UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~December 27, 2015


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-35880

Fairway Group Holdings Corp.

(Exact name of registrant as specified in its charter)

Delaware

74-1201087

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2284 12th Avenue

New York, New York 10027

(646) 616-8000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No

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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐		Accelerated filer ☒
Non-accelerated filer ☐		Smaller reporting company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ☐ Yes ☒ No

As of ~~October~~January 2329, ~~2015~~2016, the registrant had 29,~~873~~903,~~347~~964 shares of Class A common stock and 14,225,455 shares of Class B common stock outstanding.

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Fairway Group Holdings Corp.

Quarterly Report on Form 10-Q

For the quarterly period ended ~~September~~December 27, 2015

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Part I—Financial Information
Item 1. Financial Statements (Unaudited)		5
	Consolidated Balance Sheets as of September 27, 2015 and March 29, 2015	5
	Consolidated Balance Sheets as of December 27, 2015 and March 29, 2015	5
	Consolidated Statements of Operations for the thirteen and twenty-six weeks ended September 27, 2015 and September 28, 2014	6
	Consolidated Statements of Operations for the thirteen and thirty-nine weeks ended December 27, 2015 and December 28, 2014	6
	Consolidated Statements of Cash Flows for the twenty-six weeks ended September 27, 2015 and September 28, 2014	7
	Consolidated Statements of Cash Flows for the thirty-nine weeks ended December 27, 2015 and December 28, 2014	7
	Consolidated Statement of Changes in Stockholders’ Deficit for the twenty-six weeks ended September 27, 2015	8
	Consolidated Statement of Changes in Stockholders’ Deficit for the thirty-nine weeks ended December 27, 2015	8
	Notes to Unaudited Consolidated Financial Statements	9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1921
Item 3. Quantitative and Qualitative Disclosures About Market Risk		3739
Item 4. Controls and Procedures		3739
Part II—Other Information
Item 1. Legal Proceedings		3840
Item 1A. Risk Factