and approximately 75% of all transactions in fiscal 2019, which we believe gives us an advantage against our competitors who do not have established loyalty programs and customer specific shopping data. Our loyalty program provides us with a deep understanding of our customer base and enables us to offer a compelling, connected personalization experience in order to increase connectivity and capture a larger share of wallet.

              We believe the impact of the novel coronavirus ("COVID-19") global pandemic has enabled us to solidify our competitive positioning, enhance our value proposition and connect us more closely with our customers. Our focus has remained on providing a safe environment for our customers and our approximately 37,000 associates, while also maintaining adequate in-stock positions throughout our stores in order to service what we believe is an increased customer preference for full service, one-stop shop grocery trips. As a result, we have experienced a significant increase in sales over multiple months since the COVID-19 pandemic began to impact the markets we serve, which has provided us incremental cash flow to accelerate our in-store and digital investments, customer connectivity

1


Table of Contents

initiatives and further deleveraging. For the March through September 2020 period (with June through September giving effect for the Planned Dispositions), our median comparable store sales growth was 22%. Importantly, we are incredibly proud of the performance of our associates who have consistently demonstrated strong dedication to safely support their teammates, customers and communities.

              In fiscal 2019, without giving effect to the Planned Dispositions, we generated net sales of $8.3 billion, net loss of $116.2 million and Adjusted EBITDA of $292.5 million, and for the 40 weeks ended September 30, 2020 we generated net sales of $7.4 billion, net income of $235.1 million and Adjusted EBITDA of $473.8 million. As adjusted for the Planned Dispositions, we generated $6.7 billion of net sales, or Net Sales Adjusted for the Planned Dispositions, in fiscal 2019 and $6.1 billion of Net Sales Adjusted for the Planned Dispositions for the 40 weeks ended September 30, 2020. See "—Summary Historical Consolidated Financial and Other Data" for more information regarding Adjusted EBITDA and Net Sales Adjusted for the Planned Dispositions, as well as reconciliations of these Non-GAAP Measures to net income (loss) and their limitations.


Successful Repositioning of the Business has Driven Strong Financial Momentum

              The merger of BI-LO and Winn-Dixie in 2012 significantly enhanced our scale and marked the beginning of a period of rapid store expansion through acquisition activity. As a result of the merger, the acquisition of the Sweetbay and Harveys banners in 2013 and various other bolt-on acquisitions, we increased our store base by approximately 265% from 2011 through 2015. While we realized positive initial results from our expansion and have benefited from exposure to the attractive Florida market, the increased attention required to integrate these stores and implement a new supply agreement, as well as significant price investments, including a switch to an everyday low price strategy in 2016, hampered our financial performance.

              Anthony Hucker became our Chief Executive Officer in 2017, and, under his leadership, we established a transformation plan to better position us for sustainable growth in the future. This plan focused on deleveraging the balance sheet and stabilizing the business through a series of retail best-practices and cost-savings initiatives targeted at improving cost controls, increasing sourcing and labor productivity and returning to our historical high-low pricing architecture. We also increased investments in our store base, loyalty program and private-label "Own Brands" capabilities.

              In May 2018, we emerged from the Reorganization 65 days after we initially filed for bankruptcy pursuant to a prepackaged plan that significantly reduced our financial leverage by over $600 million and allowed us to further optimize our store base. As a result, we exited the Reorganization with greater flexibility to accelerate the implementation of our key initiatives. These initiatives, which act as the foundation of our current growth strategy, were aimed at further rejuvenating our store fleet through increased renewals, aligning our promotional activity, optimizing our product assortment including a greater focus on fresh and our Own Brands portfolio and enhancing customer connectivity utilizing our sophisticated loyalty program.

              In May 2020, as the latest step in our transformation plan, we reached an agreement to sell 62 stores, comprising 46 BI-LO stores and 16 Harveys, located throughout the Carolinas and Georgia to Food Lion, a subsidiary of Ahold Delhaize. We also entered into an agreement to transition our distribution center located in Mauldin, South Carolina, to Ahold Delhaize. In September 2020, we announced an agreement to sell an additional 23 stores in South Carolina and Georgia to Alex Lee, under which Alex Lee will purchase 20 stores and B&T Foods will purchase three stores pursuant to a right of assignment held by Alex Lee. We are actively exploring strategic options for the remaining 39 BI-LO stores and one Harveys in the region. In addition, in May 2020 we announced the sale of prescription files at 58 stores to CVS and Walgreens. These were important strategic decisions that allow for greater focus and investment in growing the Winn-Dixie, Harveys and Fresco y Más banners. These dispositions also enhance our relative exposure to the attractive Florida market, which will

2


Table of Contents

account for approximately 76% of our total stores. The remaining stores also had stronger financial performance in fiscal year 2019, as well as a lower average age and a higher percentage of remodeled stores in the last five years. Additionally, over the past year, our Winn-Dixie banner, which will comprise 87% of our remaining portfolio after the Planned Dispositions, has experienced an increase in market share as compared to traditional supermarket food retailers and the MULO market, according to IRI Worldwide industry data.

              The execution of our transformation plan and strategic initiatives has resulted in significant operational and financial momentum in our business, as well as tailwinds from COVID-19, as evidenced by the following key financial metrics:

    our comparable store sales improved each year from a decline of 3.6% in fiscal year 2016 to 0.4% growth in fiscal year 2019, including positive comparable store sales for each quarter in fiscal year 2019, and 17.8% growth for the 40 weeks ended September 30, 2020;

    our net income (loss) improved from $(468.3) million in fiscal year 2016 to $(116.2) million in fiscal year 2019 to $235.1 million for the 40 weeks ended September 30, 2020;

    our net income (loss) as a percent of net sales improved from (4.48)% in fiscal year 2016 to (1.40)% in fiscal year 2019 to 3.18% for the 40 weeks ended September 30, 2020;

    our Adjusted EBITDA margins steadily improved from 2.4% in fiscal year 2016 to 3.5% in fiscal year 2019 (despite fiscal year 2019 Adjusted EBITDA being negatively impacted as compared to prior years due to the adoption of new lease accounting standards, see "—Summary Historical Consolidated Financial and Other Data") to 6.4% for the 40 weeks ended September 30, 2020; and

    our Net Debt Leverage has been reduced from 6.2x as of the end of fiscal year 2016 to 2.7x as of the end of fiscal year 2019.

              We believe the continued execution of our operational initiatives will contribute to our growth as a leading conventional supermarket in the Southeastern markets where we operate.


Our Competitive Strengths

              We believe operating as a locally relevant food retailer is core to the fundamental success of our business. As a result, we have implemented a "Smart Localization" strategy, which provides a framework for our decision making as well as a roadmap for our strategic initiatives and go-to-market strategy. Smart Localization integrates our data-rich loyalty program, our customer connectivity strategies and our commitment to the communities in which we operate, to deliver customers a personalized, high-touch service model, with a distinct and locally relevant product range at an attractive value.

              Leading Market Position Established Through Portfolio of Well-Recognized Local Banners.    We believe our leading market positions and strong brand recognition of our banners help generate customer traffic and loyalty. We are the largest or second largest conventional supermarket by revenue in all of the major metropolitan markets within the Southeastern states in which we operate. Our go-to-market strategy is based on the operation of three banners that provide our customers a differentiated product offering and shopping experience at a compelling value. Our multi-banner approach allows for broad reach to various demographics across income brackets and ethnicities while allowing for a personalized approach to customer service, store operations and assortment in a way that maximizes overall customer value proposition. Our Winn-Dixie and Harveys banners have deep local heritages that go back more than 90 years and are well established neighborhood markets within the communities they serve. Since the creation and implementation of our Fresco y Más banner in 2016, we

3


Table of Contents

have established a strong local following within our 26 stores by providing an authentic shopping experience targeted at the rapidly growing Hispanic demographic.

              We believe that our regional focus also provides us several competitive advantages compared to national grocers, including (i) a differentiated value proposition driven by convenience and preferred store locations; (ii) expertise in assortment and merchandising driven by a deep understanding of our customers and neighborhoods; (iii) a fresh produce offering that drives traffic and loyalty; (iv) a private-label offering that creates brand-specific loyalty; (v) flexible operations with ability to quickly react to changing market environment; and (vi) superior customer service model. Regional grocers have been growing revenue at a median CAGR of 6% between 2017 and 2019, compared to median CAGR of 3% for national grocers.

              Attractive, High-Growth Markets with Favorable Demographics.    We believe that the Southeastern United States is an attractive region for supermarket retailing that is characterized by:

    expected population growth above the national average;

    an attractive demographic landscape which is well-aligned with our portfolio of brands; and

    a business-friendly environment with low relative operating costs.

              According to Moody's Analytics, the five states in which we operate are expected to have a weighted average overall projected population growth between 2019 and 2025 of 4.3%, as compared to an overall projected population growth of 3.2% in the United States. Moody's Analytics estimates that Florida, which is the third most populous state in the U.S. and was the number one state in population inflow in 2019 and where 76% of our stores are located, will experience an overall population growth of 6.0% during this period, driven by higher birth rates compared to the national average, continuing high levels of immigration and an overall aging United States population that is drawn to Florida. Key markets within Florida also outpace the United States on population and income growth, represented in the below graph:

GRAPHIC

              We believe multiple key markets within Florida are underpenetrated relative to the national average as measured by grocery square footage per capita (4.3 square feet per capita), including Miami (3.2 square feet per capita with an estimated market size of approximately $19.6 billion), Tampa (3.6 square feet per capita with an estimated market size of approximately $10.0 billion), Jacksonville (3.6 square feet per capita with an estimated market size of approximately $4.8 billion), and Orlando (3.7 square feet per capita with an estimated market size of approximately $7.7 billion). In addition, we believe 89% of our Florida leases are at or below market rate and typically have initial lease terms of up to 25 years, representing approximately $30.0 million in total savings or approximately $2.0 per square foot.

              According to the U.S. Census Bureau, approximately 26% of Florida's population is Hispanic, and growing at a rate significantly above the broader population. We believe our Fresco y Más banner, which was developed organically to address the market opportunity presented by this demographic shift,

4


Table of Contents

as well as our Winn-Dixie and Harveys banners, are well-positioned to deliver a unique and compelling offering to this growing and underserved segment of the population.

              We also believe supportive government programs and incentives for businesses are driving commercial growth in the Southeast, creating jobs and offering attractive tax incentives for businesses that build in or relocate to these states. We believe the Southeast also offers an attractive labor market for us, with lower wage rates than the national average.

              Robust Loyalty Program Supports Strong Customer Value Proposition.    We are a competitively priced "high / low" operator. Through this pricing strategy, we set comparatively lower prices on selected merchandise using targeted discounts or promotions to drive customer traffic and sales, while maintaining comparatively higher prices on other merchandise in order to maintain consistent overall profitability across the store. In addition, we utilize our well-developed loyalty program to offer further savings beyond the in-store shelf price. Inclusive of loyalty program discounts, we believe we provide a highly competitive value proposition to our customer, especially when factoring in our full-service specialty departments, extensive product offerings and personalized customer service.

              Our sophisticated loyalty program currently covers more than seven million active customers who generated more than 85% (excluding pharmacy sales) of our net sales and approximately 75% of all transactions in fiscal 2019. In addition to the direct discount and point redemption savings provided to loyalty members, we have developed a number of additional customer loyalty and merchandising initiatives, including our Mystery Bonus Shop and Deal of the Week programs. We have historically found that as customers engage in additional aspects of our loyalty program, basket sizes increase significantly. For example, the basket size increase was approximately 1.2 times on average for a customer who engages in both our Mystery Bonus Shop and Deal of the Week initiatives, as well as our standard loyalty program, as compared to a customer who engages only in our standard loyalty program.

              We also use our loyalty program to augment our frequent shopper database to generate insights on customer preferences, which enables us to target our promotions to specific customer groups. We believe our ability to leverage our loyalty program and our robust data allow us to deliver a holistic loyalty offering that increases customer spend and retention. One of the central goals of our loyalty program is to create one-to-one relationships in order to influence customer behavior and drive further sales. At our core, loyalty and data are deeply embedded in our culture and inform all key decisions.

              High-Quality, Relevant Offering With an Emphasis on Fresh.    We believe we deliver a compelling merchandising offering with an emphasis on local and fresh products that serves as a point of differentiation compared to many of our competitors. Fresh sales accounted for approximately 32% of net sales in fiscal 2019, which we believe is competitive relative to national industry averages such as the MULO market, whose average fresh sales accounted for 25% of sales for the last twelve months ended October 5, 2020. Our fresh sales have historically carried higher margin profiles, represented by an approximate gross margin of 32% for fresh offerings compared to 25% for center store offerings in fiscal 2019. We have invested heavily in optimizing the perimeter of our store assortment, including our extensive selection of Certified Angus Beef, our high-quality produce and organic offerings, bakery with artisan breads and inviting floral displays. Our fresh and perimeter-of-store offerings are complemented by robust center-of-store and specialty assortments, all of which deliver a convenient, full-shop experience at a compelling value.

              Well-Developed Own Brands Portfolio Drives Sales and Enhances Profitability.    We have developed an award-winning portfolio of over 8,000 high-quality fresh, frozen and shelf-stable private-label products at value-oriented prices that we believe are similar or higher quality to their brand-name counterparts. For example, since relaunching the platform in 2016, we have won numerous quality

5


Table of Contents

awards for our yogurt, ice cream and other dairy products. We employ a multi-tiered private-label strategy, through which we seek to satisfy customers seeking premium, standard or core value products.

              We believe our Own Brands portfolio has been a meaningful contributor to same store sales growth, and these products generally have higher margins than branded counterparts, enhancing our overall profitability. Our Own Brands portfolio generated $1.5 billion and $1.6 billion in total sales (after giving effect to the Planned Dispositions) for the 40 weeks ended September 30, 2020 and fiscal year 2019, respectively (of which 44% and 39% was attributable to market, 13% and 14% to dairy, 8% and 8% to produce, and the remaining 35% and 39% to deli, floral, frozen food, general merchandise and other grocery items, respectively). We have successfully increased our Own Brands penetration of overall net sales from 26% in fiscal 2017, to approximately 27% for fiscal year 2019 and seek to continually introduce innovative items in underpenetrated categories to further expand penetration. In periods of challenging economic growth where customers are seeking value, we believe our Own Brands portfolio remains a key area to create further differentiation from our competition.

              Experienced Management Team with Proven Track Record of Achieving Results.    We believe our people and culture are essential to our success. We have assembled an experienced and dynamic management team comprised of a balanced mix of long-tenured Southeastern Grocers executives as well as recent hires who bring fresh perspectives and relevant areas of expertise. Our executive team is led by Anthony Hucker, our Chief Executive Officer, since 2017. Mr. Hucker is an over 30-year industry veteran with prior experience as Chief Operating Officer and President of Schnucks, President of Ahold USA's banner Food Giant and has held various senior leadership positions at Walmart and Aldi. On average, Mr. Hucker, Brian Carney, our Executive Vice President and Chief Financial Officer, and the other four members of our senior executive management team have over 30 years of retail industry experience. Our cohesive and results-driven management team has led several core strategic initiatives for us, which we believe have resulted in improved top-line results, significant cost savings, enhanced profitability and reduced leverage.


Our Growth Strategies

              We expect to drive sales growth and enhance profitability by executing on the following strategies, many of which are a continuation of our existing playbook, which has successfully driven our strong financial momentum over the last several years:

              Drive Comparable Store Sales Growth.    We intend to continue generating comparable store sales growth through our strategic growth initiatives:

    Loyalty:  We believe we offer the only significant loyalty program of scale among larger food retailers in the markets in which we operate, which we believe gives us a considerable competitive advantage. As a result, we believe we can access and analyze customer data from our established based of more than seven million active loyalty members in a more effective manner than competitors, and we are better able to target and communicate with our customers. In fiscal 2019, without giving effect to the Planned Dispositions, we believe our newly introduced next generation loyalty tactics, including our Mystery Bonus Shop and Deal of the Week, contributed approximately 70 basis points to fiscal 2019 net sales. Through ongoing investment in our loyalty program, strategies and targeting, we expect to attract new active members and increase engagement with our existing members.

    Fresh:  We expect to leverage targeted investments in our fresh offering capabilities to grow sales and diversify our assortment in stores. Fresh products represented approximately 32% of our net sales mix in fiscal 2019, which we believe is highly competitive relative to national food retail industry benchmarks such as the MULO market, whose average fresh sales accounted for 25% of sales for the last twelve months ended October 5, 2020. Fresh sales have historically carried higher margin profiles represented by an approximate gross margin

6


Table of Contents

      of 32% for fresh offerings compared to 25% for center store offerings in fiscal 2019. We continue to invest in our fresh offering, including the enhanced roll out of convenient, ready-to-eat and ready-to-heat meal solutions, Certified Angus Beef and the expansion of fresh produce and organic offerings, all of which have seen strong consumer demand. We believe our fresh initiatives provide a differentiated product offering and value proposition for our customers and will continue to drive future sales growth.

    Pricing:  Our disciplined and competitive pricing programs are expected to allow us to grow in-store traffic and promote customer loyalty. We operate a high-low pricing strategy that resonates with our customers by providing an opportunity for enhanced value for the prudent and economic shopper. Based on our competitive price checks, we believe that our high-low pricing strategy and loyalty program allow us to remain competitively priced across our competitors. We have significant experience using this strategy to generate sales and expect that our pricing strategy will contribute to our sales growth and profitability in the future.

    Own Brands:  We believe that our award-winning Own Brands portfolio enhances our customer value proposition. We currently offer over 8,000 high-quality fresh, frozen and shelf-stable private-label products at value-oriented prices and plan to introduce an additional 400 items in fiscal year 2020. In fiscal year 2019, our Own Brands penetration was approximately 27% and we have a goal of increasing our penetration in the future. Growing our Own Brands penetration also presents a significant opportunity to enhance profitability, as we estimate that every 1% increase in penetration results in approximately $7 million in gross profit annually, after giving effect to the Planned Dispositions, based on the average margin differential between similar branded products and our Own Brands.

    Digital and Mobile Capabilities:  We believe our physical footprint of well-placed stores are complemented by the third-party digital capabilities we utilize to provide our customers with a flexible shopping experience that allows them to shop where, when and how they choose. We are continuing to explore additional digital and mobile offerings to allow us to best serve our customers. We employ an asset-light approach, which leverages third-party partnerships to provide fulsome home delivery capabilities across our network. We have existing relationships with Uber, Shipt and Instacart, offering home delivery in 365 of our grocery stores and all liquor stores, and we expect to expand to additional stores by the end of 2020. We will continue to evaluate and pilot programs with existing and new partners to ensure we provide the appropriate coverage in a cost-efficient manner.

    Customer Experience:  We are relentless in our determination to provide a consistent, best-in-class customer experience. We believe it begins with the talent, dedication and knowledge of our store associates, who we invest significantly in, and believe are an integral component to our strategy. We are focused on implementing a customer connection strategy that will allow us to continue to serve our existing customers at the highest level and to attract new customers to our stores through our curated product offerings, distinct value proposition, digital capabilities, enhanced store environment and increased associate engagement.

    Connected Personalization Initiative:  We have entered into strategic relationships with a variety of digitally focused partners, including News America Marketing, Eagle Eye, Inc. and Dunhumby, Inc. to create a dynamic data analytics and marketing platform that will allow us to enhance our connected personalization capabilities, and to engage in more targeted and relevant interactions with our customers. We believe these investments will help generate incremental sales growth by providing a holistic platform to communicate with customers, including through targeted advertising or relevant product specials and coupons based on individual customer behaviors. Additionally, as we further integrate our connected

7


Table of Contents

      personalization capabilities with our more than seven million active member loyalty program, we believe there will be significant opportunity to monetize our customer knowledge with third-party consumer companies.

Strengthen Existing Stores Through the Renewal Program and Strategically Pursue Opportunities to Open New Stores.

    Renewals:  We continue to invest in store renewals with the expectation of driving comparable store sales growth and positively impacting customer loyalty. Our store renewal program employs a customized approach based on the conditions of each store and the characteristics of each surrounding neighborhood and typically involves cosmetic improvements to the exterior paint and signage, a remodel of department walls, new fixtures, flooring and enhancements to our merchandise offerings and positioning based on local area demographics as well as new consultation areas for our in-store pharmacies. The average store renewal expense was approximately $1.0 million per store during fiscal year 2019. After giving effect to the Planned Dispositions, from the beginning of fiscal 2016 through September 30, 2020, we have renewed 53% of our stores. By the end of 2020, we expect to have 180 store renewals completed, which, together with our banner conversions, will put our percentage of stores renewed at 55% since the beginning of fiscal 2016. We aim to renew another 42% of stores in the next four years (approximately 55 renewals per year), bringing our total stores renewed to 97% by the end of 2024. We also aim to obtain an average store age of less than four years by the end of 2024. For the 134 renewed stores that have been open for longer than 12 months, as of September 30, 2020, we experienced an average sales increase of approximately 10% and a return on investment that consistently exceeded our internal 20% target. We expect our renewal programs will continue to reinforce the customer experience and generate strong returns.

    Target New Stores:  Additionally, we will target new store openings (of approximately 10 new stores per year beginning in 2022) in existing and adjacent markets where we believe we are well positioned to capitalize on opportunities. We will also continue to seek value enhancing store acquisitions, which complement our existing store base. We expect that the integration of these stores will allow us to further enhance our revenue growth, leverage our cost structure and increase profitability.

              Enhance Profitability Through Leveraging Reduced Cost Base.    We believe we can continue to grow our profitability by leveraging our fixed cost base and improving comparable store sales through our merchandising programs. We have successfully introduced cost savings programs addressing goods-not-for-resale, goods-for-resale, store labor, vendor funding and leveraging selling, general and administrative ("SG&A") expenses. Between fiscal 2015 and 2017, without giving effect to the Planned Dispositions, we reduced total expenses by approximately $465 million. In 2020, we are continuing to improve our labor model by leveraging "Smart Localization" to optimize required labor costs per store, informed by customer expectations and behavior.

              Employ a Disciplined Approach to Capital Priorities and Investment.    We will pursue opportunities to thoughtfully invest capital into our business to drive our future success. In recent years, we have displayed our commitment to growth through our core markets and banners. We have chosen to invest in the renewal of our existing stores, while also investing in digital tools and systems that allow us to better serve our customers and drive comparable sales growth. We will also continue to assess adjacent markets to expand our store footprint while simultaneously assessing infill opportunities, and will seek to expand our liquor store opportunities. We are committed to maintaining a strong balance sheet and to continue to generate strong free cash flow, which will provide us with ample liquidity and allow us to self-fund our growth initiatives. We intend to deploy free cash flow to delever

8


Table of Contents

and to invest in projects with strong returns. We will also seek to proactively return capital to shareholders through modest dividends. As we continue to grow, we will remain disciplined in our approach to capital priorities, with a focus on achieving our sustainable, long-term growth strategy.


Risks Associated with Our Business

              Investing in our common stock involves a number of risks. These risks represent challenges to the successful implementation of our strategy and the growth of our business. Some of these risks are:

    adverse economic conditions;

    the impact of the COVID-19 pandemic on our business;

    failure to successfully execute our strategic initiatives;

    the competitive nature of the industry in which we conduct our business;

    our inability to timely identify or respond to customer trends;

    significant changes to our relationship with C&S Wholesale Grocers ("C&S");

    disruptions to our product supply or to C&S's distribution network;

    our inability to maintain the services of key personnel and failure to attract, train and retain qualified staff;

    risks associated with providing pharmacy services at our stores;

    our inability to open, relocate or remodel stores on schedule;

    increase in marketing, advertising and promotional costs and inability to implement effective marketing, advertising and promotional strategies;

    failure to maintain our reputation and the value of our brands, including protection of our intellectual property;

    risks associated with leasing substantial amounts of space, including liability under our operating leases assigned to third parties;

    impairment expenses on the value of our long-lived assets;

    risks related to adoption of fresh start accounting;

    failure to maintain the privacy and security of confidential customer and business information;

    disruptions of or compromises to our information technology system;

    a loss in customer confidence in the safety and quality of our products;

    our inability to retain the loyalty of our customers;

    results of any ongoing litigation or legal proceedings in which we are involved or in which we may become involved;

    changes in laws, rules and regulations affecting our industry;

    the geographic concentration of our locations, which makes us vulnerable to severe storm damage, natural disasters and other local adverse weather conditions;

    threats or potential threats to security of food and drug safety, the occurrence of a widespread health epidemic and/or pandemic or other incidents beyond our control;

9


Table of Contents

    attempts to unionize our employees;

    the seasonality of our business;

    inability to utilize a significant portion of our U.S. federal net operating loss carryforwards ("NOLs") or other tax attributes;

    increases or fluctuations in our operating costs;

    changes in accounting standards, subjective assumptions, estimates and judgements by management related to complex accounting matters;

    unanticipated changes in the insurance market or factors affecting self-insurance reserve estimates; and

    other factors discussed in "Risk Factors" and elsewhere in this prospectus.

              For a discussion of these and other risks you should consider before making an investment in our common stock, see the section entitled "Risk Factors."


Recent Developments

Preliminary Results and Operating Data as of and for the year ended December 30, 2020

              The last fiscal year consisted of the 53-week period ended December 30, 2020. Our audited consolidated financial results as of and for the year ended December 30, 2020 are not yet available. Below we have presented preliminary data and estimated ranges of certain of our financial results for the year ended December 30, 2020, which are based solely on preliminary information currently available to management. We have provided ranges, rather than specific amounts, for the preliminary estimates for the unaudited financial data described below primarily because our financial closing procedures for the year ended December 30, 2020 are not yet complete and, as a result, our final results upon completion of our closing procedures may vary from the preliminary estimates. The preliminary estimated ranges of certain of our financial results set forth below have been prepared by, and are the responsibility of, management and are based on a number of assumptions. Neither the Company's independent auditors, nor any other independent accountants, have audited, compiled, examined, or performed any procedures with respect to the preliminary financial information, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the preliminary financial information. Our actual results may differ from these estimates due to the completion of our final closing procedures, final adjustments and other developments that may arise between now and the time our financial results for the year ended December 30, 2020 are finalized. You should not place undue reliance on these preliminary estimates. In addition, these preliminary estimated financial results set forth below are not necessarily indicative of the results we may achieve in any future periods. This information should be read in conjunction with our consolidated financial statements and the related notes. See "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Cautionary Note Regarding Forward-Looking Statements" for additional information regarding factors that could result in differences between the preliminary estimated ranges of certain of our financial results that are presented below and the actual financial results we will report.

              The following includes certain preliminary estimates as of and for the year ended December 30, 2020:

    As of December 30, 2020, we operated 523 stores across Florida, South Carolina, Georgia, Alabama, Louisiana, North Carolina and Mississippi and, after giving effect to Planned Dispositions, we will operate 423 stores.

10


Table of Contents

    Net sales comparisons were measured on a 53 week basis in 2020 and a 52 week basis in 2019. Net sales are expected to be approximately $9.6 billion for the year ended December 30, 2020, as compared to $8.3 billion for the year ended December 25, 2019. Net Sales Adjusted for the Planned Dispositions are expected to be approximately $8.0 billion for the year ended December 30, 2020, as compared to $6.7 billion for the year ended December 25, 2019. The increase in net sales is primarily due to the increase in comparable sales driven by the demand for products due to the COVID-19 pandemic and the additional week of sales in fiscal 2020.

    Cost of sales comparisons were measured on a 53 week basis in 2020 and a 52 week basis in 2019. Cost of sales are expected to be approximately $7.0 billion for the year ended December 30, 2020, as compared to $6.1 billion for the year ended December 25, 2019. Gross profit is expected to be approximately $2.6 billion or 27.3% of net sales for the year ended December 30, 2020, as compared to $2.2 billion or 26.1% of net sales for the year ended December 25, 2019. The increase in gross profit was driven by the additional sales leverage, including shrink benefits, from the COVID-19 pandemic and a lower promotional environment.

    Comparable store sales, measured on a 52 week basis, are expected to be $9.1 billion for the year ended December 30, 2020, as compared to $7.8 billion for the year ended December 25, 2019. The increase of 16.3% for the year ended December 30, 2020 is primarily due to the increase in demand for products due to the COVID-19 pandemic, partially offset by the sales impact of the pharmacy closures which occurred in the later part of the second quarter of 2020. After giving effect to the Planned Dispositions, comparable store sales for the year ended December 30, 2020 are expected to be 17.6%. The increase in comparable store sales is primarily due to the increase in demand for products due to the COVID-19 pandemic. For the quarter ended December 30, 2020 comparable store sales are expected to increase 11.4% or 12.5% when adjusted for being closed on Thanksgiving Day in fiscal 2020 compared to being open on Thanksgiving Day in fiscal 2019. After giving effect to the Planned Dispositions, comparable store sales are expected to increase 13.5% or 14.7% when adjusted for being closed on Thanksgiving Day in fiscal 2020 compared to being open on Thanksgiving Day in fiscal 2019.

    Net income is expected to be between $343.5 million and $411.5 million for the year ended December 30, 2020, as compared to a net loss of $116.2 million for the year ended December 25, 2019. The increase in net income is primarily related to the 16.3% increase in comparable store sales and improved sales leverage experienced in gross margin and operating general and administrative expenses, an income tax benefit related to the estimated release of the valuation allowance on certain deferred tax assets, a decrease in depreciation and amortization expense, an increase in gain on sale of assets related primarily to the sale of pharmacy prescription files during the second quarter, a decrease in interest expense as a result of reduced debt balances as well as lower variable interest rates, partially offset by an increase in impairment expense primarily related to tradename impairment and loss on extinguishment of debt related to the Refinancing Transactions in the fourth quarter.

    Adjusted EBITDA is expected to be between $580 million and $595 million for the year ended December 30, 2020, as compared to $292.5 million for the year ended December 25, 2019. The increase in Adjusted EBITDA is primarily due to the increase in comparable store sales and improved sales leverage experienced in gross margin and operating, general and administrative expenses.

    As of December 30, 2020, we expect to have $33.4 million of cash and cash equivalents and $384.5 million of Total Debt for Total Net Debt of $351.1 million and Net Debt Leverage of

11


Table of Contents

0.6x. Total Net Debt does not include estimated remaining net cash proceeds of $70 million from the Planned Dispositions that we anticipate receiving subsequent to fiscal 2020 and an anticipated reduction in finance lease obligations of approximately $10.3 million upon the consummation of the Planned Dispositions.

    Capital expenditures for the year ended December 30, 2020 is expected to be between $155 million and $165 million, compared to $164.7 million for the year ended December 25, 2019.

    We expect to make deferred payroll tax payments related to the employer-paid portion of social security taxes provided under the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") of $46.7 million in 2021 and 2022.

    In connection with and conditioned upon consummation of this offering, we intend to declare and pay a special cash dividend of approximately $1.386 per share of common stock outstanding prior to this offering, or approximately $60.1 million in the aggregate and we expect to pay approximately $11.1 million at the midpoint of the filing price range in connection with the expected cash exercise of the warrant held by Lone Star.

12


Table of Contents

              The following table reconciles estimated Adjusted EBITDA to net income (loss) and Net Sales Adjusted for the Planned Dispositions to net sales, their most directly comparable GAAP financial performance measures, respectively.

 
  Estimated
Year Ended
December 30, 2020
  Year Ended
December 25,
2019
 
 
  Low   High   Actual  
 
  (in thousands)
 

Net income (loss)

  $ 343,500   $ 411,500   $ (116,240 )

Depreciation and amortization expense(a)

    174,000     171,000     238,403  

Interest expense

    55,700     55,200     82,339  

Income tax benefit(b)

    (110,000 )   (135,000 )   (995 )

EBITDA

    463,200     502,700     203,507  

Adjustments to reconcile EBITDA to Adjusted EBITDA:

                   

(Gain) loss on sale or disposition of assets(c)

    (4,575 )   (9,325 )   7,681  

Expenses associated with the closing or disposition of stores(d)

    6,350     4,850     20,324  

Impairment expense(e)

    47,675     40,175     21,188  

Franchise taxes

    500     400     488  

Expenses in connection with the Reorganization, business optimization, and other strategic initiatives(f)

    24,000     20,000     25,631  

Loss on extinguishment of debt(g)

    19,500     16,500        

Incremental costs attributable to opening, remodeling or converting a store(h)

    15,900     13,500     12,710  

Loss (gain) from natural disasters, net of insurance recoveries(i)

    600     100     (4,889 )

Share-based compensation expense(j)

    6,200     5,600     5,272  

Board of directors fees

    650     500     541  

Adjusted EBITDA

  $ 580,000   $ 595,000   $ 292,453  

Net sales

  $ 9,642,500   $ 9,647,500   $ 8,277,374  

Planned Dispositions stores net sales

    1,607,500     1,608,500     1,501,718  

Closed stores

    3,300     3,320     108,276  

Net Sales Adjusted for the Planned Dispositions

  $ 8,031,700   $ 8,035,680   $ 6,667,380  

(a)
Includes depreciation and amortization on property and equipment, intangible assets, and favorable/unfavorable leases.

(b)
As of December 30, 2020, we expect to recognize an income tax benefit between $110 million and $135 million primarily related to the estimated release of valuation allowance of certain deferred tax assets. As a result of our expected 2020 results and management's expectation of future profitability we have concluded that it is more-likely-than-not that substantially all of our deferred tax assets will be utilized.

(c)
Reflects the loss or gain resulting from the difference between proceeds received and carrying value of assets sold or carrying value of assets disposed or retired.

(d)
Includes costs related to store closures including non-cash lease related adjustments and lease-related costs for closed stores. Also, includes non-recurring severance and other disposal costs for store closures.

13


Table of Contents

(e)
Includes non-cash impairment expenses related to long-lived assets as well as indefinite-lived intangibles such as tradenames.

(f)
Includes costs related to (1) the prepackaged plan of reorganization, the Reorganization and any related transactions, (2) costs in connection with strategic initiatives and business optimization expense, primarily consisting of professional and consulting fees related to a review of our pricing and promotional strategy, cost savings initiatives, as well as activities relating to the Planned Dispositions and public company preparation costs, (3) costs in connection with equity issuances (including this offering), and (4) costs related to warehouse closures and other distribution network transition costs.

(g)
Reflects the loss on extinguishment of debt resulting from the Term Loan repayment and termination, the FILO repayment and termination, and the reduction in commitment on the Revolving Credit Facility.

(h)
Includes but is not limited to incremental advertising and payroll costs related to opening, remodeling or converting a store.

(i)
Represents the non-recurring loss or gain resulting from the difference between insurance proceeds received and carrying value of assets disposed or costs incurred related to natural disasters.

(j)
Represents non-cash compensation expense related to share-based awards.

              The following table shows how we calculate Total Debt, Total Net Debt and Net Debt Leverage:

 
  Estimated As of December 30, 2020   As of December 25, 2019  
 
  (in thousands, other than Net Debt Leverage)
 

Long-term debt (including current portion)

  $ 317,944   $ 768,521  

Unamortized debt issuance costs

    7,056     10,865  

Unamortized debt discount, net

    0     15,239  

Finance lease obligations (including current portion)

    59,517 (a)   56,180  

Total Debt

  $ 384,517   $ 850,805  

Cash and cash equivalents

    33,436     70,299  

Total Net Debt

  $ 351,081   $ 780,506  

Net Debt Leverage(b)

    0.6x     2.7x  

(a)
Includes $10,324 in liabilities held-for sale as of December 30, 2020.

(b)
Net Debt Leverage is Total Net Debt divided by Adjusted EBITDA.

Stock Split

              Our board of directors and our stockholders have approved a 4.329-for-1 forward stock split of our common stock, which was effected on January 25, 2021.


Corporate Information

              We are a Delaware corporation. We were incorporated as Southeastern Grocers, Inc. on May 30, 2018. Our principal executive offices are located at 8928 Prominence Parkway #200, Jacksonville, Florida 32256. Our telephone number is (904) 783-5000. Our corporate website address is

14


Table of Contents

www.segrocers.com. Our website and the information contained on, or that can be accessed through, our website is not deemed to be incorporated by reference in, and is not considered part of, this prospectus. You should not rely on any such information in making your decision whether to purchase our common stock.


Reorganization

              On March 27, 2018, Southeastern Grocers, LLC and 26 of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 in the Bankruptcy Court pursuant to a prepackaged plan of reorganization. On May 30, 2018, we converted from a limited liability company to a corporation. As a result, all of our membership interests were canceled and new equity interests were issued in the form of common stock. We emerged from bankruptcy on May 31, 2018. We refer to this reorganization as the "Reorganization" in this prospectus. Although we emerged from bankruptcy on May 31, 2018, we elected to apply fresh start accounting effective May 30, 2018, to coincide with the timing of a normal weekly close. The events between May 30, 2018 and May 31, 2018 were evaluated and management concluded that the use of an accounting convenience date did not have a material impact on the results of operations or financial position. In addition, on the Emergence Date, we entered into (i) the ABL Credit Agreement, which included both our $550 million Revolving Credit Facility and our $50 million FILO Facility, and (ii) the Term Loan Agreement, governing our $475 million Term Loan. On August 6, 2020, we repaid in full and terminated the FILO Facility. In addition, on October 9, 2020, we repaid and terminated our Term Loan.


Refinancing Transactions

              On October 9, 2020, we repaid the outstanding balance of our Term Loan and terminated our Term Loan Agreement with proceeds from the issuance of $325 million aggregate principal amount of 5.625% Senior Secured Notes due 2028 (the "Notes") together with cash on hand and drawings under the Revolving Credit Facility of approximately $30.2 million. We refer to the Notes offering, the use of cash on hand and the drawdown of amounts under the Revolving Credit Facility and the use of proceeds thereof to fund the repayment of the Term Loan in full and pay associated fees and expenses as the "Refinancing Transactions" in this prospectus.

              In connection with the Refinancing Transactions, we amended the ABL Credit Agreement to, among other things, provide any necessary consents to consummate the Refinancing Transactions, reduce the commitments under the Revolving Credit Facility from $550 million to $450 million and join SEG Holding Finance, LLC as a guarantor under the ABL Credit Agreement.


Special Cash Dividend

              In connection with and conditioned upon the consummation of this offering, we intend to declare and pay a special cash dividend of approximately $1.386 per share of common stock outstanding prior to this offering (or $6.00 per share on a pre-split basis), to holders of record of our common stock on the dividend record date (the "Special Cash Dividend"), or approximately $60.1 million in the aggregate. The Company's RSU award agreements provide for dividend equivalent rights on all outstanding restricted stock units ("RSU"), which are credited to RSU holders as additional RSUs equal in value to the allocable amount of the Special Cash Dividend. Therefore, in connection with the Special Cash Dividend, we intend to issue 424,982 RSUs (or approximately 98,171 RSUs on a pre-split basis at the midpoint of the estimated offering range) to existing RSU holders as of the dividend record date, or approximately 0.09 RSUs for each outstanding RSU as of the dividend record date, pursuant to the terms of the RSU award agreements. Pursuant to the RSU award agreements, such RSUs will contain dividend equivalent rights in pari passu to shares of our common stock. We intend to fund the Special Cash Dividend with a combination of cash on hand and drawings under the Revolving Credit Facility. The record date for the Special Cash Dividend will precede the

15


Table of Contents

consummation of this offering, and investors in this offering will not be entitled to receive any payments or distributions in connection with the Special Cash Dividend on shares purchased in this offering.

              Our board of directors determined to pay the Special Cash Dividend to our stockholders because such dividend was in our best interest and those of our stockholders, we had sufficient surplus capital to pay the Special Cash Dividend and we would be able to fund our operations and service our indebtedness utilizing cash flows from operations after payment of the Special Cash Dividend. Given our financial performance since the Reorganization in May 2018, we believe the Special Cash Dividend is an appropriate means to provide our stockholders with a return on their capital.

16


Table of Contents



The Offering

Issuer

  Southeastern Grocers, Inc.

Common stock outstanding

 

43,368,294 shares of common stock.

Common stock offered by the selling stockholders

 

8,900,000 shares (or 10,235,000 shares if the underwriters' option to purchase additional shares is exercised in full) of common stock.

Option to purchase additional            shares of common stock

 

The underwriters have an option to purchase an additional 1,335,000 shares of common stock from the selling stockholders. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.

Use of proceeds

 

We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders in this offering, including from any exercise by the underwriters of their option to purchase additional shares from the selling stockholders. The selling stockholders will receive all of the net proceeds and bear the underwriting discount, if any, attributable to their sale of our common stock. We will pay certain expenses associated with this offering. See "Principal and Selling Stockholders."

Dividend policy

 

In connection with the IPO, we intend to establish a dividend policy pursuant to which we intend to pay a quarterly dividend on our common stock in an annual amount equal to 2.75% of the initial public offering price (assuming an initial public offering price of $15.00 per share, the midpoint of the estimated offering range set forth on the cover page of this prospectus, the per common share amount would be $0.413 per common share or $17.9 million per annum in the aggregate). The first dividend payment will be paid during the first full quarter following completion of this offering. Our board of directors may change or eliminate the payment of future dividends to our common stockholders at its discretion, without notice to our stockholders. Any future determination relating to our dividend policy will be made at the sole discretion of our board of directors and will depend on a number of factors, including general and economic conditions, industry standards, our financial condition and operating results, our available cash and current and anticipated cash needs, restrictions under the documentation governing certain of our indebtedness, including our ABL Credit Agreement and the Notes, capital requirements, regulations, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, and such other factors as our board of directors may deem relevant. See "Dividend Policy."

17


Table of Contents

 

In connection with and conditioned upon the consummation of this offering, we intend to declare and pay the Special Cash Dividend of approximately $1.386 per share of common stock outstanding prior to this offering (or $6.00 per share on a pre-split basis), to holders of record of our common stock on the dividend record date, or approximately $60.1 million in the aggregate. The Company's RSU award agreements provide for dividend equivalent rights on all outstanding RSUs, which are credited to RSU holders as additional RSUs equal in value to the allocable amount of the Special Cash Dividend. Therefore, in connection with the Special Cash Dividend, we intend to issue 424,982 RSUs (or approximately 98,171 RSUs on a pre-split basis at the midpoint of the estimated offering range) to existing RSU holders as of the dividend record date, or approximately 0.09 RSUs for each outstanding RSU as of the dividend record date, pursuant to the terms of the RSU award agreements . Pursuant to the RSU award agreements, such RSUs will contain dividend equivalent rights in pari passu to shares of our common stock. We intend to fund the Special Cash Dividend with a combination of cash on hand and drawings under the Revolving Credit Facility. The record date for the Special Cash Dividend will precede the consummation of this offering, and investors in this offering will not be entitled to receive any payments or distributions in connection with the Special Cash Dividend on shares purchased in this offering.

Risk factors

 

Investing in our common stock involves a high degree of risk. See the "Risk Factors" section of this prospectus beginning on page 24 and the other information included in this prospectus for a discussion of factors you should carefully consider before investing in our common stock.

Listing

 

We have been approved to have our common stock listed on the NYSE under the symbol "SEGR."

Conflicts of Interest

 

Deutsche Bank Securities Inc. will receive in excess of 5% of the offering proceeds as a selling stockholder in this offering. Because Deutsche Bank Securities Inc. is an underwriter in this offering, Deutsche Bank Securities Inc. is deemed to have a "conflict of interest" under Rule 5121 ("Rule 5121") of the Financial Industry Regulatory Authority, Inc. ("FINRA"). Accordingly, this offering will be conducted in accordance with Rule 5121. Pursuant to that rule, the appointment of a "qualified independent underwriter" is not required in connection with this offering as the members primarily responsible for the management of the offering do not have conflict of interest, are not affiliates of any member that has conflict of interest, and meet the requirements of paragraph (f)(12)(E) of FINRA Rule 5121. See "Principal and Selling Stockholders" and "Underwriting (Conflicts of Interest)."

18


Table of Contents

              Unless we indicate otherwise or unless the context otherwise requires, all information in this prospectus:

    assumes no exercise of the underwriters' option to purchase additional shares from the selling stockholders;

    reflects a 4.329-for-1 forward stock split of our common stock which our board of directors has approved and which was effected on January 25, 2021;

    gives effect to our amended and restated certificate of incorporation, which will be in effect prior to the consummation of this offering;

    assumes no exercise of the warrant held by Lone Star (as defined herein) prior to this offering;

    excludes an aggregate of 5,287,185 shares of common stock reserved for issuance under our Amended and Restated 2018 Omnibus Equity Incentive Plan (the "2018 EIP") ((i) including an additional 350,000 shares of common stock that were authorized on January 20, 2021, to be issued only as additional RSUs in connection with the Special Cash Dividend and above-referenced quarterly dividend which are required to be granted to RSU holders pursuant to the terms of their existing award agreements and (ii) 4,599,462 shares of common stock issuable upon the settlement of outstanding RSU awards under the 2018 EIP, inclusive of RSUs which will vest upon the pricing of this offering);

    excludes an aggregate 2,300,000 shares of common stock reserved for issuance under our 2021 Equity Incentive Plan that we intend to adopt in connection with this offering; and

    assumes an initial public offering price of $15.00 per share, the midpoint of the estimated public offering price range on the cover page of this prospectus.

19


Table of Contents



Summary Historical Consolidated Financial and Other Data

              The following table sets forth our summary historical consolidated financial and other data for the periods and as of the dates indicated. As a result of the Reorganization, the accompanying historical financial statements and summary historical consolidated financial data are presented on a Predecessor and Successor basis. References to "Successor" relate to our results of operations and financial position subsequent to May 30, 2018, the day prior to our emergence from bankruptcy, to coincide with the timing of a normal weekly close. The events between May 30, 2018 and May 31, 2018 were evaluated and management concluded that the use of an accounting convenience date did not have a material impact on our results of operations or financial position. References to "Predecessor" relate to our results of operations and financial position prior to, and including, May 30, 2018. The consolidated financial statements for the Successor periods are not comparable to those of the Predecessor periods.

              We derived the summary historical consolidated financial data as of and for the 40 weeks ended September 30, 2020 and the 40 weeks ended October 2, 2019 from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. We derived the summary historical consolidated financial data as of and for the year ended December 25, 2019 and for the 30 weeks ended December 26, 2018 and for the 22 weeks ended May 30, 2018, as of December 26, 2018 and for the year ended December 27, 2017 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the summary historical consolidated financial data as of December 27, 2017 and as of and for the years December 28, 2016 and December 30, 2015 from our audited consolidated financial statements not included elsewhere in this prospectus.

              Our historical results are not necessarily indicative of the results to be expected in any future period. You should read the information set forth below together with "Non-GAAP Financial Measures," "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Capitalization," and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus.

20


Table of Contents

 
  Successor    
  Predecessor  
 
  40 Weeks
Ended
September 30,
2020
  40 Weeks
Ended
October 2,
2019
  Year Ended
December 25,
2019
  30 Weeks
Ended
December 26,
2018
   
  22 Weeks
Ended
May 30,
2018
  Year Ended
December 27,
2017
  Year Ended
December 28,
2016
  Year Ended
December 30,
2015
 
 
  (in thousands, other than per share, margin, comparable store sales and number of stores data)
 

Statements of Operations and Comprehensive Income (Loss) Data(1)(2):

                                                     

Net Sales

  $ 7,395,741   $ 6,343,302   $ 8,277,374   $ 4,829,732       $ 3,942,780   $ 9,875,104   $ 10,451,420   $ 11,257,471  

Cost of sales, including warehouse and delivery expense

    5,351,013     4,680,426     6,117,224     3,586,009         2,914,222     7,278,280     7,787,276     8,388,147  

Gross Profit

    2,044,728     1,662,876     2,160,150     1,243,723         1,028,558     2,596,824     2,664,144     2,869,324  

Operating, general and administrative expenses

    1,757,599     1,693,710     2,195,046     1,313,863         1,024,666     2,638,828     2,597,371     2,720,904  

Income (loss) from operations

    287,129     (30,834 )   (34,896 )   (70,140 )       3,892     (42,004 )   66,773     148,420  

Interest expense

    47,872     63,623     82,339     64,497         50,988     135,083     134,437     139,135  

Reorganization items, net

                        (792,260 )            

Income (loss) before income taxes

    239,257     (94,457 )   (117,235 )   (134,637 )       745,164     (177,087 )   (67,664 )   9,285  

Income tax expense (benefit)

    4,204     (802 )   (995 )   (48,274 )       (16,263 )   (38,301 )   400,606     3,633  

Net income (loss)

  $ 235,053   $ (93,655 ) $ (116,240 ) $ (86,363 )     $ 761,427   $ (138,786 ) $ (468,270 ) $ 5,652  

Net income (loss) as a percent of net sales

    3.18 %   (1.48 )%   (1.40 )%   (1.79 )%       19.31 %   (1.41 )%   (4.48 )%   0.05 %

Weighted-average common shares outstanding—

                                                     

Basic

    43,615     43,299     43,294     43,290                              

Diluted

    44,499     43,299     43,294     43,290                              

Basic earnings (loss) per share

  $ 5.39   $ (2.16 ) $ (2.68 ) $ (1.99 )                            

Diluted earnings (loss) per share

  $ 5.28   $ (2.16 ) $ (2.68 ) $ (1.99 )                            

Statements of Cash Flows Data(1)(2):

                                                     

Net cash provided by (used in):

                                                     

Operating activities

  $ 497,528   $ 13,592   $ 56,945   $ 89,975       $ 89,928   $ 216,291   $ 98,532   $ 182,801  

Investing activities

  $ (44,136 ) $ (110,976 ) $ (141,248 ) $ (116,526 )     $ (3,916 ) $ (104,980 ) $ (86,874 ) $ (13,077 )

Financing activities

  $ (457,914 ) $ 85,076   $ 108,939   $ 17,021       $ (79,538 ) $ (93,692 ) $ (27,955 ) $ (193,650 )

Other Financial Data (non-GAAP)(1)(2):

                                                     

Adjusted EBITDA(3)(4)

  $ 473,799   $ 220,464   $ 292,453   $ 136,134       $ 165,068   $ 315,620   $ 250,161   $ 305,695  

Adjusted EBITDA margin

    6.4 %   3.5 %   3.5 %   2.8 %       4.2 %   3.2 %   2.4 %   2.7 %

Net Sales Adjusted for the Planned Dispositions(4)

  $ 6,099,307   $ 5,093,877   $ 6,667,380                          

Rent expense

  $ 143,558   $ 145,305   $ 188,927   $ 97,741       $ 74,964   $ 207,632   $ 214,597   $ 226,463  

Capital expenditures

  $ 103,850   $ 129,435   $ 164,651   $ 120,578       $ 50,429   $ 115,653   $ 156,626   $ 103,232  

Other Operating Data(1)(2):

                                                     

Comparable store sales increase (decrease)(5)

    17.8 %   0.3 %   0.4 %(6)   (8)         (8)   (2.2 )%   (3.6 )%   (0.5 )%

Number of stores at end of fiscal period

    540     550     547     573             702     736     755  

Gross square footage at end of period

    24,798     25,184     25,069     26,268             31,634     33,089     33,908  

21


Table of Contents

 

 
  As of
September 30,
2020
  As of
December 25,
2019
  As of
December 26,
2018
   
  As of
December 27,
2017
  As of
December 28,
2016
  As of
December 30,
2015
 
 
  (in thousands)
 

Consolidated Balance Sheet Data(1)(2):

                                         

Cash and cash equivalents

  $ 66,079   $ 70,299   $ 44,512       $ 50,908   $ 33,289   $ 49,586  

Total assets

  $ 2,583,652   $ 2,730,204   $ 2,413,138       $ 1,874,165   $ 2,076,608   $ 2,531,620  

Stockholders' equity (Membership deficiency)

  $ 458,947   $ 220,181   $ 372,739       $ (750,743 ) $ (610,304 ) $ (140,833 )

Current portion of long-term debt

  $ 3,563   $ 16,000   $ 12,250       $ 774,785          

Long-term debt

  $ 329,721   $ 752,521   $ 674,279       $ 424,208   $ 1,232,586   $ 1,221,445  

Current maturities of obligations under finance/capital leases

  $ 5,495   $ 6,465   $ 6,076       $ 13,286   $ 16,766   $ 18,069  

Obligations under finance/capital leases

  $ 62,149(a ) $ 49,715   $ 56,057       $ 101,026   $ 114,483   $ 134,241  

Total Debt(7)

  $ 415,884   $ 850,805   $ 915,341       $ 1,523,690   $ 1,596,156   $ 1,626,247  

Total Net Debt(7)

  $ 349,805   $ 780,506   $ 870,829       $ 1,472,782   $ 1,562,867   $ 1,576,661  

(a)
Includes $13,859 in liabilities held-for sale as of September 30, 2020.

(1)
Unless otherwise stated, these amounts do not give effect to the Planned Dispositions.

(2)
ASU 2016-02 was adopted during fiscal year 2019. For more information, please see Note 2 to our audited financial statements included elsewhere in this prospectus.

(3)
Adjusted EBITDA for the 40 weeks ended September 30, 2020, fiscal year 2019 and the 40 weeks ended October 2, 2019 includes an additional $0 thousand, $26,278 thousand and $20,197 thousand, respectively of incremental lease expense recognized as a result of adopting lease accounting standard ASU 2016-02, Leases (Topic 842).

(4)
Non-GAAP Financial Measures


In addition to reporting GAAP results, we evaluate performance and report our results on certain Non-GAAP Measures. We believe that the presentation of these Non-GAAP Measures provides useful information to investors regarding our results, operating trends and performance between periods. We define Adjusted EBITDA as EBITDA, adjusted for loss (gain) on sale or disposition of assets; expenses associated with the closing or disposition of stores; impairment expense; franchise taxes; expenses (income) in connection with the Reorganization, business optimization and other strategic initiatives, primarily consisting of professional and consulting fees related to a review of our pricing and promotional strategy, cost savings initiatives, as well as activities relating to the Planned Dispositions and public company preparation costs; loss on extinguishment of debt; incremental costs attributable to opening, remodeling or converting a store; (gain) loss from natural disasters, net of insurance recoveries; share-based compensation expense; fresh start adjustments; fees and expense reimbursement to LSF Southeastern Grocery Holdings LLC; and board of directors fees. We define Net Sales Adjusted for the Planned Dispositions as net sales less the net sales of the stores to be sold in connection with the Planned Dispositions or closed in the normal course since the beginning of fiscal year 2019. We define Total Debt as the sum of long-term debt (including the current portion thereof), unamortized debt issuance costs, unamortized debt discount (premium) and finance/capital lease obligations (including the current portion thereof) and other financing obligations and we define Total Net Debt as Total Debt less cash.


We believe that these supplemental Non-GAAP Measures provide management and other users with additional meaningful financial information that should be considered when assessing our ongoing performance.

22


Table of Contents


The following table reconciles Adjusted EBITDA to net income (loss) and Net Sales Adjusted for the Planned Dispositions to net sales, their most directly comparable GAAP financial performance measures, respectively.
   
  Successor    
  Predecessor  
   
  40 Weeks
Ended
September 30,
2020
  40 Weeks
Ended
October 2,
2019
  Year Ended
December 25,
2019
  30 Weeks
Ended
December 26,
2018
   
  22 Weeks
Ended
May 30,
2018
  Year Ended
December 27,
2017
  Year Ended
December 28,
2016
  Year Ended
December 30,
2015
 
   
  (in thousands)
 
 

Net income (loss)

  $ 235,053   $ (93,655 ) $ (116,240 ) $ (86,363 )     $ 761,427   $ (138,786 ) $ (468,270 ) $ 5,652  
 

Depreciation and amortization expense(a)

    134,995     190,731     238,403     146,337         68,045     180,297     166,964     174,837  
 

Interest expense

    47,872     63,623     82,339     64,497         50,988     135,083     134,437     139,135  
 

Income tax expense (benefit)

    4,204     (802 )   (995 )   (48,274 )       (16,263 )   (38,301 )   400,606     3,633  
 

EBITDA

    422,124     159,897     203,507     76,197         864,197     138,293     233,737     323,257  
 

Adjustments to reconcile EBITDA to Adjusted EBITDA:

                                                     
 

(Gain) Loss on sale or disposition of assets(b)

    (17,079 )   4,208     7,681     3,577         (32,111 )   (3,260 )   (38,309 )   (56,417 )
 

Expenses associated with the closing or disposition of stores(c)

    2,520     18,636     20,324     14,047         59,167     19,334     14,426     6,225  
 

Impairment expense(d)

    38,811     1,082     21,188             35,603     115,111     10,183     3,828  
 

Franchise taxes

    404     350     488     2         89     154     186     756  
 

Expenses (income) in connection with the Reorganization, business optimization, and other strategic initiatives(e)

    13,982     23,226     25,631     21,239         (7,851 )   32,447     16,387     23,821  
 

Loss on extinguishment of debt(f)

    2,237                                  
 

Incremental costs attributable to opening, remodeling or converting a store(g)

    7,715     10,361     12,710     14,013         6,632     8,298     5,099      
 

(Gain) loss from natural disasters, net of insurance recoveries(h)

    (1,111 )   (1,088 )   (4,889 )   6,411         (8,112 )   34     4,272      
 

Share-based compensation expense(i)

    3,797     3,387     5,272     359         —-              
 

Fresh start adjustments(j)

                        (752,546 )            
 

Fees and expense reimbursement to LSF Southeastern Grocery Holdings LLC(k)

                            5,209     4,180     4,225  
 

Board of directors fees

    399     405     541     289                      
 

Adjusted EBITDA

  $ 473,799   $ 220,464   $ 292,453   $ 136,134       $ 165,068   $ 315,620   $ 250,161   $ 305,695  
 

Net sales

  $ 7,395,741   $ 6,343,302   $ 8,277,374                          
 

Planned Dispositions stores net sales

    1,293,126     1,149,654     1,501,718                          
 

Closed stores

    3,308     99,771     108,276                          
 

Net Sales Adjusted for the Planned Dispositions

  $ 6,099,307   $ 5,093,877   $ 6,667,380                          

    (a)
    Includes depreciation and amortization on property and equipment, intangible assets, and favorable/unfavorable leases.

    (b)
    Reflects the loss or gain resulting from the difference between proceeds received and carrying value of assets sold or carrying value of assets disposed or retired.

    (c)
    Includes costs related to store closures including non-cash lease related adjustments and lease-related costs for closed stores. Also, includes non-recurring severance and other disposal costs for store closures.

    (d)
    Includes non-cash impairment expenses related to long-lived assets as well as indefinite-lived intangibles such as tradenames.

    (e)
    Includes costs related to (1) the prepackaged plan of reorganization, the Reorganization and any related transactions, (2) costs in connection with strategic initiatives and business optimization expense, primarily consisting of professional and consulting fees related to a review of our pricing and promotional strategy, cost savings initiatives, as well as activities relating to the Planned Dispositions and public company preparation costs, (3) costs in connection with equity issuances (including this offering), and (4) costs related to warehouse closures and other distribution network transition costs.

    (f)
    Reflects the loss on extinguishment of debt resulting from the Term Loan repayment and FILO repayment and termination.

    (g)
    Includes but is not limited to incremental advertising and payroll costs related to opening, remodeling or converting a store.

    (h)
    Represents the non-recurring loss or gain resulting from the difference between insurance proceeds received and carrying value of assets disposed or costs incurred related to natural disasters.

    (i)
    Represents non-cash compensation expense related to share-based awards.

    (j)
    Represents estimated fair value adjustments as a result of fresh start accounting.

    (k)
    Fees and expenses paid to LSF Southeastern Grocery Holdings LLC in connection with an Advisory Agreement (as defined herein).
(5)
Comparable store sales are sales from all stores that have been operated by us and open for at least a full year, including stores that we remodeled, enlarged or relocated during the period, and excluding stores that opened, or closed during the period. Remodeled stores include banner conversions. The quarterly comparable store sales are adjusted for the estimated impact of the timing of Easter. See "Management's Discussion and Analysis of Financial Condition

23


Table of Contents

    and Results of Operations—Key Components of Results of Operations and Key Metrics—Net Sales—Comparable store sales."

(6)
After giving effect to the Planned Dispositions, our comparable store sales increase would have been 18.9% for the 40 week period ended September 30, 2020, 0.9% for the 40 weeks ended October 2, 2019 and 1.0% for fiscal year 2019.

(7)
The following table shows how we calculate Total Debt:  
   
  Successor    
  Predecessor  
   
  As of
September 30,
2020
  As of
December 25,
2019
  As of
December 26,
2018
   
  As of
December 27,
2017
  As of
December 28,
2016
  As of
December 30,
2015
 
   
   
 
   
   
 
   
  (in thousands, other than Net Debt Leverage)
 
 

Long-term debt (including current portion)

  $ 333,284   $ 768,521   $ 686,529       $ 1,198,993   $ 1,232,586   $ 1,221,445  
 

Unamortized debt issuance costs

    6,257     10,865     13,454         3,690     7,847     12,005  
 

Unamortized debt discount (premium), net

    8,699     15,239     18,892         (417 )   (433 )   (450 )
 

Finance/capital lease obligations (including current portion)

    67,644(a )   56,180     62,133         114,312     131,249     152,310  
 

Other financing obligations (including current portion)

            134,333         207,112     224,907     240,937  
 

Total Debt(b)

  $ 415,884   $ 850,805   $ 915,341       $ 1,523,690   $ 1,596,156   $ 1,626,247  
 

Cash and cash equivalents

    66,079     70,299     44,512         50,908     33,289     49,586  
 

Total Net Debt

  $ 349,805   $ 780,506   $ 870,829       $ 1,472,782   $ 1,562,867   $ 1,576,661  
 

Net Debt Leverage(c)

    2.7x     2.9x         4.7x     6.2x     5.2x  

    (a)
    Includes $13,859 in liabilities held-for sale as of September 30, 2020.

    (b)
    Total Debt does not give effect to repayment activity subsequent to September 30, 2020, whereby on October 9, 2020 we repaid the Term Loan in full with proceeds from the issuance of $325 million aggregate principal amount of the Notes, borrowings of approximately $30.2 million under the Revolving Credit Facility and cash on hand.

    (c)
    Net Debt Leverage is Total Net Debt divided by Adjusted EBITDA.
(8)
Calculated by combining store revenues for the Successor and Predecessor fiscal year 2018 periods for each of the applicable stores, our comparable store sales decreased 1.1% in 2018.

24


Table of Contents


RISK FACTORS

              Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all of the information contained in this prospectus before purchasing our common stock. If any of the following risks occur, our business, financial condition and results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment.

Risks Related to Our Business and Industry

Adverse economic conditions could have a material adverse effect on our business, financial condition and results of operations.

              The retail food industry is sensitive to changes in overall economic conditions that impact customer spending and purchasing habits. Macroeconomic conditions in our markets, such as inflation and deflation in food and energy prices, employment levels, interest rates, changes in the housing market and overall customer confidence, could materially adversely affect the disposable income of our customers and decrease our customers' spending and number of trips to our stores, which could result in lower sales, increased markdowns on products, a reduction in profitability due to lower margins and may require increased selling and promotional expenses. Furthermore, changes in the real estate markets could impact the availability of attractive store locations or result in an increase of our fixed lease obligations.

              In the beginning of 2020 and in prior years, the combination of an improving economy, lower unemployment, higher wages and lower gasoline prices had contributed to increased customer confidence. However, as a result of the coronavirus ("COVID-19") pandemic, there is substantial uncertainty about the strength of the economy, and the impact of the recession and rapid increases in unemployment rates, as well as uncertainty about the pace of recovery despite the fiscal stimulus packages, currently approved and available vaccines and other measures that the United States Congress has enacted. The full extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will depend on future developments, which are currently highly uncertain and cannot be predicted, including, but not limited, to the duration, spread, severity and impact of the COVID-19 pandemic as well as any future resurgences, the effects of the pandemic on our customers and suppliers, the duration of the federal, state and local declarations of emergency and the associated remedial actions and stimulus measures adopted by federal, state and local governments, including measures to assure social distancing and to what extent normal economic and operating conditions can resume. We are also unable to predict the extent, implementation and effectiveness of any government-funded benefit programs and stimulus packages on employment levels and on demand for our products or whether any further programs or stimulus packages will be adopted.

              We may experience materially adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur as a result of efforts to curb the spread of COVID-19 or otherwise. Customers' perception or uncertainty related to the economy, including their spending habits and proclivity to visit our stores, as well as a decrease in their personal financial condition, could hurt overall customer confidence and reduce demand for shoppers in our stores. Customers may reduce spending on non-essential items, purchase value-oriented products or increasingly rely on food discounters in an effort to secure the food and drug products that they need, all of which could impact our sales and profit.

              An increase in fuel prices could also have an effect on customer spending and on our costs of producing and procuring the products that we sell. Moreover, both inflation and deflation affect our business. Food deflation could reduce sales growth and earnings, while food inflation could reduce gross profit margins. Several food items and categories, including poultry and fresh fruit, experienced price deflation in fiscal year 2019; however, prices for most other major food categories increased. We

25


Table of Contents

cannot predict when or the extent to which any inflation or deflation may impact our business in the future.

              Many of the factors identified above also affect commodity rates, transportation costs, costs of labor, insurance and healthcare, the strength of the U.S. dollar, lease costs, measures that create barriers to or increase the costs associated with international trade, changes in laws, regulations and policies and other economic factors, all of which may impact our cost of goods sold and our selling, general and administrative expenses and materially adversely affect our business, financial condition and results of operations. These factors, as well as other material adverse consequences which may be beyond our control, could also materially adversely affect our ability to plan and execute our strategic initiatives, invest in and open new stores, prevent current stores from closing, all of which may materially adversely affect our sales, cash flow, results of operations and performance. We are unable to predict the direction of the economy or fuel prices or if deflationary or inflationary trends will occur.

              In addition, many of our customers rely on food stamps and other governmental assistance programs. Our experience has been that restrictive changes to these programs have adversely impacted traffic and spending in our stores.

              If the economy weakens and there is a general reduction in the level of customer spending, it may reduce our sales and profit results and could have a material adverse effect on our business, financial condition and results of operations.

Our business has been, and we expect will continue to be, impacted by the COVID-19 pandemic.

              COVID-19 poses a risk to our employees, our customers, our suppliers and the communities in which we operate, which could negatively impact our business. As the COVID-19 pandemic has grown, customer fear about becoming ill with the virus and recommendations and/or mandates from federal, state and local authorities to social distance or self-quarantine have increased. Many states in which we operate and have a significant number of stores, have declared a state of emergency, closed schools and non-essential businesses and enacted limitations on the number of people allowed to gather at one time in the same space. These rules, as well as the general fear that causes people to avoid gathering in public places, may adversely affect our customer traffic, our ability to adequately staff our stores and operations, and our ability to transport product on a timely basis.

              We currently operate our stores as an "essential" business under relevant federal, state and local mandates. If the classification of what is an "essential" business changes or other government regulations are adopted, we may be required to severely curtail operations, which would significantly and adversely impact our sales and revenue. Even though our stores are considered essential businesses, state and local mandates may impose limitations on the operations of our stores, including customer traffic. While we have taken many protective measures in our stores, including, among others, spacing requirements, single direction aisles, senior and compromised customer-only hours, plexiglass shields at checkout and providing masks and gloves to our front line employees, there can be no assurance that these measures will be sufficient to protect our store employees and customers. We may in the future be required to temporarily close a store, office or distribution center for cleaning and/or quarantine employees in the event that an employee contracts COVID-19. We have proactively paused self-service operations, such as soup bars, wing bars, salad bars and olive bars. These factors could impact the ability of our stores to operate normal hours of operation or have sufficient inventory which may disrupt our business and negatively impact our financial results. If we do not respond appropriately to the COVID-19 pandemic, or if customers do not perceive our response to be adequate, we could suffer damage to our reputation and our brands, which could adversely affect our business in the future.

              Further, COVID-19 may also impact our ability to access and ship product to and from impacted locations. Items such as customer staples, paper goods, key cleaning supplies and protective

26


Table of Contents

equipment for our employees, and more recently, meat products have been, and may continue to be, in short supply. While we have put temporary limits on certain products to help our customers to get the items they need, supply for certain products may be negatively impacted as overall demand has increased. Any planned construction and opening of new stores may be negatively impacted due to state or county requirements that workers leave their homes only for essential business and the suspension of governmental permitting processes in some areas during the COVID-19 pandemic in some locations. We have transitioned a significant subset of our employee population to a remote work environment in an effort to mitigate the spread of COVID-19, which may exacerbate certain risks to our business, including IT, phishing and other cybersecurity attacks.

              In the event that an employee tests positive for COVID-19, we may have to temporarily close one or more stores, offices or distribution centers for cleaning and/or quarantine one or more employees, which could negatively impact our financial results. In addition, if one or more of our employees or customers becomes ill from COVID-19 and attributes their exposure to such illness to us or one of our stores, we could be subject to allegations of failure to adequately mitigate the risk of such exposure. Such allegations could harm our reputation and sales and expose us to the risks of litigation and liability.

              While we have experienced an increase in demand as a result of the impact the COVID-19 pandemic has had on consumer behaviors, including due to various stay-at-home orders and restaurant and other restrictions that were effected throughout much of the United States in response to the COVID-19 pandemic, this increased demand may not be sustained following the pandemic as various restrictions on consumer dining options are lifted, or if economic conditions worsen, which could negatively impact consumer spending. Additionally, if the increase in demand currently being experienced for our products declines more abruptly than expected this could adversely impact our inventory levels and may result in excess inventory, which we may be unable to sell. Furthermore, because the COVID-19 pandemic did not begin to impact our results until the first quarter of 2020, any current or future impacts may not be directly comparable to those incurred in historical periods and are not necessarily indicative of any future impacts that the COVID-19 pandemic may have on our results for 2020 or any subsequent periods. The impact of the COVID-19 pandemic on our revenues and expenses may also fluctuate differently over the duration of the pandemic.

              The extent to which COVID-19 may impact our business will depend on future developments, which are highly uncertain and cannot be predicted at this time. Moreover, COVID-19 may also have the effect of heightening many of the other risks described in this "Risk Factors" section. For example, we may experience an impact to the timing and availability of key products from suppliers, broader quarantines or other restrictions that limit customer visits to our stores, increased employee impacts from illness, school closures and other community response measures, all of which could have a material adverse effect on our business, financial condition and results of operations. We continually monitor the situation and regularly adjust our policies and practices as more information and guidance becomes available.

Failure to successfully execute our strategic initiatives could materially adversely affect our business, financial condition and results of operations.

              Our multi-year transformational plan is designed to create a differentiated customer experience and improve the customer value proposition. A key component of our plan is investing in our store network. Deployment of maintenance and investment capital has allowed us to, and will continue to allow us to, position our fleet of stores to best compete in their respective local communities. We believe this store renewal approach creates a platform for other growth initiatives, which includes a system-wide refresh of our stores, improved automated ordering systems, our Own Brands strategy, an emphasis on fresh merchandising, our pricing strategy, our loyalty program, and an improved overall customer experience.

27


Table of Contents

              If our plan does not meet the expectations of our customers or achieve the time and financial budgets we have forecasted, it could have a material adverse effect on our business, brand value, financial condition and results of operations.

              In May 2020, as the latest step in our transformation plan, we reached an agreement to sell 62 stores, comprising 46 BI-LO stores and 16 Harveys, to Food Lion, a subsidiary of Ahold Delhaize. The sale is anticipated to close by the end of the first half of fiscal year 2021, although it is possible the sale may not close in the expected timeframe, on the expected terms, or at all. We also entered into an agreement to transition our distribution center located in Mauldin, South Carolina, to Ahold Delhaize. In September 2020, we announced an agreement to sell an additional 23 stores, comprising 22 BI-LO stores and one Harveys, in South Carolina and Georgia to Alex Lee, under which Alex Lee will purchase 20 stores and B&T Foods will purchase three stores pursuant to a right of assignment held by Alex Lee. Additionally, we are actively exploring strategic options for our remaining 39 BI-LO stores and one additional Harveys. There can be no assurances that we will be able to timely complete a sale of the remaining BI-LO stores or the one additional Harveys or otherwise find a buyer for these assets, or if we do complete a sale transaction for such stores, that it will be on terms favorable to us. If the planned sales are not achieved, we may be forced to continue to operate such stores indefinitely and we may have to seek other strategic alternatives, which may include the suspending or winding down of operations of those stores. Even if we successfully sell such stores, if we are not able to do so in the timeframe we expect or on terms favorable to us, it may have a material adverse effect on our business, financial condition and results of operations.

We operate in a highly competitive industry with low profit margins, and any failure to compete successfully, as a result of actions taken by our competitors or otherwise, could materially adversely affect our business, financial condition and results of operations.

              The food retail business is highly competitive. We compete with several national, regional, and local supermarket chains, as well as retailers selling grocery products through other channels, such as supercenters, dollar stores, drug stores and warehouse club stores. These businesses provide alternative options for the customers whom we aim to serve. Increased competition may be driven by such competitors offering lower prices, increasing the number of or significantly renovating their stores and expanding their capabilities further into eCommerce.

              As a result of customers' growing desire to shop online, we also face increasing competition from both our existing competitors that have incorporated the internet as a direct-to-customer channel and online providers that sell grocery products. In addition, we face increasing competition from online distributors of pharmaceutical products. Although we have expanded our eCommerce business, including to respond to increased customer demand as a result of the COVID-19 pandemic, and offer our customers the ability to shop online for both home delivery and curbside pickup, there is no assurance that these online initiatives will be successful. Moreover, we rely on third-party business partners to manage our eCommerce business. If we are unable to integrate or interface with third-party technologies effectively, we may experience disruptions in our operations, lose market share or incur additional costs. In addition, we pay these third-party providers fees, which impacts our costs on sales and may, in turn, have an adverse impact on our profitability as a result of lower gross profits, greater operating costs to compete and reduced customer demand if we have to increase prices as a result of such fees.

              We generally compete on the basis of location, quality of products, service, price, variety, store condition and channel preference. In each of these areas, traditional and non-traditional competitors compete with us and may successfully attract our customers by matching or exceeding what we offer or by providing greater shopping convenience. In recent years, many of our competitors have aggressively added locations and adopted a multi-channel approach to marketing and advertising. Our responses to competitive pressures, such as additional promotions, increased advertising, additional capital

28


Table of Contents

investment and the development of our eCommerce offerings, could adversely affect our profitability and cash flow. We cannot guarantee that our competitive response will succeed in increasing or maintaining our share of retail food sales.

              Periodic deflation in the prices of certain foods in an already increasingly competitive industry have made it difficult for food retailers to achieve positive sales growth on a consistent basis. We and our competitors have attempted to maintain or grow our and their respective share of retail food sales through capital and price investment, new and remodeled stores, increased promotional activity, new marketing programs and advertising campaigns, productivity improvements, shrink-reduction initiatives, energy efficiency programs and other similar strategies. However, such operating strategies create a more difficult environment to consistently increase year-over-year sales. Some of our primary competitors are larger than we are or have greater financial resources and, therefore, may be able to devote greater resources to invest in price, promotional activity and new or remodeled stores in order to grow their share of retail food sales. Price investment by our competitors has also, from time to time, adversely affected our operating margins. In recent years, we have invested in price in order to remain competitive and generate sales growth; however, there can be no assurance this strategy will be successful.

              Because we face intense competition, we need to anticipate and respond to changing customer preferences and demands. We devote significant resources to differentiating ourselves in the local markets where we operate and have invested and will continue to invest in our loyalty program to drive traffic. Our merchandising teams spend considerable time working with store directors to make sure we are satisfying customer preferences. In addition, we strive to achieve and maintain favorable recognition of our Own Brand offerings by marketing these offerings to customers and enhancing a perception of value for customers. While we seek to continuously respond to changing customer preferences, there are no assurances that our responses will be successful.

              Our continued success is impacted by our ability to control operating expenses to effectively compete in the food retail industry. Several of our primary competitors, including regional and national drugstore chains and pharmacy providers, are larger than we are, allowing them to more effectively leverage their fixed costs, more easily reduce operating expenses and more competitively negotiate with suppliers. Finally, we need to source, market and merchandise efficiently. Changes in our product mix also may negatively affect our profitability. Failure to accomplish our objectives could impair our ability to compete successfully and adversely affect our profitability.

              If we fail to successfully respond to competitive pressures in our industry or to effectively implement strategies to respond to these pressures, it could have a material adverse effect on our business, financial condition and results of operations.

We may not timely identify or effectively respond to customer trends, which could negatively affect our relationship with our customers, the demand for our products and services and our market share, and could have a material adverse effect on our business, financial condition and results of operations.

              It is difficult to predict consistently and successfully the products and services our customers will demand over time. Our success depends, in part, on our ability to identify and respond to evolving trends in demographics and preferences. Failure to timely identify or effectively respond to changing customer tastes, preferences (including those relating to sustainability of product sources) and spending patterns could lead us to offer our customers a mix of products or a level of pricing that they do not find attractive. This could negatively affect our relationship with our customers, leading them to reduce their visits to our stores and the amount they spend. In addition, we base our purchases of inventory, in part, on our sales forecasts. If our sales forecasts overestimate customer demand, we may experience higher inventory levels and need to take markdowns on excess or slow-moving inventory, leading to decreased profit margins. Conversely, if our sales forecasts underestimate customer demand, we may

29


Table of Contents

have insufficient inventory to meet demand, leading to lost sales, either of which could materially adversely affect our financial performance.

              Further, while we intend to expand our digital capabilities and grow our loyalty program, as technology advances, and as the way our customers interact with technology changes, we will need to continue to engage with our third-party partnerships, expand our partnerships or develop internal capabilities to offer eCommerce and loyalty solutions that are both cost effective and compelling. Our failure to anticipate or respond to customer expectations for products, services, eCommerce and loyalty program may adversely affect the demand for our products and services and our market share and could have a material adverse effect on our business, financial condition and results of operations.

We rely on a principal supplier for a significant portion of our retail merchandise, and a significant change to our relationship with our principal supplier could have a material adverse effect on our business, financial condition and results of operations.

              We rely on a single supplier, C&S, to supply a significant amount of our merchandise. Any material change in C&S's method of operation, or a termination or material modification of our contractual relationships with C&S could have an adverse impact on our supply chain, sales and earnings. Our supply contract with C&S (the "C&S Supply Contract") expires on August 18, 2021 and provides for two renewal options, each for a period of one-year and exercisable at our option. On August 11, 2020 we provided written notice to C&S of our intention to renew our contract through August 18, 2022. However, we may choose not to renew the contract beyond August 18, 2022 or may make material modifications to the terms thereof. If our supply contract with C&S is terminated or the services that C&S provides under the supply contract are materially reduced or the quality of their merchandise deteriorates, we may be unable to locate alternative, comparable sources from which to purchase our retail merchandise in a timely manner, or at all, which could increase costs, cause a delay in distribution and a possible loss of sales, which could have a material adverse effect on our business, financial condition and results of operations.

Product supply disruptions, especially those to fresh products, may have an adverse effect on our profitability and operating results, which could have a material adverse effect on our business, financial condition and results of operations.

              Our business is dependent on our ability to strategically source a sufficient volume and variety of opportunistic products at attractive pricing. While opportunistic buying, operating with appropriate inventory levels and frequent inventory turns are key elements of our business strategy, they subject us to risks related to the pricing, quantity, mix, quality and timing of inventory flowing to our stores. We do not have significant control over the supply, cost or availability of many of the products offered for sale in our stores. Shortages or disruptions in the availability of quality products that appeal to our customers could have a material adverse effect on our business, financial condition and results of operations.

              Reflecting customer preferences, we have a significant focus on fresh products. Fresh sales accounted for approximately 32% of net sales in the 40 weeks ended September 30, 2020 and in fiscal year 2019. We rely primarily on C&S to provide and deliver our fresh and other product inventory on a continuous basis. We could suffer significant fresh and other product inventory losses and significant lost revenue in the event of a supplier disruption or shutdown of C&S or its major suppliers, vendors or distribution network, extended power outages, natural disasters or other catastrophic occurrences. Due to the COVID-19 pandemic and the resulting dislocation of workplaces and the economy, the ability of vendors to supply required products may be impaired because of illness or absenteeism in their workforces, government mandated shutdown orders or impaired financial conditions. The supply of each of our products may return to pre-COVID-19 levels at different times, including as a result of resurgences of the COVID-19 pandemic, and there can be no assurance that our efforts to ensure

30


Table of Contents

in-stock positions for all of the products that our customers require will be successful. Disruptions to our or our principal supplier's product supply could have a material adverse effect on our business, financial condition and results of operations.

Any significant disruption to our principal supplier's distribution network and our timely receipt of inventory could have a material adverse effect on our business, financial condition and results of operations.

              We rely on C&S's transportation network, including by means of truck, ocean and rail, to provide goods to our stores in a timely and cost-effective manner. Deliveries to our stores occur from our principal supplier's distribution centers. Any disruption, unanticipated or unusual expense or operational failure related to this process could affect our store operations negatively. For example, delivery delays or increases in costs that are passed on to us pursuant to our supply contract, such as fuel costs, could significantly decrease our ability to generate sales and earn profits. Moreover, if there are increases in C&S's fixed costs, C&S may seek to renegotiate our contract, which could have a material impact on our ability to generate sales and earn profits. In addition, events beyond our control, such as disruptions in operations due to fire, flood, hurricane, pandemic, natural disasters or other catastrophic events or labor disagreements, may result in delays in the delivery of merchandise to our stores. While we maintain business interruption insurance for weather-related property damage, in the event the distribution centers we rely on are shut down, such insurance may not be sufficient, and any related insurance proceeds may not be paid to us on a timely basis, or at all. If any of the above factors occur, it could have a material adverse effect on our business, financial condition and results of operations.

We face risks inherent in providing pharmacy services at our stores.

              Our pharmacies operate in a complex and evolving business environment. Sales of prescription drugs reimbursed by third-party payers, including government programs like Medicare Part D and Medicaid, represent a significant portion of our pharmacy sales. We participate in pharmacy benefit manager ("PBM") networks, including some where we receive certain quality or other incentive-based bonuses and/or where we are a "preferred provider," which means the customer pays a lower cost-sharing amount relative to other pharmacies. Continued reimbursement rate pressures in general, our relationships with PBMs and increased regulatory requirements related to government third-party payers in particular, could adversely affect our gross margins. A reduction in reimbursement rates, government or otherwise, or a failure to comply with applicable laws or regulations relating to our pharmacy services could have a material adverse effect on our business, financial condition and results of operations.

              We are subject to numerous federal and state regulations. Each of our in-store pharmacies must be licensed by the state government. The licensing requirements vary from state to state. An additional registration certificate must be granted by the U.S. Drug Enforcement Administration, and, in some states, a separate controlled substance license must be obtained to dispense controlled substances. In addition, pharmacies selling controlled substances are required to maintain extensive records and often report information to state and federal agencies. If we fail to comply with existing or future laws and regulations, we could suffer substantial civil or criminal penalties, including the loss of our licenses to operate pharmacies and our ability to participate in federal and state healthcare programs. As a consequence of the severe penalties we could face, we must devote significant operational and managerial resources to complying with these laws and regulations. Recently, pharmaceutical manufacturers, wholesale distributors and retailers have faced intense scrutiny and, in some cases, investigations and litigation relating to the distribution of prescription opioid pain medications.

              Application of federal and state laws and regulations could subject our current practices to allegations of impropriety or illegality, or could require us to make significant changes to our

31


Table of Contents

operations. In addition, we cannot predict the impact of future legislation and regulatory changes on our pharmacy business or assure that we will be able to obtain or maintain the regulatory approvals required to operate our business. If any of these risks ensue, they could have a material adverse effect on our business, financial condition and results of operations. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, PBM agreements and other business arrangements and include, but are not limited to:

    the federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order, or arranging for or recommending the purchase, lease or order of, any item or service, for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

    the federal physician self-referral prohibitions, commonly known as the Stark Law, which generally prohibit entities from billing a patient or the Medicare or Medicaid programs for certain designated health services, including pharmacy services, when the physician ordering the service, or any member of such physician's immediate family, has a financial interest, such as an ownership or investment interest in or compensation arrangement with such entity, unless the arrangement meets an exception to the prohibition. These prohibitions apply regardless of any intent by the parties to induce or reward referrals or the reasons for the financial relationship and the referral;

    the federal false claims laws, including the civil False Claims Act (which can be enforced through "qui tam," or whistleblower actions, by private citizens on behalf of the federal government), which prohibits any person from, among other things, knowingly presenting, or causing to be presented false or fraudulent claims for payment of government funds or knowingly making, using or causing to be made or used, a false record or statement material to an obligation to pay money to the government or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the federal government. In addition, the government may assert that a claim including items and services resulting from a violation of the federal Anti-Kickback Statute or Stark Law constitutes a false or fraudulent claim for purposes of the civil False Claims Act;

    the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for healthcare benefits, items or services by a healthcare benefit program, which includes both government and privately funded benefits programs. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

    the federal Civil Monetary Penalties Law, which, subject to certain exceptions, prohibits, among other things, the offer or transfer of remuneration, including waivers of copayments and deductible amounts (or any part thereof), to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary's selection of a particular provider, practitioner or supplier of services reimbursable by a state or federal healthcare program;

32


Table of Contents

    federal consumer protection and unfair competition laws, which broadly regulate platform activities and activities that potentially harm consumers; and

    state laws and regulations, including state anti-kickback and false claims laws, that may apply to our business practices, including but not limited to, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payor, including private insurers and self-pay patients.

              To enforce compliance with healthcare regulatory laws, certain enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and referral sources, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Responding to investigations can be time- and resource-consuming and can divert management's attention from the business. Additionally, as a result of these investigations, entities may also have to agree to additional compliance and reporting requirements as part of a consent decree, non-prosecution or corporate integrity agreement. Any such investigation or settlements could increase our costs or otherwise have an adverse effect on our business. Even an unsuccessful challenge or investigation into our practices could cause adverse publicity and be costly to respond. See "Risk Factors—Risks Related to Our Business and Industry—Litigation or legal proceedings could expose us to significant liabilities and may materially adversely affect our businesses, financial condition and results of operations."

              We currently operate 231 in-store pharmacies and one centralized specialty pharmacy and, as a result, we are exposed to risks inherent in the packaging, dispensing, distribution and disposal of pharmaceuticals and other healthcare products, such as risks of liability for products which cause harm to customers, as well as increased regulatory risks and related costs. Although we maintain insurance, we cannot guarantee that the coverage limits under our insurance programs will be adequate to protect us against future claims, or that we will be able to maintain this insurance on acceptable terms in the future, or at all. Our business, results of operations, financial condition or cash flows may be materially adversely affected if in the future our insurance coverage proves to be inadequate or unavailable, or there is an increase in the liability for which we self-insure, or we suffer harm to our reputation as a result of an error or omission.

If we cannot open, relocate or remodel stores on schedule, it could have a material adverse effect on our business, financial condition and results of operations.

              Part of our growth strategy is to target new store openings in existing and adjacent markets where we believe we are well positioned to capitalize on opportunities. We also intend to seek value-enhancing store acquisitions that complement our existing store base. However, we cannot assure you that we will be successful in finding and executing such opportunities. Our ability to open stores in a timely manner depends in part on the following factors: the availability of, and ability to identify, attractive store locations and rent prices; the absence of entitlement processes or occupancy delays; the ability to negotiate acceptable lease and development terms; our relationships with current and prospective landlords; the ability to secure and manage the inventory necessary for the launch and operation of new stores; general economic conditions; and the availability of capital funding for expansion.

              Our construction and opening of new stores may be negatively impacted due to state or county shelter-in-place requirements and the closure of government offices resulting from the COVID-19 pandemic. We may not have the level of cash flow or financing necessary to support our growth strategy. Additionally, our expansion would place increased demands on our operational, managerial and administrative resources. These increased demands could cause us to operate our existing business less efficiently, which in turn could cause deterioration in the financial performance of our existing stores. If we experience a decline in performance, we may slow or discontinue store openings, or we

33


Table of Contents

may decide to close stores that are unable to operate in a profitable manner. Delays or failures in opening new stores or completing relocations or remodels could materially adversely affect our growth and/or profitability. Additionally, new stores might not always align with our expectations in terms of sales or capital expenditures and we may not achieve projected results. If we fail to successfully implement our growth strategy, including by opening new stores, it could have a material adverse effect on our business, financial condition and results of operations.

Our success depends upon our marketing, advertising and promotional efforts. If costs associated with these efforts increase, or if we are unable to implement such efforts successfully, it could have a material adverse effect on our business, financial condition and results of operations.

              We use marketing and promotional programs to attract customers into our stores and to encourage purchases. If we are unable to develop and implement effective marketing, advertising and promotional strategies, we may be unable to achieve and maintain brand awareness and repeat store visits. For example, purchases by customers that are members of our loyalty program made up approximately 85% of net sales in fiscal year 2019 and 89% of net sales for the 40 weeks ended September 30, 2020. We may not be able to advertise cost effectively in new or smaller markets in which we have fewer stores, which could slow growth at such stores. If the efficacy of our marketing or promotional activities declines or we cannot implement our strategies effectively, it could have a material adverse effect on our business, financial condition and results of operations.

If we fail to maintain our reputation and the value of our brands, including protection of our intellectual property, our sales and operating results may decline.

              We believe our continued success depends on our ability to maintain and grow the value of our Winn-Dixie, Harveys and Fresco y Más brands, as well as our Own Brands portfolio. Brand value is based in large part on perceptions of subjective qualities. Even isolated incidents involving our Company, suppliers, agents or third-party service providers, or the products we sell, can erode the trust and confidence of our customers and damage the strength of our brands. This is particularly the case if such incidents result in adverse publicity, governmental investigations or litigation. Our reputation and our brands may be damaged in all, one or some of the markets in which we do business, by adverse events at the corporate level or by an employee or agent violating our core values and standards. Similarly, challenges or reactions to action (or inaction) or perceived action (or inaction), by us on issues such as social policies, merchandising, compliance related to social, product, labor and environmental standards or other sensitive topics, and any perceived lack of transparency about such matters, could harm our reputation, particularly as expectations of companies and of companies' corporate responsibility may continue to change. The increasing use of social media platforms and online forums may increase the chance that an adverse event could negatively affect the reputation of our brands. The online dissemination of negative information about our brands, including inaccurate information, could harm our reputation, business, competitive advantage and goodwill. Damage to our reputation could result in declines in customer loyalty and sales, relationships with our suppliers, business development opportunities, divert attention and resources from management, including by requiring responses to inquiries or additional regulatory scrutiny, and otherwise materially adversely affect our results. Our brands could be materially adversely affected if our public image or reputation were to be tarnished by negative publicity.

              We regard our intellectual property, including trademarks and service marks, as having significant value, and our brands are an important factor in the marketing of our stores. We may not be able or willing to successfully enforce our trademarks or intellectual property rights against competitors or defend them against challenges by others. If we fail to protect our trademarks or other intellectual property rights, others may copy or use our trademarks or intellectual property without authorization, which may harm the value of our brands, reputation, competitive advantages and goodwill and

34


Table of Contents

adversely affect our financial condition, cash flows or results of operations. The value of our intellectual property could diminish if others assert rights in or ownership of our trademarks and other intellectual property rights, or trademarks that are similar to our trademarks. We may be unable to successfully resolve these types of conflicts to our satisfaction. Additionally, we are susceptible to others infringing, misappropriating, diluting or otherwise violating our intellectual property rights. Adequate remedies may not be available in the event of an unauthorized use or disclosure of our trade secrets or other intellectual property. Actions we have taken to establish and protect our intellectual property rights may not be adequate to prevent infringement of our intellectual property by others or to prevent others from seeking to invalidate our trademarks or other intellectual property rights. In addition, unilateral actions in the United States or other countries, including changes to or the repeal of laws recognizing trademark or other intellectual property rights, could have an impact on our ability to obtain, protect or enforce those rights.

              There may in the future be concurrent use, opposition, cancellation, and similar proceedings from time to time with respect to some of our intellectual property rights. In some cases, litigation may be necessary to protect or enforce our trademarks and other intellectual property rights. Furthermore, third parties may assert intellectual property claims against us, and we may be subject to liability, required to enter into costly license agreements, if available at all, required to rebrand our products and/or prevented from selling some of our products if third parties successfully oppose or challenge our trademarks or successfully claim that we infringe, misappropriate, dilute or otherwise violate their trademarks, copyrights, patents or other intellectual property rights. Bringing or defending any such claim, regardless of merit, and whether successful or unsuccessful, could be expensive and time-consuming, and have a negative effect on our business, reputation, results of operations and financial condition.

We are subject to risks associated with leasing substantial amounts of space, including future increases in occupancy costs.

              We currently lease substantially all of our store locations, primary distribution centers and administrative offices, and a number of these leases expire or are up for renewal each year. Our operating leases typically have initial lease terms of up to 25 years with renewal options for variable periods.

              Typically, the largest portion of a store's operating expense that we bear is the cost associated with leasing the location. Our lease payment obligations for all operating leases in existence as of December 25, 2019 are $195.5 million for fiscal year 2020 and $541.2 million in aggregate for fiscal years 2021 through 2025 and $297.9 million thereafter. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations—Contractual Obligations." We are also generally responsible for property taxes, insurance and common area maintenance for our leased properties. We expect that many of the new stores we open will also be leased to us under operating leases, which will further increase our operating lease expenditures. If we are unable to make the required payments under our leases, the lenders or owners of the relevant stores, distribution centers or administrative offices may, among other things, repossess those assets, which could adversely affect our ability to conduct our operations. In addition, our failure to make payments under our operating leases could trigger defaults under other leases or under our Term Loan, which could cause the counterparties under those agreements to accelerate the obligations due thereunder.

              The operating leases for our store locations, distribution centers and administrative offices expire at various dates. When the lease term for our stores expire, we may be unable to negotiate renewals, either on commercially reasonable terms or at all, which could cause us to close stores or to relocate stores within a market on less favorable terms. Any of these factors could cause us to close stores in desirable locations, which could have a material adverse impact on our results of operations.

35


Table of Contents

              Over time, current store locations may not continue to be desirable because of changes in demographics within the surrounding area or a decline in shopping traffic. While we have the right to terminate some of our leases under specified conditions, we may not be able to terminate a particular lease if or when we would like to do so. If we decide to close stores, we are generally required to continue to perform obligations under the applicable leases, which generally include paying rent and operating expenses for the balance of the lease term. When we assign leases or sublease space to third parties, we can remain liable on the lease obligations if the assignee or sublessee does not perform.

We may have liability under certain operating leases that were assigned to third parties.

              We may have liability under certain operating leases that were assigned to third parties. If any of these third parties fail to perform their obligations under the leases, including as a result of the economic dislocation caused by the response to the COVID-19 pandemic, we could be responsible for the lease obligation. Due to the wide dispersion among third parties and the variety of remedies available, we believe that if an assignee became insolvent it would not have a material effect on our business, financial condition, results of operations or cash flows. However, if some or all assignees become insolvent within a short period of time, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may be required to recognize impairment expenses on the value of our long-lived assets.

              Upon emergence from bankruptcy, we applied fresh start accounting, and our long-lived assets were adjusted to fair values. In addition to fixed assets, long-lived assets also include intangible assets, such as tradenames, right of use assets, pharmacy prescription files and liquor licenses. The determination of fair values requires that we make significant estimates and assumptions regarding long-term projections of cash flows, market conditions and appropriate market rates. Our judgments are based on historical experience, current market trends and other information. Changes in estimates of future cash flows caused by items such as increased competition or other adverse market conditions could negatively affect fair value and result in an impairment expense. We have experienced, and may continue to experience, impairment of these assets which could result in material non-cash charges to our results of operations. Long-lived asset impairment expenses were $13.8 million, $13.2 million, $24.6 million and $39.6 million for the 40 weeks ended September 30, 2020, fiscal year 2019, the 22 weeks ended May 30, 2018 and fiscal year 2017, respectively. Tradename impairment expenses were $25.0 million, $8.0 million, $11.0 million, and $75.5 million for the 40 weeks ended September 30, 2020, fiscal year 2019, the 22 weeks ended May 30, 2018 and fiscal year 2017, respectively. There was no impairment recorded in the 30 weeks ended December 26, 2018. Future impairment expenses could have a material adverse effect on our financial condition and results of operations.

Information contained in our historical financial statements will not be comparable to the information contained in our financial statements after the application of fresh start accounting.

              Our financial statements reflect the consummation of Reorganization and the adoption of fresh start accounting. As a result, our assets and liabilities were adjusted to fair values and our financial statements from and after May 30, 2018, will not be comparable to our financial statements for prior periods. Our financial results for future periods following the application of fresh start accounting will be different from historical trends, and the differences may be material. As a result of all these factors, our historical financial information may not be indicative of our future financial performance.

36


Table of Contents

Failure to maintain the privacy and security of confidential customer and business information, and the resulting unfavorable publicity, could have a material adverse effect on our business, financial condition and results of operations.

              We receive, retain, use and transmit confidential business information and certain personal information relating to customers, employees, suppliers and other third parties in connection with our payment systems, pharmacy business, loyalty program and marketing and human resources organizations, including protected health information ("PHI") and personally identifiable information, and entrust certain of that information to third-party service providers. We depend upon the secure transmission of confidential information, including customer payments, over external networks. Despite our considerable efforts to secure our computer networks, security could be compromised, confidential information could be misappropriated or system disruptions could occur, as has occurred with a number of other retailers. If we experience a data security breach, we could be exposed to government enforcement actions, possible assessments from the card brands if credit card data was involved and potential litigation. In addition, our customers could lose confidence in our ability to protect their personal information, which could cause them to alter their spending behavior, including amount of spend or frequency of visits to our stores.

              Additionally, the use of personal information by us and our third-party service providers is subject to federal, state and local laws and regulations. As a merchant that accepts debit and credit cards for payment, we are subject to the Payment Card Industry ("PCI") Data Security Standard ("PCI DSS"), issued by the PCI Council. PCI DSS contains compliance guidelines and standards with regard to our security surrounding the physical administrative and technical storage, processing and transmission of individual cardholder data. By accepting debit cards for payment, we are also subject to compliance with American National Standards Institute ("ANSI") data encryption standards and payment network security operating guidelines. Failure to be PCI compliant or to meet other payment card standards may result in the imposition of financial penalties or the allocation by the card brands of the costs of fraudulent charges to us. As well, the Fair and Accurate Credit Transactions Act ("FACTA") requires systems that print payment card receipts to employ personal account number truncation so that the customer's full account number is not viewable on the slip. With respect to our pharmacy operations, we are also subject to regulation under the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), as amended by the Health Information Technology for Economic and Clinical Health Act, which establishes privacy and security standards that limit our use and disclosure of PHI and requires us to implement administrative, physical and technical safeguards to ensure the confidentiality, integrity and availability of PHI. HIPAA also requires us to provide individuals with certain rights with respect to their PHI. Further, in the event of a breach of unsecured PHI we must notify each customer whose PHI is breached, as well as federal regulators and in some cases, must publicize the breach in local or national media. For those third-party service providers and partners who handle PHI on our behalf, we are required to enter into a business associate agreement that establishes specifically what the business associate has been engaged to do and requires the business associate to comply with the requirements of HIPAA. Penalties for failure to comply with a requirement of HIPAA vary significantly depending on the nature of violation and could include civil monetary or criminal penalties. HIPAA also authorizes state attorneys general to file suit under HIPAA on behalf of state residents. Courts can award damages, costs and attorneys' fees related to violations of HIPAA in such cases. While HIPAA does not create a private right of action allowing individuals to sue us in civil court for HIPAA violations, its standards have been used as the basis for a duty of care claim in state civil suits such as those for negligence or recklessness in the misuse or breach of PHI.

              Despite our efforts to comply with HIPAA and PCI DSS, ANSI and FACTA or other payment card standards and other information security measures, we have experienced "phishing" attacks, hacking incidents and other unauthorized access to certain data and information, and we cannot be certain that all of our IT and cybersecurity systems and processes will be able to prevent, contain or

37


Table of Contents

detect all cyber-attacks or intrusions from known malware or malware that may be developed in the future, particularly as we grow our technology platforms and expand our eCommerce offerings. To the extent that any disruption results in the loss, damage or misappropriation of information, we may be adversely affected by claims from customers, financial institutions, regulatory authorities, payment card associations and others. In addition, privacy and information security laws and standards continue to evolve and could expose us to further regulatory burdens. The cost of complying with stricter laws and standards, including HIPAA, PCI DSS, ANSI and FACTA data encryption standards, could be significant.

              The techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often cannot be recognized until launched against a target. Accordingly, we may not be able to anticipate these frequently changing techniques or implement adequate preventive measures for all of them. Any unauthorized access into our customers' sensitive information, or data belonging to us or our suppliers, even if we are compliant with industry security standards, could put us at a competitive disadvantage, result in deterioration of our customers' confidence in us and subject us to potential litigation, liability, fines and penalties and consent decrees, which could require us to expend significant resources related to remediation or result in a disruption of our operations, any of which could have a material adverse effect on our business, financial condition, and results of operations.

              Further, the scope of laws and regulations regarding privacy, data protection, information security and the storing, sharing, use, processing, transfer, disclosure, retention and protection of personal information is rapidly changing. We are also subject to the terms of our privacy policies and contractual obligations to third parties related to privacy, data protection and information security. We strive to comply with applicable laws, regulations, policies and other legal obligations relating to privacy, data protection and information security. However, the regulatory framework for privacy, data protection and information security is, and is likely to remain, uncertain for the foreseeable future, and it is possible that these or other actual or alleged obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. We also expect that there will continue to be new laws, regulations and industry standards concerning privacy, data protection and information security proposed and enacted in various jurisdictions. Various states throughout the United States, are increasingly adopting or revising privacy, information security and data protection laws and regulations that could have a significant impact on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing, retention and safeguarding of customer, consumer and/or employee information, as well as any other third-party information we receive, and some of our current or planned business activities.

We face the risk of litigation resulting from unauthorized text messages sent in violation of the Telephone Consumer Protection Act.

              We send short message service, or SMS, text messages to customers. The actual or perceived improper sending of text messages may subject us to potential risks, including liabilities or claims relating to consumer protection laws. Numerous class-action suits under federal and state laws have been filed in recent years against companies who conduct SMS texting programs, with many resulting in multi-million-dollar settlements to the plaintiffs. Any future such litigation against us could be costly and time-consuming to defend. For example, the Telephone Consumer Protection Act (TCPA) of 1991, a federal statute that protects consumers from unwanted telephone calls, faxes and text messages, restricts telemarketing and the use of automated SMS text messages without proper consent. Federal or state regulatory authorities or private litigants may claim that the notices and disclosures we provide, form of consents we obtain or our SMS texting practices are not adequate or violate applicable law. This may in the future result in civil claims against us. The scope and interpretation of the laws that are or may be applicable to the delivery of text messages are continuously evolving and developing. If we do not comply with these laws or regulations or if we become liable under these laws or regulations,

38


Table of Contents

we could face direct liability, could be required to change some portions of our business model, could face negative publicity and our business, financial condition and results of operations could be adversely affected. Even an unsuccessful challenge of our SMS texting practices by our customers, regulatory authorities or other third parties could result in negative publicity and could require a costly response from and defense by us.

Disruptions of or compromises to our information technology system, including as a result of unauthorized computer intrusions, could have a material adverse effect on our business, financial condition and results of operations, and on our reputation.

              We are dependent on complex information technology systems to operate our business, enhance customer service, improve the efficiency of our supply chain and increase employee efficiency. Certain of these information technology systems are hosted by third-party service providers. Such third-party service providers may fail to monitor their or our systems effectively, may fail to maintain appropriate safeguards, may misuse the personal and/or confidential information to which they have access, may attempt to circumvent our security measures, may purposefully or inadvertently allow unauthorized access to our or their systems or to personal and/or confidential information or may otherwise disrupt our business operations. We and our customers could suffer harm if valuable business data or employee, customer and other proprietary information were corrupted, lost or accessed or misappropriated by third parties due to a security failure in our systems or those of our suppliers or service providers. Any such failure or breach could require significant expenditures to remediate, severely damage our reputation and our relationships with customers, result in unwanted media attention and lost sales and expose us to risks of litigation and liability. Further, our information technology systems, as well as those of our third-party service providers, are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, malicious service disruptions, catastrophic events and user errors.

              As a result of the COVID-19 pandemic, we have transitioned to a remote work environment, which may exacerbate certain risks to our business, including increasing the stress on, and our vulnerability to disruptions of, our technology infrastructure and systems, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of personal or confidential information.

              While we have implemented additional security software and hardware designed to provide additional protections against unauthorized intrusions, there can be no assurance that unauthorized individuals will not discover a means to circumvent our security. Hackers and data thieves are increasingly sophisticated and operate large-scale and complex attacks. Experienced computer programmers and hackers may be able to penetrate our security controls and misappropriate or compromise sensitive personal, proprietary or confidential information, create system disruptions or cause shutdowns. They also may be able to develop and deploy malicious software programs that attack our systems or otherwise exploit any security vulnerabilities. Computer intrusions could adversely affect our brands, may cause us to incur legal and other fees, may cause us to incur additional expenses for additional security measures and could discourage customers from shopping in our stores.

              Significant disruptions in our information technology systems or our third-party service providers could have a material adverse effect on our business, financial condition and results of operations, and on our reputation.

A loss in customer confidence in the safety and quality of our products and the resulting unfavorable publicity could have a material adverse effect on our business, financial condition and results of operations.

              The packaging, marketing, production, distribution and sale of grocery, pharmaceutical and other products purchased from suppliers or produced by us entails an inherent risk of product liability claims, product recalls, and could potentially result in adverse publicity. We cannot be sure that

39


Table of Contents

consumption or use of our products will not cause side effects, illness, injury or death in the future, as product deficiencies might not be identified before we sell such products to our customers. Concerns regarding the safety and quality of our food products or our food supply chain, whether valid or not, could cause customers to avoid purchasing certain products from us, or to stop shopping in our stores entirely. To the extent that a pathogen is food-borne, or perceived to be food-borne, future outbreaks may adversely affect the price and availability of certain food products and cause our customers to eat less of such product. For example, adverse publicity about these types of concerns, such as the current concerns relating to the COVID-19 pandemic and concerns relating to romaine lettuce in 2018 may discourage customers from buying our products. Any report linking us to food contamination, food tampering, mislabeling, illness, injury, or other food safety issues, whether relating to one of our products or any product sold in one of our stores, could lead to product recalls, materially adversely impact sales or possibly lead to further product liability claims or litigation and brand damage, any of which could harm our reputation with existing and potential customers and have a material adverse effect on our business, financial condition and results of operations.

We may not be able to retain the loyalty of our customers, the failure of which could have a material adverse effect on our business, financial condition and results of operations.

              We depend on repeat visits by our customer base to drive our consistent sales and sales growth. Competition for customers has also intensified from the use of mobile and web-based technology that facilitates online shopping and real-time product and price comparisons. We expect this competition to continue to increase. Our competitors may be able to offer their customers promotions or loyalty program incentives that are more attractive than the promotions and incentives we offer, which could result in fewer shopping trips to or purchases from our stores. If we are unable to retain the loyalty of our customers, our sales could decrease and we may not be able to grow our store base as planned, which could have a material adverse effect on our business, financial condition and results of operations.

Litigation or legal proceedings could expose us to significant liabilities and may materially adversely affect our businesses, financial condition and results of operations.

              Our operations carry a higher exposure to customer and employee litigation risk when compared to companies operating in many other industries due to the nature of our business, including high volume of customer traffic, product variety, supply-chain matters and number of employees. Consequently, we may be a party to individual or class action lawsuits regarding contractual, human resources, product liability and other legal actions in the ordinary course of our business. The outcome of litigation, particularly class action lawsuits and regulatory actions, is difficult to assess or quantify, and plaintiffs may seek significant damages. The potential loss relating to such lawsuits may remain unknown for substantial periods of time and the cost to defend future litigation may be significant. There may also be adverse publicity associated with litigation that may decrease customer confidence in our business, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation could have a material adverse effect on our business, financial condition and results of operations.

              In August 2018, we received a subpoena from the United States Department of Defense, Office of Inspector General, requesting documents and other materials that relate to our pharmacies' generic drug program and the manner in which we determine usual and customary drug pricing for purposes of reporting to federal health care programs from September 1, 2014 to December 31, 2016. In February 2020, we were informed by the Department of Justice Civil Division the existence of a sealed qui tam ("whistleblower") lawsuit against us regarding the usual and customary pricing claims submitted by us to federal health care programs for certain generic drugs sold in our stores from 2006 through 2013 when we discontinued certain discount programs related to these drugs. Due to the complex nature of this lawsuit, we do not know the full substance of the allegations. At this stage of

40


Table of Contents

the proceedings, we are not able to predict the validity or outcome of these matters or estimate a potential range of loss with respect to these matters. We are cooperating with the government's requests for documents and information. On September 30, 2020 we received a notice from the U.S. Department of Justice that they have declined to intervene in the qui tam lawsuit. Additionally, they advised that they do not have information regarding whether the relators intend to pursue the asserted claims on behalf of the United States or whether they will voluntarily dismiss the lawsuit. Responding to investigations can be time-and resource-consuming and can divert management's attention from the business. Additionally, we could be subject to suspension, exclusion or debarment from government health care programs, and/or have to agree to settlements that can include monetary penalties and onerous compliance and reporting requirements as part of a consent decree or corporate integrity or monitoring agreement. Any such investigation, exclusion, suspension, debarment or settlement could increase our costs or otherwise have an adverse effect on our business.

              We are also one of dozens of companies that have been named in various lawsuits alleging that defendants contributed to the national opioid epidemic. At present, we are named in over 40 suits pending in various state courts as well as in the United States District Court for the Northern District of Ohio, where over 2,000 cases have been consolidated as Multi-District Litigation ("MDL") pursuant to 28 U.S.C. §1407. The MDL cases are currently stayed pending bellwether trials, and we do not currently have any active matters. At this stage in the proceedings, we are unable to determine the probability of the outcome of these matters or the range of reasonably possible loss, if any.

Changes in laws, rules and regulations affecting our industry could have a material adverse effect on our business, financial condition and results of operations.

              We are subject to numerous and frequently changing federal, state and local laws, rules and regulations that affect our business. We routinely incur significant costs in complying with these regulations. The complexity of the regulatory environment in which we operate and the related cost of compliance are increasing due to additional legal and regulatory requirements, our expanding operations and increased enforcement efforts. Further, uncertainties exist regarding the future application of certain of these legal requirements to our business. New or existing laws, regulations and policies, liabilities arising thereunder and the related interpretations and enforcement practices, particularly those dealing with environmental product and compliance, taxation, zoning and land use, workplace safety, public health, community right-to-know, product safety or labeling, food safety, alcohol and beverage sales, pharmacy and drug sales, vitamin and supplements, information security and privacy, labor and employment and any new provisions relating to the COVID-19 pandemic, among others, or changes in existing laws, regulations, policies and the related interpretations and enforcement practices, particularly those governing the sale of products, may result in significant added expenses or may require extensive system and operating changes that may be difficult to implement and/or could materially increase our cost of doing business.

              For example, our operations are subject to various federal, state and local laws and regulations relating to the protection of the environment, including those governing the storage, handling, management, disposal and cleanup of hazardous materials. Some environmental laws, such as the Comprehensive Environmental Response, Compensation and Liability Act and similar state statutes, impose strict, and under certain circumstances joint and several, liability for costs to remediate a contaminated site, and also impose liability for damages to natural resources. Third-party claims in connection with releases of or exposure to hazardous materials relating to our current or former properties or third-party waste disposal sites can also arise. In addition, the presence of contamination at any of our properties could impair our ability to sell or lease the contaminated properties or to borrow money using any of these properties as collateral. The costs and liabilities associated with any such contamination could be substantial and could have a material adverse effect on our business.

41


Table of Contents

              Federal regulations under the Clean Air Act require phase out of the production of ozone depleting refrigerants that include hydrochlorofluorocarbons, the most common of which is R-22. As of January 1, 2020, industry production of new R-22 refrigerant gas has been completely phased out; however, recovered and recycled/reclaimed R-22 will be available for servicing systems after 2020. We are reducing our R-22 footprint while continuing to repair leaks, thus extending the useful lifespan of existing equipment. In fiscal year 2019, we incurred approximately $1.2 million for system retrofits, and we have budgeted approximately $1.5 million per year for subsequent years. Leak repairs are part of the ongoing refrigeration maintenance budget. We may be required to spend additional capital above and beyond what is currently budgeted for system retrofits and leak repairs which could have a significant impact on our business, results of operations and financial condition. We are also subject to a Consent Decree that required us to pay a $300,000 penalty and address commercial refrigerant repair and recordkeeping requirements. If we are unable to comply with the Consent Decree going forward or if we are subject to any other violations or penalties in connection therewith, it could have a material adverse effect on our business, financial condition, results of operations and our reputation.

              In addition, the increased focus on climate change, waste management and other environmental issues may result in new environmental laws or regulations that negatively affect us directly or indirectly through increased costs on our suppliers. There can be no assurance that other environmental changes will not adversely affect us through, for example, business interruption, cost of remediation or adverse publicity.

              Further, a considerable number of our employees are paid at rates related to the federal minimum wage. Additionally, many of our stores are located in Florida, where the minimum wage is greater than the federal minimum wage and where a considerable number of employees receive compensation equal to the state's minimum wage. On November 3, 2020, Florida voters approved a ballot measure increasing Florida's minimum wage from a base rate of $8.56 per hour incrementally through 2026. Beginning September 30, 2021, the base rate will be increased to $10.00 per hour and will increase annually by $1.00 per hour until the minimum wage reaches $15.00 per hour in 2026. Any further increases in the federal minimum wage or the enactment of additional state or local minimum wage increases could increase our labor costs, which may adversely affect our results of operations and financial condition.

              Many of our customers rely on electronic benefit transfers ("EBT"), or food stamps, under the Supplemental Nutrition Assistance Program ("SNAP"), and other governmental assistance programs to supplement their grocery shopping budget. Payments via EBT under SNAP accounted for approximately 9.3% to 12.3% of our net sales for fiscal years 2016 through 2019. Accordingly, changes in EBT regulations by the U.S. Department of Agriculture or in SNAP benefits by Congress, particularly if the SNAP budget is lowered, could adversely affect our financial performance. We cannot predict either the nature of future laws, regulations, interpretations or applications, or the effect either additional governmental laws, regulations or administrative procedures, when and if promulgated, or disparate federal, state, local and foreign regulatory schemes would have on our future business.

              In addition, regulatory changes could require the reformulation of certain products to meet new standards, the recall or discontinuance of certain products not able to be reformulated, additional record keeping, expanded documentation of the properties of certain products, expanded or different labeling and/or scientific substantiation. Any or all of such requirements could have a material adverse effect on our business, financial condition and results of operations.

The geographic concentration of our locations in the southeastern United States increases our vulnerability to natural events including severe storm damage, natural disasters and other local adverse weather conditions, which could have a material adverse effect on our business, financial condition and results of operations.

              A substantial portion of our operations are concentrated in states along the Gulf of Mexico and the Atlantic Ocean, which makes us vulnerable to regional events and increases the likelihood of

42


Table of Contents

being negatively impacted by events such as tornadoes, hurricanes and windstorms. Among the specific risks that we face include:

    our ability to re-open stores that may close as a result of damage to the store and/or operating area;

    lack of an adequate work force in a market in which we operate;

    temporary disruptions in the manufacture, transport and supply of products and delays in the delivery of products to our stores;

    reductions in customer traffic and in the availability of products in our stores;

    our ability to fund losses of inventory and other costs in advance of the receipt of insurance payments; and

    our ability to collect on insurance coverage, which is subject to solvency of our insurance carriers, their approval of our claims and the timing of claims processing and payment.

              Any unforeseen events or circumstances in our operating areas could have a material adverse effect on our business, financial condition and results of operations.

              In addition, adverse climate conditions and adverse weather patterns, such as drought or flood, that impact growing conditions and the quantity and quality of crops yielded by food producers may adversely affect the availability or cost of certain products within the grocery supply chain. Any of these factors may disrupt our business and could have a material adverse effect on our business, financial condition and results of operations.

Threats or potential threats to security of food and drug safety, the occurrence of a widespread health epidemic and/or pandemic or other incidents beyond our control could have a material adverse effect on our business, financial condition and results of operations.

              Acts or threats, whether perceived or real, of war or terror or other criminal activity directed at the food and drug industry or the transportation industry, whether or not directly involving our stores, could increase our operating costs and operations, or impact general customer behavior and customer spending. Other events that give rise to actual or potential food contamination, drug contamination or food-borne illnesses, or a widespread regional, national or global health epidemic and/or pandemic, such as influenza, or, specifically, the recent COVID-19 pandemic, could have an adverse effect on our operating results or disrupt production and delivery of products to our stores, our ability to appropriately and safely staff our stores and cause customers to avoid public gathering places or otherwise change their shopping behaviors.

              The costs associated with implementing and maintaining the safety measures designed to protect our associates and customers in the COVID-19 pandemic have to date been more than offset by increased sales, but in the event our sales decline as stay-at-home guidance subsides and the economy begins to re-open, we may be required to continue to implement and maintain these protective measures despite lower sales, thereby reducing our profitability.

Attempts to organize our employees could adversely affect our business.

              None of our employees are currently subject to a collective bargaining agreement, unlike many competitors in our industry. Unions may attempt to organize some or all of our employee base at certain stores, within certain states or under one or more of our banners. In addition, some or all of our employees may independently explore the possibility of organizing. Addressing any attempts at organization may distract management and our employees and could have a material adverse effect on individual stores, certain groups of stores or our business as a whole. In addition, any attempts to unionize some or all of our workforce that are successful could increase our operating costs and otherwise negatively affect our business, financial condition and results of operations.

43


Table of Contents

Seasonality may cause fluctuations in our revenue.

              We believe there are seasonal factors that may cause us to record higher revenue in some quarters compared with others. We believe that a larger share of our annual revenues may be generated in our first and fourth quarters due to the major holidays in November and December and an increase of visitors in Florida from November to March. While we believe we have visibility into the seasonality of our business, various factors, including difficult weather conditions (such as flooding, hurricanes, prolonged rain or periods of unseasonably cold or hot weather or snow storms) in any quarter, may adversely reduce sales at affected stores and may have a material adverse effect on our business, financial condition and results of operations.

We may not be able to utilize a significant portion of our net operating loss or other tax attributes, which could have a material adverse effect on our financial condition, results of operations and profitability.

              As of December 25, 2019, we had NOLs of approximately $579 million due to prior period losses. Approximately $526 million of such NOLs are subject to existing limitations under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). If not utilized, our NOLs will begin to expire in 2025 for U.S. federal income tax purposes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Results of Operations—The Reorganization and Fresh Start Accounting." Our NOLs could expire unused and be unavailable to offset future income tax liabilities, which could have a material adverse effect on our financial condition and results of operations.

              In addition, our ability to utilize NOLs or other tax attributes in any taxable year may be further limited under Sections 382 and 383 of the Code if we experience another "ownership change." A Section 382 "ownership change" generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. This offering or future issuances of our stock could cause an "ownership change." It is possible that an ownership change, or any future ownership change, could have a material effect on the use of our NOLs or other tax attributes, which could have a material adverse effect on our financial condition, results of operations and profitability.

              Additionally, a significant portion of our NOLs and other deferred tax assets maintain a valuation allowance as of fiscal 2019 year end. Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 25, 2019. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. On the basis of this evaluation, as of December 25, 2019, $187.8 million was recorded to recognize only a portion of the deferred tax assets that are more likely than not to be realized. The amount of the deferred tax assets (including our NOLs) considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to the subjective evidence such as our projections for growth.

Risks Related to Our Indebtedness

Our substantial level of indebtedness could adversely affect our business, financial condition, and results of operations.

              We have, and expect to continue to have, a substantial amount of debt. As of September 30, 2020 on an as adjusted basis after giving effect to the Refinancing Transactions and the Special Cash Dividend, we would have had $385.3 million of debt outstanding (other than finance lease obligations).

44


Table of Contents

As of September 30, 2020, on an as adjusted basis after giving effect to the Refinancing Transactions, the reduction in borrowing capacity under the ABL Credit Agreement and the Special Cash Dividend, we would have been able to borrow an additional $319.4 million under the Revolving Credit Facility. As of September 30, 2020, we had $67.6 million of finance lease obligations.

              Our outstanding indebtedness and any additional indebtedness we incur may have important consequences for us, including, without limitation, that:

    we may be required to dedicate a significant portion of our cash flows from operations to the payment of principal and interest on our indebtedness, thereby limiting the availability of our cash flow for other purposes, such as capital expenditures;

    our indebtedness and leverage may increase our vulnerability to adverse changes in general economic and industry conditions, as well as to competitive pressures;

    our ability to obtain additional financing on favorable terms, or at all, for working capital, capital expenditures, acquisitions and for general corporate and other purposes may be limited;

    our indebtedness may expose us to the risk of increased interest rates because certain of our borrowings, including our borrowings under the Revolving Credit Facility, are at variable rates of interest;

    our indebtedness may prevent us from taking advantage of business opportunities as they arise or successfully carrying out our plans to expand our business; and

    limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, and place us at a competitive disadvantage compared to less-leveraged competitors; and

    limit our ability to borrow additional funds.

              In addition, we cannot assure you that we will be able to refinance any of our debt or that we will be able to refinance our debt on commercially reasonable terms. If we were unable to make payments or refinance our debt or obtain new financing under these circumstances, we would have to consider other options, such as sales of assets, sales of equity or negotiations with our lenders to restructure the applicable debt. Further, pursuant to the agreements governing our debt, we are subject to certain covenants which may restrict our financial flexibility. Our ability to service our debt obligations and achieve compliance with affirmative and negative debt covenants will largely depend on our future operating performance, which cannot be assured.

Despite our substantial indebtedness, we and our subsidiaries may still be able to incur substantially more debt. This could further exacerbate the risks associated with our substantial leverage.

              We may incur substantial additional indebtedness in the future. Although the agreement governing our Revolving Credit Facility and the indenture governing the Notes contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions, and the indebtedness we can incur in compliance with these restrictions could be substantial. In addition, as of September 30, 2020, on an as adjusted basis after giving effect to the Refinancing Transactions, the reduction in borrowing capacity under the ABL Credit Agreement and the Special Cash Dividend, we would have been able to borrow an additional $319.4 million under the Revolving Credit Facility. If we incur additional debt, the risks associated with our substantial leverage would increase.

              In addition to the Notes and borrowings under the ABL Credit Agreement, the covenants under any future debt instruments could allow us to incur a significant amount of additional

45


Table of Contents

indebtedness. In addition to any amounts that might be available to us for borrowing under the ABL Credit Agreement, subject to certain conditions, we have the right to request an increase of aggregate commitments under the ABL Credit Agreement by an aggregate amount of up to $300.0 million by obtaining additional commitments from either one or more of the lenders under the ABL Credit Agreement or other lending institutions. See "Description of Material Indebtedness—ABL Credit Agreement." The more leveraged we become, the more we, and in turn holders of our common stock, will be exposed to certain risks described above under "—Our substantial level of indebtedness could adversely affect our business, financial condition, and results of operations."

The ABL Credit Agreement and the indenture governing the Notes impose significant operating and financial restrictions that may limit our current and future operating flexibility, particularly our ability to respond to changes in the economy or our industry or to take certain actions, which could harm our long term interests and may restrict our ability to pursue our business strategies.

              The ABL Credit Agreement and the indenture governing the Notes impose significant operating and financial restrictions on us. These restrictions limit our ability, among other things, to:

    incur, assume or permit to exist additional indebtedness (including guarantees thereof);

    pay dividends or certain other distributions on our capital stock or repurchase our capital stock or prepay subordinated indebtedness;

    prepay, redeem or repurchase certain debt;

    incur liens on assets;

    make certain loans, investments or other restricted payments;

    allow to exist certain restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us;

    engage in transactions with affiliates; and

    sell certain assets or merge or consolidate with or into other companies.

              As a result of these restrictions, we may be:

    limited in how we conduct our business;

    unable to raise additional debt or equity financing to operate during general economic or business downturns; or

    unable to compete effectively or to take advantage of new business opportunities.

              The ABL Credit Agreement also requires us to maintain specified financial ratios and satisfy other financial condition tests under certain conditions based on the amount available for borrowing under the Revolving Credit Facility. The ability to meet those financial ratios and tests can be affected by events beyond our control, and we cannot assure you that we will meet them. A breach of the covenants under the indenture governing the Notes or the ABL Credit Agreement could result in an event of default under the applicable indebtedness. Such an event of default, if not cured or waived, may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt that is subject to an applicable cross-acceleration or cross-default provision. In addition, an event of default under the ABL Credit Agreement would permit the lenders under the ABL Credit Agreement to terminate all commitments to extend further credit under the ABL Credit Agreement. Furthermore, if we were unable to repay the amounts due and payable under the ABL Credit Agreement, those lenders could proceed against the collateral securing such indebtedness. Our assets may not be sufficient to repay in full that debt or any other debt that may become due as a result of

46


Table of Contents

that acceleration. These restrictions and any inability to meet the financial ratios and tests could have a material adverse effect on our business, financial condition and results of operations.

In the future, we may be dependent upon our lenders for financing to execute our business strategy and to meet our liquidity needs. If our lenders are unable to fund borrowings under their credit commitments or we are unable to borrow, it could have a material adverse effect on our business, financial condition, and results of operations.

              During periods of volatile credit markets, there is risk that lenders, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their legal commitments and obligations under existing credit commitments, including but not limited to, extending credit up to the maximum amount permitted by the Revolving Credit Facility. If our lenders are unable to fund borrowings under their revolving credit commitments or we are unable to borrow, it could be difficult to obtain sufficient funding to execute our business strategy or to meet our liquidity needs, which could have a material adverse effect on our business, financial condition, and results of operations.

Our debt may be downgraded, which could have a material adverse effect on our business, financial condition, and results of operations.

              A reduction in the ratings that rating agencies assign to our short- and long-term debt may negatively impact our access to the debt capital markets and increase our cost of borrowing, which could have a material adverse effect on our business, financial condition, and results of operations.

Volatility and weakness in bank and capital markets may adversely affect credit availability and related financing costs for us.

              Banking and capital markets can experience periods of volatility and disruption. If the disruption in these markets is prolonged, our ability to refinance, and the related cost of refinancing, some or all of our debt could be adversely affected. Although we currently can access the bank and capital markets, there is no assurance that such markets will continue to be a reliable source of financing for us. These factors, including the tightening of credit markets, could adversely affect our ability to obtain cost-effective financing. Increased volatility and disruptions in the financial markets also could make it more difficult and more expensive for us to refinance outstanding indebtedness and to obtain financing. In addition, the adoption of new statutes and regulations, the implementation of recently enacted laws, or new interpretations or the enforcement of older laws and regulations applicable to the financial markets or the financial services industry could result in a reduction in the amount of available credit or an increase in the cost of credit. Disruptions in the financial markets can also adversely affect our lenders, insurers, customers, and other counterparties. Any of these results could have a material adverse effect on our business, financial condition, and results of operations.

Risks Related to Our Initial Public Offering and Ownership of Our Common Stock

There is no existing market for our common stock and an active, liquid trading market for our common stock may not develop.

              Prior to this offering, there has been a limited market for our common stock. Although we have been approved to list our common stock on the NYSE under the symbol "SEGR," we cannot predict the extent to which investor interest in our Company will lead to the development of an active trading market or how liquid that market may become. If an active trading market does not develop, you may have difficulty selling any of our shares that you purchase. The initial public offering price of our common stock will be determined by negotiation between us and the underwriters, and may not be indicative of prices that will prevail after the completion of this offering. The market price of our

47


Table of Contents

common stock may decline below the initial public offering price, and you may not be able to resell your shares at, or above, the initial public offering price.

The price of our common stock may be volatile and you could lose all or part of your investment.

              Securities markets worldwide have experienced in the past, and are likely to experience in the future, significant price and volume fluctuations. This market volatility, as well as general economic, market, or political conditions could reduce the market price of our common stock regardless of our results of operations. The trading price of our common stock is likely to be highly volatile and could be subject to wide price fluctuations in response to various factors, including, among other things, the risk factors described herein and other factors beyond our control. Factors affecting the trading price of our common stock could include:

    market conditions in the broader stock market;

    actual or anticipated variations in our quarterly results of operations;

    developments in our industry in general;

    variations in operating results of similar companies;

    introduction of new services or products by us, our competitors or our customers;

    issuance of new, negative or changed securities analysts' reports or recommendations or estimates;

    investor perceptions of us and the industries in which we or our customers operate;

    sales, or anticipated sales, of our stock, including sales by our officers, directors and significant stockholders;

    additions or departures of key personnel;

    regulatory or political developments;

    the public's response to press releases or other public announcements by us or third parties, including our filings with the SEC;

    announcements, media reports or other public forum comments related to litigation, claims or reputational charges against us;

    guidance, if any, that we provide to the public, any changes in this guidance, or our failure to meet this guidance;

    the development and sustainability of an active trading market for our common stock;

    investor perceptions of the investment opportunity associated with our common stock relative to other investment alternatives;

    other events or factors, including those resulting from system failures and disruptions, earthquakes, hurricanes, war, acts of terrorism, global outbreaks or pandemic, other natural disasters or responses to these events;

    changes in accounting principles;

    share-based compensation expense under applicable accounting standards;

    litigation and governmental investigations; and

    changing economic conditions.

48


Table of Contents

              These and other factors may cause the market price and demand for shares of our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock sometimes have instituted securities class action litigation against the company that issued the stock. Securities litigation against us, regardless of the merits or outcome, could result in substantial costs and divert the time and attention of our management from our business, which could have a material adverse effect on our business, financial condition, and results of operations.

Future sales of our common stock, or the perception in the public markets that these sales may occur, could cause the market price for our common stock to decline.

              Upon consummation of this offering, there will be 43,368,294 shares of our common stock outstanding. All shares of common stock sold in this offering will be freely transferable without restriction or further registration under the Securities Act. At the time of this offering, we also will have 7,587,185 registered shares of common stock reserved for issuance under our equity incentive plans of which restricted stock units representing 4,599,462 shares of common stock are outstanding, which shares may be issued upon issuance and once vested, subject to any applicable lock-up restrictions then in effect. We cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Sales of substantial amounts of shares of our common stock in the public market, or the perception that those sales will occur, could cause the market price of our common stock to decline. Of the shares of common stock outstanding, 78,294 will be restricted securities within the meaning of Rule 144 under the Securities Act and subject to certain restrictions on resale following the consummation of this offering. Restricted securities may be sold in the public market only if they are registered under the Securities Act, or are sold pursuant to an exemption from registration such as Rule 144 or Rule 701, as described in "Shares Eligible for Future Sale."

              We, each of our officers and directors, and substantially all our existing stockholders have agreed that (subject to certain exceptions), for a period of 180 days from the date of this prospectus, we and they will not, without the prior written consent of BofA Securities, Inc. and Goldman Sachs & Co. LLC, dispose of or hedge any shares or any securities convertible into or exchangeable for our common stock. BofA Securities, Inc. and Goldman Sachs & Co. LLC, in their sole discretion, may release any of the securities subject to these lock-up agreements at any time, which, in the case of officers and directors, shall be with notice. See "Underwriting (Conflicts of Interest)." Following the expiration of the applicable lock-up period, all of the issued and outstanding shares of our common stock will be eligible for future sale, subject to the applicable volume, manner of sale, holding period, and other limitations of Rule 144. See "Shares Eligible for Future Sale" for a discussion of the shares of common stock that may be sold into the public market in the future.

If securities or industry analysts publish unfavorable research about our business, or if our competitors' stock performance decline, the price of our common stock and our trading volume could decline.

              The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently publish research on our Company. Once securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our common stock or publish unfavorable research about our business, the price of our common stock likely would decline. Additionally, if one of our competitor's stock performance declines, the price of our common stock and our trading volume could decline as well. If one or more of these analysts cease coverage of our Company or fail to publish reports on us regularly, or if one of our competitor's stock performance declines, demand for

49


Table of Contents

our common stock could decrease, which might cause the price of our common stock and trading volume to decline.

Our ability to pay dividends to our stockholders is restricted by applicable laws and regulations and requirements under certain of our securities and debt agreements, including the ABL Credit Agreement and the Notes.

              Holders of our common stock are only entitled to receive such cash dividends as our board, in its sole discretion, may declare out of funds legally available for such payments. In connection with the IPO, we intend to establish a dividend policy pursuant to which we intend to pay a quarterly dividend on our common stock in an annual amount equal to 2.75% of the initial public offering price (assuming an initial public offering price of $15.00 per share, the midpoint of the estimated offering range set forth on the cover page of this prospectus, the per common share amount would be $0.413 per common share or $17.9 million per annum in the aggregate). The first dividend payment will be paid during the first full quarter following completion of this offering. Our board of directors may change or eliminate the payment of future dividends to our common stockholders at its discretion, without notice to our stockholders. Any future determination relating to our dividend policy will be dependent on a variety of factors, including our financial condition, earnings, legal requirements, our general liquidity needs, and other factors that our board deems relevant. Our ability to declare and pay dividends to our stockholders is subject to certain laws, regulations, and policies, including minimum capital requirements and, as a Delaware corporation, we are subject to certain restrictions on dividends under the Delaware General Corporation Law (the "DGCL"). Under the DGCL, our board of directors may not authorize payment of a dividend unless it is either paid out of our surplus, as calculated in accordance with the DGCL, or if we do not have a surplus, it is paid out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Finally, our ability to pay dividends to our stockholders may be limited by covenants in any financing arrangements that we are currently a party to, including the ABL Credit Agreement and the Notes, or may enter into in the future. As a consequence of these various limitations and restrictions, we may not be able to make, or may have to reduce or eliminate at any time, the payment of dividends on our common stock. See "Description of Material Indebtedness." Any change in the level of our dividends or the suspension of the payment thereof could have a material adverse effect on the market price of our common stock. See "Dividend Policy."

Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

              Our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect prior to the completion of this offering provide that we will indemnify our directors and officers, in each case, to the fullest extent permitted by Delaware law. Pursuant to our charter, our directors will not be liable to the Company or any stockholders for monetary damages for any breach of fiduciary duty, except (i) acts that breach his or her duty of loyalty to the Company or its stockholders, (ii) acts or omissions without good faith or involving intentional misconduct or knowing violation of the law, (iii) pursuant to Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. The bylaws also require us, if so requested, to advance expenses that such director or officer incurred in defending or investigating a threatened or pending action, suit or proceeding, provided that such person will return any such advance if it is ultimately determined that such person is not entitled to indemnification by us. Any claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

50


Table of Contents

Our failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the "Sarbanes-Oxley Act") could have a material adverse effect on our business, financial condition, and results of operations.

              We are required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the first fiscal year beginning after the effective date of our IPO and in each year thereafter. Our auditors will also need to attest to the effectiveness of our internal control over financial reporting. If we are unable to maintain adequate internal control over financial reporting, we may be unable to report our financial information accurately on a timely basis, may suffer adverse regulatory consequences or violations of applicable stock exchange listing rules, may breach the covenants under our credit facilities and incur additional costs. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements, which could have a material adverse effect on our business, financial condition and results of operations.

We will incur increased costs as a result of being a publicly traded company.

              As a company with publicly traded securities, we will incur significant legal, accounting and other expenses not presently incurred as a private company. In addition, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations promulgated by the SEC and NYSE, will require us to adopt corporate governance practices applicable to U.S. public companies. These rules and regulations will increase our legal and financial compliance costs and may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we will need to commit significant resources, hire additional staff and provide additional management oversight. We will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies.

Anti-takeover protections in our amended and restated certificate of incorporation, our amended and restated bylaws or our contractual obligations may discourage or prevent a takeover of our Company, even if an acquisition would be beneficial to our stockholders.

              Provisions contained in our amended and restated certificate of incorporation and amended and restated bylaws, as amended, as well as provisions of the DGCL, could delay or make it more difficult to remove incumbent directors or could impede a merger, takeover or other business combination involving us or the replacement of our management, or discourage a potential investor from making a tender offer for our common stock, which, under certain circumstances, could reduce the market value of our common stock, even if it would benefit our stockholders. Among other things, these provisions:

    do not permit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;

    delegate the sole power of a majority of the board of directors to fix the number of directors;

    provide the power to our board of directors to fill any vacancy on our board of directors, whether such vacancy occurs as a result of an increase in the number of directors or otherwise;

    generally do not allow stockholders to call special meetings of stockholders and generally prohibit stockholder action to be taken by written consent; and

51


Table of Contents

    establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.

              In addition, our board of directors has the authority to cause us to issue, without any further vote or action by the stockholders, up to 10,000,000 shares of preferred stock, par value $0.001 per share, in one or more series, to designate the number of shares constituting any series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, voting rights, rights and terms of redemption, redemption price, or prices and liquidation preferences of such series. The issuance of shares of preferred stock or the adoption of a stockholder rights plan may have the effect of delaying, deferring or preventing a change in control of our Company without further action by the stockholders, even where stockholders are offered a premium for their shares. See "Description of Capital Stock—Anti-takeover Provisions."

Our amended and restated certificate of incorporation will designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees, agents or other stockholders.

              Our amended and restated certificate of incorporation provides that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by law, be the sole and exclusive forum for any (i) derivative action or proceeding brought on our behalf, (ii) action asserting a claim of breach of a fiduciary duty or other wrongdoing by any current or former director, officer, employee, agent or stockholder to us or our stockholders, (iii) action asserting a claim arising under any provision of the DGCL, our amended and restated certificate of incorporation, or our amended and restated bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware, or (iv) action asserting a claim governed by the internal affairs doctrine of the law of the State of Delaware, except for, as to each of (i) through (iv) above, any action as to which the Court of Chancery of the State of Delaware determines that there is an indispensable party not subject to the personal jurisdiction of the Court of Chancery of the State of Delaware (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery of the State of Delaware within ten (10) days following such determination), in which case the United States District Court for the District of Delaware or other state courts of the State of Delaware, as applicable, shall, to the fullest extent permitted by law, be the sole and exclusive forum for any such claims. The federal district courts of the United States of America shall be the sole and exclusive forum for the resolution of any action asserting a claim arising under the Securities Act, the Exchange Act, or the rules and regulations promulgated thereunder. To the fullest extent permitted by law, any person or entity purchasing or otherwise acquiring or holding any interest in any shares of our capital stock shall be deemed to have notice of and consented to the forum provision in our amended and restated certificate of incorporation. This choice of forum provision may limit a stockholder's ability to bring a claim in a different judicial forum, including one that it may find favorable or convenient for a specified class of disputes with us or our directors, officers, other stockholders, or employees, which may discourage such lawsuits, make them more difficult or expensive to pursue, and result in outcomes that are less favorable to such stockholders than outcomes that may have been attainable in other jurisdictions. By agreeing to this provision, however, stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder. The enforceability of similar choice of forum provisions in other companies' certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types of provisions to be inapplicable or unenforceable. If a court were to find the choice of forum provisions in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could have a material adverse effect on our business, financial condition and results of operations.

52


Table of Contents

General Risk Factors

Failure to maintain the services of key personnel, as well as attracting, training and retaining qualified staff could adversely affect our business, financial condition and results of operations.

              Our continued success depends on the skills, experience, efforts and performance of our key personnel. The unexpected loss of the services of any of our executive officers or other key employees could adversely affect our business. In addition, any such departure could be viewed in a negative light by investors and analysts, which may cause our stock price to decline. We do not maintain key person insurance on any of our key personnel. There can be no assurance that our executive succession planning, retention or hiring efforts will be successful. Competition for skilled and experienced management in our industry and the markets we operate in is intense, and we may not be successful in attracting and retaining qualified personnel.

              Furthermore, it is critical that we are able to meet our broader labor needs with qualified employees. Maintaining a qualified staff is subject to numerous external factors, including the competition for talent, prevailing wage rates, the availability of qualified employees in the markets in which we operate, unemployment levels, unionization, changing demographics, health and other insurance costs and changes in employment legislation, including minimum wage laws. Any of these factors could require us to increase wage and labor-related costs in order to better compete for and retain qualified employees.

              Any failure to maintain the services of key personnel, or inability to attract, train and retain qualified staff, may significantly increase our operating costs and have a material adverse effect on our business, financial condition, and results of operations.

Our operating costs could increase or fluctuate considerably as a result of various factors, many of which are not under our control, and could have a material adverse effect on our business, financial condition and results of operations.

              We have exposure to operating costs such as wages, employee benefits, commodities, fuel and oil prices, utilities, facility maintenance costs, paper and circular printing and mailing, bank interchange fees, fixed lease obligations and other operational costs that can increase considerably due to inflation, changes to laws and regulations and other factors.

              A considerable number of our employees are paid at rates related to the federal minimum wage. Additionally, many of our stores are located in Florida, where the minimum wage is greater than the federal minimum wage and where a considerable number of employees receive compensation equal to the state's minimum wage. On November 3, 2020, Florida voters approved a ballot measure increasing Florida's minimum wage from a base rate of $8.56 per hour incrementally through 2026. Beginning September 30, 2021, the base rate will be increased to $10.00 per hour and will increase annually by $1.00 per hour until the minimum wage reaches $15.00 per hour in 2026. Any further increases in the federal minimum wage or the enactment of additional state or local minimum wage increases could increase our labor costs, which may adversely affect our results of operations and financial condition.

              Commodity prices worldwide have been volatile. Any increase in commodity prices may cause an increase in our input costs or the prices our suppliers seek from us. Although we typically are able to pass on modest commodity price increases or mitigate suppliers efforts to increase our costs, we may be unable to continue to do so, either in whole or in part, if commodity prices increase materially. Suppliers, like us, are incurring additional costs to respond to the COVID-19 pandemic and may continue to do so for the foreseeable future, and may seek to pass those costs through to us. If we are forced to increase prices, our customers may reduce their purchases at our stores or trade down to less profitable products, both of which may adversely impact our profitability as a result of reduced revenue

53


Table of Contents

or reduced margins. We may not be able to recover rising costs through increased prices passed on to our customers. Increases in the costs of these or other items could have a material adverse effect on our business, financial condition and results of operations.

              In addition, our operations are dependent upon the availability of a significant amount of energy and fuel to store, transport and sell our products. Volatility in fuel and energy costs could have a material adverse effect on our business, financial condition and results of operations.

Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters may materially impact reporting of our financial condition and results of operations.

              Accounting principles generally accepted in the United States and related accounting pronouncements, implementation guidelines, and interpretations we apply to a wide range of matters that are relevant to our business, such as accounting for long-lived asset impairment and share-based compensation, are complex and involve subjective assumptions, estimates and judgments by our management. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change or add significant volatility to our reported or expected financial performance.

Unanticipated changes in the insurance market or factors affecting self-insurance reserve estimates could have a material adverse effect on our business, financial condition and results of operations.

              We use a combination of insurance and self-insurance coverage to provide for potential liabilities for workers' compensation, general liability, property losses, auto liability, directors and officers liability, pharmacy liability and employee health care benefits. However, there are types of losses we may incur but against which we cannot be insured or which we believe are not economically reasonable to insure, such as losses due to acts of war, employee and certain other crime, certain wage and hour and other employment-related claims, including class actions, actions based on certain customer protection laws, certain cyber events and some natural and other disasters or similar events. If we incur these losses and they are material, our business could suffer. Liabilities associated with the risks that are retained by us are determined, based in part, by considering historical claims experience, severity factors, inflation, and other actuarial assumptions. Our determination of the risk we retain is subject to a high degree of variability related to, among other things, future interest and inflation rates, future economic conditions, litigation trends and benefit-level changes. Any deviation of actual claims and other expenses related to these and other risks in excess of our assumptions, estimates, and historical trends, may have a material adverse effect on our business, financial condition and results of operations.

54


Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

              This prospectus contains forward-looking statements, including, without limitation, statements concerning the conditions of our industry and our operations, performance and financial condition, including in particular, statements relating to our business, growth strategies, product development efforts, and future expenses. Forward-looking statements can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects," and similar references to future periods, or by the inclusion of forecasts or projections. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance, such as those contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations."

              Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy, and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the following:

    adverse economic conditions;

    the impact of the COVID-19 pandemic on our business;

    failure to successfully execute our strategic initiatives;

    the competitive nature of the industry in which we conduct our business;

    our inability to timely identify or respond to customer trends;

    significant changes to our relationship with C&S;

    disruptions to our product supply or to C&S's distribution network;

    our inability to maintain the services of key personnel and failure to attract, train and retain qualified staff;

    risks associated with providing pharmacy services at our stores;

    our inability to open, relocate or remodel stores on schedule;

    increase in marketing, advertising and promotional costs and inability to implement effective marketing, advertising and promotional strategies;

    failure to maintain our reputation and the value of our brands, including protection of our intellectual property;

    risks associated with leasing substantial amounts of space, including liability under our operating leases assigned to third parties;

    impairment expenses on the value of our long-lived assets;

    risks related to the adoption of fresh start accounting;

    failure to maintain the privacy and security of confidential customer and business information;

    disruptions of or compromises to our information technology system;

    a loss in customer confidence in the safety and quality of our products;

    our inability to retain the loyalty of our customers;

55


Table of Contents

    results of any ongoing litigation or legal proceedings in which we are involved or in which we may become involved;

    changes in laws, rules and regulations affecting our industry;

    the geographic concentration of our locations, which makes us vulnerable to severe storm damage, natural disasters and other local adverse weather conditions;

    threats or potential threats to security of food and drug safety, the occurrence of a widespread health epidemic and/or pandemic or other incidents beyond our control;

    attempts to unionize our employees;

    the seasonality of our business;

    inability to utilize a significant portion of our NOLs or other tax attributes;

    increases or fluctuations in our operating costs;

    changes in accounting standards, subjective assumptions, estimates and judgements by management related to complex accounting matters; and

    unanticipated changes in the insurance market or factors affecting self-insurance reserve estimates.

              See "Risk Factors" for a further description of these and other factors. Although we have attempted to identify important risk factors, there may be other risk factors not presently known to us or that we presently believe are not material that could cause actual results and developments to differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. If any of these risks materialize, or if any of the above assumptions underlying forward-looking statements prove incorrect, actual results and developments may differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this prospectus. Any forward-looking statement made by us in this prospectus speaks only as of the date on which we make such statement. We undertake no obligation to publicly update or to revise any forward-looking statement, whether as a result of new information, future developments, or otherwise, except as may be required by law. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should be viewed as historical data.

56


Table of Contents


USE OF PROCEEDS

              We will not receive any proceeds from the sale of shares of our common stock by the selling stockholders in this offering, including from any exercise by the underwriters of their option to purchase additional shares from the selling stockholders. The selling stockholders will receive all of the net proceeds and bear the underwriting discount, if any, attributable to their sale of our common stock. We will pay certain expenses associated with this offering. See "Principal and Selling Stockholders."

57


Table of Contents


DIVIDEND POLICY

              In connection with the IPO, we intend to establish a dividend policy pursuant to which we intend to pay a quarterly dividend on our common stock in an annual amount equal to 2.75% of the initial public offering price (assuming an initial public offering price of $15.00 per share, the midpoint of the estimated offering range set forth on the cover page of this prospectus, the per common share amount would be $0.413 per common share or $17.9 million per annum in the aggregate). The first dividend payment will be paid during the first full quarter following completion of this offering. Our board of directors may change or eliminate the payment of future dividends to our common stockholders at its discretion, without notice to our stockholders. Any future determination relating to our dividend policy will be made at the sole discretion of our board of directors and will depend on a number of factors, including general and economic conditions, industry standards, our financial condition and operating results, our available cash and current and anticipated cash needs, restrictions under the documentation governing certain of our indebtedness, including our ABL Credit Agreement and the Notes, capital requirements, regulations, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, and such other factors as our board of directors may deem relevant.

              The ability of our board of directors to declare a dividend is also subject to limits imposed by Delaware corporate law. Under Delaware law, our board of directors and the boards of directors of our corporate subsidiaries incorporated in Delaware may declare dividends only to the extent of our "surplus," which is defined as total assets at fair market value minus total liabilities, minus statutory capital, or if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.

              In connection with and conditioned upon the consummation of this offering, we intend to declare and pay the Special Cash Dividend of approximately $1.386 per share of common stock outstanding prior to this offering (or $6.00 per share on a pre-split basis), to holders of record of our common stock on the dividend record date, or approximately $60.1 million in the aggregate. The Company's RSU award agreements provide for dividend equivalent rights on all outstanding RSUs, which are credited to RSU holders as additional RSUs equal in value to the allocable amount of the Special Cash Dividend. Therefore, in connection with the Special Cash Dividend, we intend to issue 424,982 RSUs (or approximately 98,171 RSUs on a pre-split basis at the midpoint of the estimated offering range) to existing RSU holders as of the dividend record date, or approximately 0.09 RSUs for each outstanding RSU as of the dividend record date, pursuant to the terms of the RSU award agreements. Pursuant to the RSU award agreements, such RSUs will contain dividend equivalent rights in pari passu to shares of our common stock. We intend to fund the Special Cash Dividend with a combination of cash on hand and drawings under the Revolving Credit Facility. The record date for the Special Cash Dividend will precede the consummation of this offering, and investors in this offering will not be entitled to receive any payments or distributions in connection with the Special Cash Dividend on shares purchased in this offering.

              Our board of directors determined to pay the Special Cash Dividend to our stockholders because such dividend was in our best interest and those of our stockholders, we had sufficient surplus capital to pay the Special Cash Dividend and we would be able to fund our operations and service our indebtedness utilizing cash flows from operations after payment of the Special Cash Dividend. Given our financial performance since the Reorganization in May 2018, we believe the Special Cash Dividend is an appropriate means to provide our stockholders with a return on their capital.

              See "Risk Factors—Risks Related to Our Initial Public Offering and Ownership of Our Common Stock—Our ability to pay dividends to our stockholders is restricted by applicable laws and regulations and requirements under certain of our securities and debt agreements, including the ABL Credit Agreement and the Notes."

58


Table of Contents


CAPITALIZATION

              The following table sets forth our cash and cash equivalents and our capitalization as of September 30, 2020:

    on an actual basis; and

    on an as adjusted basis to give effect to (i) the Notes offering, (ii) the repayment in full of the Term Loan and (iii) the Special Cash Dividend.

              The information in this table reflects the 4.329-for-1 forward stock split which our board of directors and our stockholders have approved and which was effected on January 25, 2021. This table should be read in conjunction with "Use of Proceeds," "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of Capital Stock" as well as the consolidated financial statements and notes thereto appearing elsewhere in this prospectus.

 
  As of
September 30, 2020
 
 
  Actual   As adjusted  
 
  (in thousands)
 

Cash and cash equivalents(1)

  $ 66,079     36,025  

Total Debt, including current maturities, without giving effect to debt discounts and deferred debt issuance costs(2):

             

Notes

        325,000  

Term Loan Facility(3)

    348,240      

Revolving Credit Facility(4)

    0     60,294  

Finance lease obligations

    67,644     67,644  

    415,884     452,938  

Stockholders' equity:

             

Common stock, $0.001 par value per share, 64,935,000 shares authorized(5), 43,320,047 shares issued and 43,309,891 shares outstanding

    43     43  

Additional paid-in capital

    467,655     467,655  

Accumulated deficit(1)

    (5,857 )   (65,965 )

Accumulated other comprehensive loss

    (2,894 )   (2,894 )

Total stockholders' equity

    458,947     398,839  

Total capitalization

  $ 874,831   $ 851,777  

(1)
We intend to pay the Special Cash Dividend with a combination of cash on hand and drawings under the Revolving Credit Facility. For purposes of this table we have assumed that half of the $60.1 million Special Cash Dividend will be paid with cash on hand and the other half by drawing of under the Revolving Credit Facility. The actual amount drawn on the Revolving Credit Facility in connection with the Special Cash Dividend may be different depending on cash amounts on hand at the time we pay the Special Cash Dividend.

(2)
Debt discounts and deferred debt issuance costs totaled $8.7 million and $6.3 million, respectively, as of September 30, 2020, on an actual basis. Debt discounts and deferred debt issuance costs would total $0 and $7.0 million, respectively as of September 30, 2020 on an as adjusted basis after giving effect to the Notes offering and the repayment in full of the Term Loan subsequent to September 30, 2020.

59


Table of Contents

(3)
We repaid in full and terminated the Term Loan on October 9, 2020.

(4)
After giving effect to the reduction in borrowing capacity pursuant to an amendment effective on October 9, 2020 in connection with the Refinancing Transactions, the ABL Credit Agreement provides for a $450.0 million Revolving Credit Facility. As of September 30, 2020, the aggregate borrowing base on the Revolving Credit Facility would be $450.0 million, resulting in borrowing availability of $379.7 million, net of $0 million outstanding borrowings and $70.3 million outstanding letters of credit. See "Description of Material Indebtedness—ABL Credit Agreement." The as adjusted amount reflects a drawing of $30.1 million used to fund the Special Cash Dividend and $30.2 million in connection with the repayment in full of the Term Loan. The actual amount to be drawn under the Revolving Credit Facility in connection with the Special Cash Dividend may be different depending on cash amounts on hand at the time we pay the Special Cash Dividend. The actual amount drawn under the Revolving Credit Facility in connection with the Notes offering and the repayment in full of the Term Loan was lower than $30.2 million as a result of cash amounts on hand on October 9, 2020.

(5)
Does not reflect the increase in authorized capital stock effected in connection with this offering.

60


Table of Contents


DILUTION

              All shares of our common stock being sold in the offering were issued and outstanding prior to this offering. As a result, this offering will not have a dilutive effect on our stockholders.

              Our tangible book deficit represents the amount of total tangible assets less total liabilities, and our tangible book deficit per share represents tangible book value divided by the number of shares of common stock outstanding. We excluded intangible assets in determining our tangible assets. As of September 30, 2020, our tangible book deficit per share of our common stock was $0.94.

61


Table of Contents

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

              The following tables set forth our selected historical consolidated financial and other data for the periods and as of the dates indicated. As a result of the Reorganization, the accompanying historical financial statements and selected historical consolidated financial data are presented on a Predecessor and Successor basis. References to "Successor" relate to our results of operations and financial position subsequent to May 30, 2018, the day prior to our emergence from bankruptcy, to coincide with the timing of a normal weekly close. The events between May 30, 2018 and May 31, 2018 were evaluated and management concluded that the use of an accounting convenience date did not have a material impact on our results of operations or financial position. References to "Predecessor" relate to our results of operations and financial position prior to, and including, May 30, 2018. The consolidated financial statements for the Successor periods are not comparable to those of the Predecessor periods.

              We derived the selected historical consolidated financial data as of and for the 40 weeks ended September 30, 2020 and 40 weeks ended October 2, 2019 from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. We derived the selected historical consolidated financial data as of and for the year ended December 25, 2019 and for the 30 weeks ended December 26, 2018 and for the 22 weeks ended May 30, 2018, as of December 26, 2018 and for the year ended December 27, 2017 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the selected historical consolidated financial data as of December 27, 2017 and as of and for the years December 28, 2016 and December 30, 2015 from our audited consolidated financial statements not included elsewhere in this prospectus.

              We have prepared the unaudited consolidated financial statements on the same basis as the audited consolidated financial statements and have included all adjustments, consisting of normal recurring adjustments, that we consider necessary for the fair statement of our financial position and operating results for such periods.

              Our historical results are not necessarily indicative of the results to be expected in any future period. You should read the information set forth below together with "Prospectus Summary—Summary Historical Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Capitalization," and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus.

62


Table of Contents

 
  Successor    
  Predecessor  
 
  40 Weeks
Ended
September 30,
2020
  40 Weeks
Ended
October 2,
2019
  Year Ended
December 25,
2019
  30 Weeks
Ended
December 26,
2018
   
  22 Weeks
Ended
May 30,
2018
  Year Ended
December 27,
2017
  Year Ended
December 28,
2016
  Year Ended
December 30,
2015
 
 
  (in thousands, other than per share data)
 

Statements of Operations and Comprehensive Income (Loss) Data:

                                                     

Net Sales

  $ 7,395,741   $ 6,343,302   $ 8,277,374   $ 4,829,732       $ 3,942,780   $ 9,875,104   $ 10,451,420   $ 11,257,471  

Cost of sales, including warehouse and delivery expense

    5,351,013     4,680,426     6,117,224     3,586,009         2,914,222     7,278,280     7,787,276     8,388,147  

Gross Profit

    2,044,728     1,662,876     2,160,150     1,243,723         1,028,558     2,596,824     2,664,144     2,869,324  

Operating, general and administrative expenses

    1,757,599     1,693,710     2,195,046     1,313,863         1,024,666     2,638,828     2,597,371     2,720,904  

Income (Loss) from operations

    287,129     (30,834 )   (34,896 )   (70,140 )       3,892     (42,004 )   66,773     148,420  

Interest expense

    47,872     63,623     82,339     64,497         50,988     135,083     134,437     139,135  

Reorganization items, net

                        (792,260 )            

Income (loss) before income taxes

    239,257     (94,457 )   (117,235 )   (134,637 )       745,164     (177,087 )   (67,664 )   9,285  

Income tax expense (benefit)

    4,204     (802 )   (995 )   (48,274 )       (16,263 )   (38,301 )   400,606     3,633  

Net income (loss)

  $ 235,053   $ (93,655 ) $ (116,240 ) $ (86,363 )     $ 761,427   $ (138,786 ) $ (468,270 ) $ 5,652  

Net income (loss) as a percent of net sales

    3.18 %   (1.48 )%   (1.40 )%   (1.79 )%       19.31 %   (1.41 )%   (4.48 )%   0.05 %

Weighted-average common shares outstanding—

                                                     

Basic

    43,615     43,299     43,294     43,290                              

Diluted

    44,499     43,299     43,294     43,290                              

Basic earnings (loss) per share

  $ 5.39   $ (2.16 ) $ (2.68 ) $ (1.99 )                            

Diluted earnings (loss) per share

  $ 5.28   $ (2.16 ) $ (2.68 ) $ (1.99 )                            

 

 
  Successor    
  Predecessor  
 
  As of
September 30,
2020
  As of
December 25,
2019
  As of
December 26,
2018
   
  As of
December 27,
2017
  As of
December 28,
2016
  As of
December 30,
2015
 
 
   
 
 
   
 
 
  (in thousands)
 

Consolidated Balance Sheet Data:

                                         

Cash and cash equivalents

  $ 66,079   $ 70,299   $ 44,512       $ 50,908   $ 33,289   $ 49,586  

Total assets

  $ 2,583,652   $ 2,730,204   $ 2,413,138       $ 1,874,165   $ 2,076,608   $ 2,531,620  

Stockholders' equity (Membership deficiency)

  $ 458,947   $ 220,181   $ 372,739       $ (750,743 ) $ (610,304 ) $ (140,833 )

63


Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

              The following discussion and analysis of our historical consolidated financial statements includes periods before the Reorganization as described below under "—Key Factors Affecting Our Results of Operations—The Reorganization and Fresh Start Accounting." Accordingly, the discussion and analysis of such periods does not reflect the significant impact the Reorganization has had and will have on our results of operations. As a result, our historical results of operations are not comparable and may not be indicative of our future results of operations. In addition, the statements in the discussion and analysis regarding industry outlook, our expectations regarding the performance of our business, our liquidity and capital resources and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in "Risk Factors" and "Cautionary Note Regarding Forward-Looking Statements." Our actual results may differ materially from those contained in or implied by the forward-looking statements. You should read the following discussion together with the sections entitled "Risk Factors," "Selected Historical Consolidated Financial and Other Data," "—Liquidity and Capital Resources" and the financial statements and the related notes thereto included elsewhere in this prospectus.

              Information presented for the 40 weeks ended September 30, 2020 (Successor) and the 40 weeks ended October 2, 2019 (Successor) is derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. Information presented for the year ended December 25, 2019 (Successor), the 30 weeks ended December 26, 2018 (Successor), the 22 weeks ended May 30, 2018 (Predecessor) and the year ended December 27, 2017 (Predecessor) is derived from our audited consolidated financial statements included elsewhere in this prospectus.

Overview

              We are a leading regional food retailer based on revenue and number of stores we operate with a long-standing history in the Southeastern United States, serving highly attractive markets throughout Florida, Georgia, Alabama, Louisiana and Mississippi. We operate 419 stores under the "Winn-Dixie," "Harveys" and "Fresco y Más" supermarket banners. We believe we are the sixth largest conventional supermarket operator in the United States and the second largest conventional supermarket operator in the five states in which we operate, respectively, based on aggregate number of stores we operate. According to IRI Worldwide industry data, we maintain the #2 market share position by revenue among the 13 conventional supermarkets that are our competitors within the six major markets in which we compete in the five states in which we operate. Additionally, we operate 140 liquor stores, 231 in-store pharmacies and one centralized specialty pharmacy, which supplement our product assortment and drive incremental customer traffic to our stores.

              We operate our business as a single unit with a single management team, but execute our go-to-market strategy through three well-positioned banners with differentiated strengths and distinct heritages. We strive to build a strong connection with our customers and differentiate ourselves from our competitors by providing a compelling shopping experience that combines a full-service, one-stop shop, emphasizing high-quality, fresh and locally tailored offerings, with excellent customer service and competitive prices.

              While the descriptions of our business and operational data provided in this prospectus, including in this "Overview" section, give effect to the Planned Dispositions, our discussion and analysis of our financial condition and historical results of operations below do not give effect to the Planned Dispositions.

64


Table of Contents

Key Components of Results of Operations and Key Metrics

Stores

              The following table shows stores operating, opened, closed and sold and average square footage during the periods presented:

 
  Successor    
  Predecessor  
 
  40 Weeks
Ended
September 30,
2020
  40 Weeks
Ended
October 2,
2019
  Fiscal 2019   30 Weeks
Ended
December 26,
2018
   
  22 Weeks
Ended
May 30,
2018
  Fiscal 2017   Fiscal 2016   Fiscal 2015  

Opened during fiscal period(1)

    1     3     3             1     1     2      

Closed or sold during fiscal period(2)

    8     26     29     3         127     35     21     48  

In operation at fiscal period-end

    540     550     547     573         576     702     736     755  

Period-end average supermarket square footage (in thousands)

    45.9     45.8     45.8     45.8         45.8     45.1     45.0     44.9  

(1)
Three fiscal 2019, one 2018 Predecessor, and one fiscal 2017 openings resulted from prior year temporary closures related to natural disasters.

(2)
Two 2018 Successor, two fiscal 2017, and one fiscal 2016 stores were temporarily closed due to natural disasters.

Net Sales

              Net sales is recognized at the point of sale when the product is provided to the customer. Sales are recorded net of discounts and exclude any sales tax. Discounts provided to customers by vendors, usually in the form of coupons, are not recognized as a reduction in sales, provided the coupons are redeemable at any retailer that accepts coupons. We recognize revenue and record a corresponding receivable from the vendor for the difference between the sales prices and the cash received from the customer. Comparable store sales, average item value, unit volume, items per transaction and number of transactions are key indicators of net sales.

      Comparable store sales

              Comparable store sales are sales from all stores that have been operated by us and open for at least a full year, including stores that we remodeled, enlarged or relocated during the period, and excluding stores that opened or closed during the period. Remodeled stores include banner conversions. We compute the percentage change in comparable store sales by comparing sales from all stores in our comparable store base for a reporting period against sales from the same stores for the same number of operating weeks in the comparable reporting period of the prior year. Also, the quarterly comparable store sales are adjusted for the estimated impact of the timing of Easter. This definition may differ from the methods that other retailers use to calculate comparable store sales.

              The following chart sets forth the percentage change in our comparative store sales for each quarter during fiscal year 2018, 2019 and 2020:

65


Table of Contents

GRAPHIC


(1)
Comparable store sales for Q1 and Q2 of 2019 are adjusted for the shift in the Easter holiday.

(2)
Comparable stores sales for Q2 of 2018 reflects the combined store revenues for the Successor and Predecessor fiscal year 2018 periods for each of the applicable stores.

              Comparable store sales for the first three quarters of 2020 reflect the impact of COVID-19.

Cost of sales and gross profit

              Cost of sales includes the cost of inventory sold during the period (net of discounts and vendor allowances), inventory shortages and purchasing, transportation and warehouse costs as well as depreciation and amortization related to transportation and warehouses.

              Gross profit represents total revenues, which includes net sales and other operating income, less cost of sales. Gross profit is impacted by changes in the mix of products, the rate at which we open or acquire new stores, adjustments to our merchandising plans, pricing and promotion programs and distribution expenses, including fuel costs.

Operating, general and administrative expenses

              Operating, general and administrative expenses includes store labor and benefits expense, advertising expense, lease expense, net of sublease income, other store operating expenses, administrative expense, depreciation and amortization expense, impairment expense and other expenses and charges.

Interest expense

              Interest expense includes capital lease interest, other interest and amortization of deferred financings costs.

Comprehensive income (loss)

              Comprehensive income (loss) represents net income (loss) plus unrealized post-retirement benefit plan gain (loss).

Non-GAAP Earnings Measures

              In addition to reporting GAAP results, we evaluate performance and report our results on certain Non-GAAP Measures. We believe that the presentation of these Non-GAAP Measures provides useful information to investors regarding our results, operating trends and performance between periods. We define Adjusted EBITDA as EBITDA, adjusted for loss (gain) on sale or disposition of assets; expenses associated with the closing or disposition of stores; impairment expense; franchise

66


Table of Contents

taxes; expenses (income) in connection with the Reorganization (as discussed below), business optimization, and other strategic initiatives, primarily consisting of professional and consulting fees related to a review of our pricing and promotional strategy, cost savings initiatives, as well as activities relating to the Planned Dispositions and public company preparation costs; loss on extinguishment of debt; incremental costs attributable to opening, remodeling or converting a store; (gain) loss from natural disasters, net of insurance recoveries; share-based compensation expense; fresh start adjustments; fees and expense reimbursement to LSF Southeastern Grocery Holdings LLC; and board of directors fees. We define Net Sales Adjusted for the Planned Dispositions as net sales less the net sales of the stores to be sold in connection with the Planned Dispositions or closed in the normal course since the beginning of fiscal year 2019. We define Total Debt as the sum of long-term debt (including the current portion thereof), unamortized debt issuance costs, unamortized debt discount (premium) and finance/capital lease obligations (including the current portion thereof) and other financing obligations and we define Total Net Debt as Total Debt less cash.

              We believe that these supplemental Non-GAAP Measures provide management and other users with additional meaningful financial information that should be considered when assessing our ongoing performance. Our management regularly uses our supplemental Non-GAAP Measures internally to understand, manage and evaluate our business and make operating decisions. Non-GAAP Measures should be viewed in addition to, and not as an alternative to our reported results prepared in accordance with GAAP. See "Summary Historical Consolidated Financial and Other Data—Non-GAAP Financial Measures."

Key Factors Affecting Our Results of Operations

Coronavirus (COVID-19)

              On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a global pandemic, and on March 13, 2020, the United States declared the pandemic to be a national emergency. Since then, COVID-19 has resulted in national, state and local authorities mandating or recommending isolation measures for large portions of the population, including shelter-in-place orders, social distancing measures, business and school closures, quarantines, travel restrictions and multi-step policies with the goal of re-opening. While some of these restrictions have been lifted or eased in many jurisdictions as the rates of COVID-19 infections have decreased or stabilized, a resurgence of the pandemic in some areas has slowed or halted the reopening process altogether. The impact of these measures on the U.S. economy, as well as the effectiveness of economic stabilization efforts, including government payments to affected citizens and industries, is uncertain.

              We have been classified as an essential business in all jurisdictions in which we operate and have remained open to serve the needs of our customers. Our priority has been to continue to serve our customers in a way that protects the health and safety of our associates and customers.

              Since the beginning of the COVID-19 pandemic, our results of operations have benefited from a significant increase in sales over multiple months due to increased demand from our customers stockpiling groceries and consuming more food at home as restaurants have not fully reopened to pre-pandemic levels. Consumer staples, paper goods, meat, alcoholic beverages and cleaning supplies have been among the products being purchased in significant quantities. We have experienced significant increases in basket sizes with fewer transactions as customers' behaviors are adjusting to these new circumstances. We believe that because of the COVID-19 pandemic customers consolidated trips to our stores, which has resulted in a lower transaction count but a higher spend per visit. In addition, there has been a substantial increase in customer demand and engagement with our online orders for home delivery, which we offer at most of our stores through our third-party partnerships.

              In response to the COVID-19 pandemic, we have made, and plan to continue to make, significant investments to support and safeguard our front-line store associates. These investments

67


Table of Contents

primarily relate to items within Operating, General and Administrative expenses, and include additional compensation and benefits, such as associate appreciation awards and pay, and personal protective equipment and supplies, such as partitions installed at check lanes. In addition, we have implemented additional cleaning of high-touch areas in our stores, including check stands, service counters and shopping carts, as well as added floor decals to promote physical distancing. We have also made significant investments in our communities. For example, we raised $2.2 million for Folds of Honor and $1.3 million for local food banks.

              The significant increase in net income and cash flow generated during the COVID-19 pandemic has enabled us to further deleverage, and accelerate our in-store and digital investments and our customer connectivity initiatives. In addition, we have been able to maintain our capital expenditures plan for fiscal year 2020, which includes investments in our new store and store renewal program.

              We rely on various suppliers and vendors to provide and deliver our product inventory on a continuous basis. While we have experienced disruptions in product availability due to the COVID-19 pandemic, we could suffer significant lost revenue in the event of the loss or shutdown of a major supplier or vendor. The ability of vendors to supply required products to us may be interrupted due to illness or absenteeism in their workforces, government mandated shutdown orders or impaired financial conditions.

              While we continue to closely monitor the economic impact of the COVID-19 pandemic and government mandates on our business, the long-term impact of the pandemic is unknown at this time. We expect the impact of the COVID-19 pandemic and government mandates on our financial condition, results of operations and cash flows will largely depend on the extent and duration of the pandemic, the governmental and public actions taken in response, and the effect the pandemic will have on the U.S. economy. Moreover, the COVID-19 pandemic and government mandates make it more challenging for us to estimate future performance of our business, particularly over the near term. See "Risk Factors—Risks Related to Our Business and Industry—Our business has been, and we expect will continue to be, impacted by the COVID-19 pandemic" for additional information.

The Reorganization and Fresh Start Accounting

              On March 27, 2018, we filed voluntary petitions for reorganization under Chapter 11 in the Bankruptcy Court pursuant to a prepackaged plan of reorganization. We emerged from bankruptcy on May 31, 2018 and we elected to apply fresh start accounting effective May 30, 2018 (the "Effective Date"), to coincide with the timing of a normal weekly close. The events between May 30, 2018 and May 31, 2018 were evaluated and management concluded that the use of an accounting convenience date did not have a material impact on the results of operations or financial position.

              Upon emergence from bankruptcy, we adopted fresh start accounting and became a new entity for financial reporting purposes with no ending retained earnings or deficit balance as of the Effective Date. Upon adoption of fresh start accounting, our assets and liabilities were recorded at their fair values as of May 30, 2018, which differed materially from the recorded values of those same assets and liabilities prior to May 30, 2018. As a result, our financial statements after May 30, 2018 are not comparable with the Predecessor's financial statements on and prior to May 30, 2018. For additional information about our application of fresh start accounting, please see Note 3 to the audited consolidated financial statements included elsewhere in this prospectus.

              As of December 25, 2019, we had NOLs for U.S. federal income tax purposes of $578.8 million, which will begin to expire in 2025. Additionally, we had U.S. state NOLs of $579.7 million, subject to various carryforward limitations depending upon the state authority, which expire at various times beginning in 2022. Due to the change in control associated with bankruptcy, the U.S. federal NOLs are subject to a limitation calculated under Section 382 of the Code. The federal

68


Table of Contents

annual limitation on these NOLs is $10.5 million, which limitation is expected to be increased under the built-in gain rules of Section 382 of the Code in the first five years following the bankruptcy for recognition of built-in gains of approximately $327 million. It is expected our U.S. state NOLs will have limitations similar to those imposed under Section 382 of the Code. For additional information, please see Note 12 to our audited financial statements included elsewhere in this prospectus.

Implementation of our Transformation Plan

              We have been implementing a multi-year transformation plan designed to reposition our business and create a better customer experience. Prior to 2017, our transformation plan focused on growth and regional consolidation, pursuant to which we undertook numerous, large-scale acquisitions, including the Winn-Dixie and Harveys banners in 2012 and 2013, respectively. In 2017, we began implementing the next phase of our plan, which focused on our efficient deployment of capital and investment in our infrastructure, including a system-wide refresh of our stores, improved automated ordering systems and the re-launch of our Owned Brands strategy and loyalty program, among other initiatives. In 2018, in connection with the Reorganization, we reduced outstanding debt by $635.9 million.

              The current phase of our multiyear plan is focused on rejuvenating our store fleet through increased renewals, aligning our promotional activity, optimizing our product assortment, including a greater focus on fresh and our Own Brands portfolio, and enhancing customer connectivity utilizing our sophisticated loyalty program. After giving effect to the Planned Dispositions, from the beginning of fiscal 2016 through September 30, 2020, we have renewed 53% of our stores. By the end of 2020, we expect to have 180 store renewals completed, which, together with our banner conversions, will put our percentage of stores renewed at 55% since the beginning of fiscal 2016. We aim to renew another 42% of stores in the next four years bringing our total stores renewed to 97% by the end of 2024. We also aim to obtain an average store age of less than four years by the end of 2024. For the 134 renewed stores that have been open for longer than 12 months, as of September 30, 2020, we experienced an average sales increase of approximately 10% and a return on investment that consistently exceeded our internal 20% target. Our results of operations have been and will continue to be impacted by the success of these initiatives.

Store Openings and Closings

              Opening new stores and closing existing stores impact our results of operations. Costs related to both openings and closings are charged to operations as incurred. New stores require an initial capital investment in the store build-outs, fixtures and equipment which we amortize over time as well as cash required for inventory and pre-opening expenses. See "—Key Components of Results of Operations and Key Metrics—New Stores." Costs of closing stores include, among other things, non-cancelable lease payments, real estate taxes, common area maintenance charges and utility costs.

      Store Count as of September 30, 2020

              As of September 30, 2020, we operated 540 stores located in Florida, South Carolina, Georgia, Alabama, Louisiana, North Carolina and Mississippi. After giving effect to the Planned Dispositions,

69


Table of Contents

we will operate 419 stores in Florida, Alabama, Louisiana, Georgia and Mississippi. The following table shows the number of stores we operate in each state:

 
  STORE COUNT  
 
  Current(1)    
  After Planned
Dispositions
 

Florida

    320         320  

South Carolina

    80          

Georgia

    55         25  

Alabama

    39         39  

Louisiana

    29         29  

North Carolina

    11          

Mississippi

    6         6  

Total

    540         419  

(1)
Does not reflect the disposition of 62 stores to Food Lion, a subsidiary of Ahold Delhaize, the disposition of the remaining 17 of the 20 stores to Alex Lee, the disposition of remaining two of the three stores to B&T Foods pursuant to a right of assignment held by Alex Lee and the intended divestiture of 40 stores by the end of first half of fiscal year 2021 pursuant to the Planned Dispositions. The dispositions to Food Lion are expected to close during the first quarter of fiscal year 2021, subject to regulatory approvals and other customary closing conditions, and the dispositions to Alex Lee and B&T Foods closed in fiscal year 2020.

Planned Dispositions

              On May 29, 2020, we entered into the Food Lion Store Sales Agreement to sell 62 stores (comprised of 46 BI-LO stores and 16 Harveys stores) to Food Lion, LLC. In connection with the Planned Dispositions, we also entered into an agreement with Ahold Delhaize to transition the distribution center located in Mauldin, South Carolina to Ahold Delhaize. Under the terms of these agreements, we will sell substantially all of the store-related assets (including the owned and leased real property), exclusive of certain assets including inventory and pharmacy prescription files. The initial closings under the Food Lion Store Sales Agreement commenced on January 15, 2021 and are expected to continue through the first week of April 2021.

              Also in May 2020, we entered into agreements to sell the pharmacy prescription files for 58 of the in-store pharmacies that we operate under the BI-LO, Harveys and Winn-Dixie supermarket banners to CVS and Walgreens, which sales closed in the late part of the second quarter of fiscal year 2020. The total sale price was $56.3 million for the pharmacy prescription files and $6.8 million for the acquired inventory.

              In addition, in June 2020, we announced our intention to sell an additional 63 stores, comprised of 61 BI-LO stores and two Harveys stores, in North Carolina, South Carolina and Georgia by the end of first half of fiscal year 2021. In September 2020, we announced an agreement to sell 23 of the 63 stores (together with the Food Lion Store Sales Agreement, the "Store Sales Agreements"), comprised of 22 BI-LO stores and one Harveys, in South Carolina and Georgia to Alex Lee, under which Alex Lee will purchase 20 stores and B&T Foods will purchase three stores pursuant to a right of assignment held by Alex Lee. After these dispositions, we will no longer operate stores under the BI-LO banner. Approximately 87% of our remaining portfolio will consist of the Winn-Dixie banner subsequent to the dispositions. We refer to the planned disposition by sale or closure of these 40 remaining stores, together with 85 stores that are being sold pursuant to the Store Sales Agreement, as the "Planned Dispositions." After giving effect to the Planned Dispositions, which includes

70


Table of Contents

deleveraging of our fixed cost base, and without the elevated sales benefit of the COVID-19 pandemic, we expect our margins will be in the same range as our 2019 historical margins. See "Prospectus Summary—Successful Repositioning of the Business has Driven Strong Financial Momentum."

              We expect to receive approximately $135 million of net proceeds from the Planned Dispositions, including the sale of the pharmacy prescription files discussed above, which includes $65 million of proceeds received through the end of 2020 and an estimated $70 million in remaining net proceeds to be received in future periods, net of all transition and exit costs and approximately $14 million of potential future unmitigated lease carry costs beyond 2021 if a buyer for the 40 stores is not identified and the stores close instead.

Impact of Competition

              Our net sales are impacted by competitive store openings in our market areas, competitors expanding their capabilities further into eCommerce, as well as competition from new channels. See, "Risk Factors—Risks Related to Our Business and Industry—We operate in a highly competitive industry with low profit margins, and any failure to compete successfully, as a result of actions taken by our competitors or otherwise, could materially adversely affect our business, financial condition and results of operations."

Incremental Public Company Expenses

              Following our initial public offering, we will incur significant expenses on an ongoing basis that we did not incur as a private company which we expect to range from $7 million to $9 million annually. Those costs include additional director and officer liability insurance expenses, as well as third-party and internal resources related to accounting, auditing, Sarbanes-Oxley Act compliance, legal and investor and public relations expenses. These costs will generally be expensed under SG&A. In connection with our initial public offering, our board of directors intend to take action to accelerate the vesting of 3,990,939 outstanding RSUs effective upon the pricing of the offering and to provide for the settlement of such RSUs generally following the first anniversary of the offering. In addition, in October 2020 90,515 RSUs were accelerated in connection with the retirement of a former director. Assuming an initial public offering price of $15.00 per share (the midpoint of the estimated public offering price range set forth on the cover page of this prospectus), we expect to recognize share-based compensation expense of approximately $56.1 million related to the accelerated vesting of the RSUs. We will incur additional charges in the future related to equity grants under our 2021 EIP (as defined herein).

Fiscal Periods

              We end our fiscal year on the last Wednesday in December and report our year-end financial position, results of operations and cash flows accordingly. The last three fiscal years consisted of the 52-week periods ended December 25, 2019 (Successor), the 30 weeks ended December 26, 2018 (Successor), the 22 weeks ended May 30, 2018 (Predecessor) and December 27, 2017 (Predecessor). The first quarter of each fiscal year includes 16 weeks while the remaining quarters include 12 weeks each quarter.

71


Table of Contents

Results of Operations

              As a result of the Reorganization on May 31, 2018, the historical financial statements and information are presented on a Successor and Predecessor basis. The following tables set forth our historical results of operations for the periods indicated below:

 
  Successor    
  Predecessor  
 
  40 Weeks
Ended
September 30,
2020
  40 Weeks
Ended
October 2,
2019
   
   
   
   
   
 
(in millions)
  Fiscal 2019   30 Weeks Ended
December 26, 2018
   
  22 Weeks Ended
May 30, 2018
  Fiscal 2017  

Net sales

  $ 7,395.7   $ 6,343.3   $ 8,277.4   $ 4,829.7       $ 3,942.8   $ 9,875.1  

Gross profit

    2,044.7     1,662.9     2,160.2     1,243.7         1,028.6     2,596.8  

Operating, general and administrative expenses

    1,757.6     1,693.7     2,195.0     1,313.9         1,024.7     2,638.8  

Interest expense

    47.9     63.6     82.3     64.5         51.0     135.1  

Reorganization items, net

                        (792.3 )    

Income tax expense (benefit)

    4.2     (0.8 )   (1.0 )   (48.3 )       (16.3 )   (38.3 )

              We believe that combining the net sales and gross profits of the Predecessor and Successor periods within fiscal year 2018 is useful for the assessment of our ongoing financial and operational performance and trends because there was continuity of our operations before and after the Reorganization and these results were not impacted by the adoption of fresh start accounting. Accordingly, in the discussion below, we compare our net sales and gross profit from fiscal year 2019 and fiscal year 2017 to the combined Predecessor and Successor periods for fiscal year 2018. References to "fiscal year 2018" below refer to the 30 weeks ended December 26, 2018 (Successor) and the 22 weeks ended May 30, 2018 (Predecessor) periods combined, which reflects the addition of the two periods with no other adjustments.

Comparison of operating results for the 40 weeks ended September 30, 2020 (Successor) to the 40 weeks ended October 2, 2019 (Successor)

Net Sales

              Net sales for the 40 weeks ended September 30, 2020 (Successor) were $7.4 billion compared to $6.3 billion for the 40 weeks ended October 2, 2019 (Successor), an increase of 16.6% as compared to the same period in the prior fiscal year, primarily due to the increase in demand for products due to COVID-19.

              The following table presents comparable store sales for the 40 weeks ended September 30, 2020 (Successor) and October 2, 2019 (Successor), respectively:

 
  Successor    
  Increase
(Decrease)
 
(in millions)
  40 Weeks
Ended
September 30, 2020
  40 Weeks
Ended
October 2, 2019
   
  $   %  

Net sales

  $ 7,395.7   $ 6,343.3         1,052.4     16.6  

Other income(1)

    11.8     (4.5 )       16.3        

Closed/new stores

    (145.5 )   (172.2 )       26.7        

Comparable store sales

  $ 7,262.0   $ 6,166.6       $ 1,095.4     17.8 %

(1)
Consists primarily of revenue from products and services that are not related to the sale of inventory (including, but not limited to, fees from lottery sales, revenue from recycling product packaging and fees related to customer money transfers) and is net of the deferred revenue and revenue reductions recognized in net sales.

72


Table of Contents

              We define comparable store sales as sales from stores that have been open for at least a year, including stores that we remodeled, enlarged, or relocated during the period and excluding stores that opened or closed during the period. Remodeled stores include banner conversions.

              Comparable store sales were $7.3 billion for the 40 weeks ended September 30, 2020 as compared to $6.2 billion for the 40 weeks ended October 2, 2019. The increase of 17.8% resulted from the increase in volume due to the increase in demand for products due to COVID-19.

Gross Profit

              Gross profit for the 40 weeks ended September 30, 2020 (Successor) and the 40 weeks ended October 2, 2019 (Successor) was $2.0 billion, or 27.6% of net sales, and $1.7 billion, or 26.2% of net sales, respectively. The increase was driven by the additional sales leverage, including shrink benefits, from COVID-19 and a lower promotional environment.

Operating, General and Administrative Expenses

              Operating, general and administrative expenses for the 40 weeks ended September 30, 2020 (Successor) and October 2, 2019 (Successor) were $1.8 billion, or 23.8% of net sales, and $1.7 billion, or 26.7% of net sales, respectively. The decrease as a percentage of net sales is due to improved sales leverage from higher sales partially offset by additional costs such as payroll and other costs related to the COVID-19 pandemic (180 basis points), a decrease in depreciation and amortization expense (110 basis points), an increase in gain on sale of assets related primarily to the sale of pharmacy prescription files for 58 in-store pharmacies during the second quarter (50 basis points) partially offset by an increase in impairment expense primarily related to tradename impairment (–50 basis points).

Interest Expense

              Interest expense for the 40 weeks ended September 30, 2020 (Successor) was $47.9 million as compared to interest expense for the 40 weeks ended October 2, 2019 (Successor) of $63.6 million. The decrease is due to lower interest on our Revolving Credit Facility and Term Loan Facility due to substantial paydowns on debt as well as lower variable interest rates.

Income Tax Expense (Benefit)

              Income tax expense for the 40 weeks ended September 30, 2020 (Successor) was $4.2 million as compared to the income tax benefit for the 40 weeks ended October 2, 2019 (Successor) of $(0.8) million. The expense (benefit) is a result of the change in valuation allowance due to changes in deferred tax assets and liabilities and the associated valuation allowance. For the 40 weeks ended September 30, 2020 (Successor), income tax expense is also due to the expected current taxes owed in excess of the net operating loss ("NOL") carryforwards available.

Comparison of operating results for fiscal year ended December 25, 2019 ("2019") (Successor) to the 30 weeks ended December 26, 2018 (Successor) and the 22 weeks ended May 30, 2018 (Predecessor)

Net Sales

              Net sales were $8.3 billion for fiscal year 2019 (Successor) as compared to $4.8 billion for the 30 weeks ended December 26, 2018 (Successor) and $3.9 billion for the 22 weeks ended May 30, 2018 (Predecessor), or $8.8 billion for fiscal year 2018. The decrease of 5.6% was due primarily to a loss of sales from closed or sold stores.

73


Table of Contents

              The following table presents comparable store sales for fiscal year 2019 (Successor), the 30 weeks ended December 26, 2018 (Successor) and the 22 weeks ended May 30, 2018 (Predecessor):

 
  Successor    
  Predecessor    
  Increase (Decrease)  
(in millions)
  Fiscal 2019   30 Weeks Ended
December 26, 2018
   
  22 Weeks Ended
May 30, 2018
   
  $   %  

Net sales

  $ 8,277.4   $ 4,829.7       $ 3,942.8         (495.1 )   (5.6 )

Other income(1)

    (2.1 )   (0.1 )       (13.1 )       11.1        

Closed/new stores

    (141.3 )   (193.8 )       (467.9 )       520.4        

Comparable store sales

  $ 8,134.0   $ 4,635.8       $ 3,461.8       $ 36.4     0.4 %

(1)
Consists primarily of revenue from products and services that are not related to the sale of inventory (including, but not limited to, fees from lottery sales, revenue from recycling product packaging and fees related to customer money transfers) and is net of the deferred revenue and revenue reductions recognized in net sales.

              Comparable store sales were $8.1 billion for fiscal year 2019 (Successor) as compared to $4.6 billion for the 30 weeks ended December 26, 2018 (Successor) and $3.5 billion for the 22 weeks ended May 30, 2018 (Predecessor), or $8.1 billion for fiscal year 2018. The increase of 0.4% resulted from the impact of our pricing promotions, partially offset by a decrease in transactions.

Gross Profit

              Gross profit was $2.2 billion, or 26.1% of net sales, for fiscal year 2019 (Successor) as compared to $1.2 billion, or 25.8% of net sales, for the 30 weeks ended December 26, 2018 (Successor) and $1.0 billion, or 26.1% of net sales, for the 22 weeks ended May 30, 2018 (Predecessor), or $2.3 billion, or 25.9% of net sales, for fiscal year 2018. The increase of 20 basis points was due primarily to the benefit of lower inventory shrink (20 basis points), pricing and promotional programs and the net benefit of our optimized store network (30 basis points) partially offset by the impact from sunsetting our prior loyalty rewards program during 2018 (20 basis points), and an increase in lease expense related to adoption of ASU 2016-02 during 2019 (10 basis points).

Operating, General and Administrative Expenses

              Operating, general and administrative expenses were $2.2 billion, or 26.5% of net sales, for fiscal year 2019 (Successor) as compared to $1.3 billion, or 27.2% of net sales, for the 30 weeks ended December 26, 2018 (Successor) and $1.0 billion, or 26.0% of net sales, for the 22 weeks ended May 30, 2018 (Predecessor), or $2.3 billion, or 26.7% of net sales, for fiscal 2018. The decrease as a percentage of sales of 20 basis points was due to a decrease in store operating expenses due to an optimized store network (30 basis points), a decrease in other expenses and charges which were primarily related to bankruptcy and store sales and closures during the 22 weeks ended May 30, 2018 (35 basis points), and a decrease in impairment expense (15 basis points) which was $21.2 million for fiscal 2019 (Successor) and $35.6 million for the 22 weeks ended May 30, 2018 (Predecessor), respectively. There was no impairment recognized in the 30 weeks ended December 26, 2018 (Successor). These decreases were partially offset by an increase in depreciation expense (30 basis points) as well as the increase in lease expense due to the adoption of ASU 2016-02 during 2019 (30 basis points).

Interest Expense

              Interest expense was $82.3 million for fiscal year 2019 (Successor) as compared to $64.5 million for the 30 weeks ended December 26, 2018 (Successor) and $51.0 million for the 22 weeks ended May 30, 2018 (Predecessor). Interest expense for fiscal year 2019 (Successor) and the 30 weeks ended

74


Table of Contents

December 26, 2018 (Successor) includes interest on the ABL Credit Agreement and Term Loan Facility as well as the interest related to capital leases, which were adjusted to fair value as of the Effective Date. Interest expense for the 30 weeks ended December 26, 2018 (Successor) also includes interest related to other financing obligations which were adjusted to fair value as of the Effective Date. Interest expense for the 22 weeks ended May 30, 2018 (Predecessor) includes interest associated with the previous capital structure and is therefore not comparable. In addition, interest accrual on the PIK Toggle Notes ceased on March 27, 2018 due to the commencement of the Chapter 11 cases.

Reorganization Items, net

              Reorganization items, net was $792.3 million for the 22 weeks ended May 30, 2018 (Predecessor), all of which were recorded by the Predecessor. There were no reorganization items for fiscal year 2019 (Successor) or the 30 weeks ended December 26, 2018 (Successor). Reorganization items, net includes the unamortized debt issuance costs and discount related to Predecessor debt, lease adjustments, professional fees during the bankruptcy proceedings, fresh start adjustments and the extinguishment of the PIK Toggle Notes in exchange for the holders' pro-rata share of our new common stock. See our audited consolidated financial statements included elsewhere in this prospectus for additional information.

Income Tax Benefit

              Income tax benefit was $1.0 million for fiscal year 2019 (Successor) as compared to $48.3 million for the 30 weeks ended December 26, 2018 (Successor) and $16.3 million for the 22 weeks ended May 30, 2018 (Predecessor). The benefit is a result of the change in valuation allowance due to changes in the indefinite-lived deferred tax assets and liabilities.

Comparison of operating results for the 30 weeks ended December 26, 2018 (Successor) and the 22 weeks ended May 30, 2018 (Predecessor) to the fiscal year ended December 27, 2017 ("2017") (Predecessor)

Net Sales

              Net sales were $4.8 billion for the 30 weeks ended December 26, 2018 (Successor) and $3.9 billion for the 22 weeks ended May 30, 2018 (Predecessor), or $8.8 billion for fiscal year 2018, as compared to $9.9 billion for fiscal year 2017 (Predecessor). The decrease of 11.2% was due primarily to a loss of sales from closed or sold stores and a decrease in comparable store sales. We estimate that 1.5%, or $135 million, of the decline was due to cycling Hurricane Irma and the incremental Disaster Supplemental Nutrition Assistance Program ("DSNAP") benefits in our market place in fiscal year 2017.

              The following table presents comparable store sales for the 30 weeks ended December 26, 2018 (Successor), the 22 weeks ended May 30, 2018 (Predecessor) and fiscal year 2017 (Predecessor):

 
  Successor    
  Predecessor    
  (Decrease)
Increase
 
(in millions)
  30 Weeks Ended
December 26, 2018
   
  22 Weeks Ended
May 30, 2018
  Fiscal 2017    
 
$
  %  

Net sales

  $ 4,829.7       $ 3,942.8   $ 9,875.1         (1,102.6 )   (11.2 )

Other income(1)

    (0.1 )       (13.1 )   (86.1 )       72.9        

Closed/new stores

    (46.6 )       (360.7 )   (1,341.8 )       934.5        

Comparable store sales

  $ 4,783.0       $ 3,569.0   $ 8,447.2       $ (95.2 )   (1.1 )%

(1)
Consists primarily of revenue from products and services that are not related to the sale of inventory (including, but not limited to, fees from lottery sales, revenue from recycling product

75


Table of Contents

    packaging and fees related to customer money transfers) and for the 30 weeks ended December 26, 2018 (Successor) and the 22 weeks ended May 30, 2018 (Predecessor) is net of the deferred revenue and revenue reductions recognized in net sales due to the adoption of ASU 2014-09. ASU 2014-09 did not impact the fiscal 2017 (Predecessor) amounts.

              Comparable store sales were $4.8 billion for the 30 weeks ended December 26, 2018 (Successor) and $3.6 billion for the 22 weeks ended May 30, 2018 (Predecessor), or $8.4 billion for fiscal year 2018, as compared to $8.4 billion for fiscal year 2017 (Predecessor). A decrease of 1.1% was driven by a decrease in transactions, primarily due to the impact of net competitor openings, the cycling of Hurricane Irma and the incremental DSNAP benefits in our market place in fiscal year 2017 (Predecessor), which was partially offset by the positive impact of pricing and promotional programs.

Gross Profit

              Gross profit was $1.2 billion, or 25.8% of net sales, for the 30 weeks ended December 26, 2018 (Successor) and $1.0 billion, or 26.1% of net sales, for the 22 weeks ended May 30, 2018 (Predecessor), or $2.3 billion, or 25.9% of net sales, for fiscal year 2018, as compared to $2.6 billion, or 26.3% of net sales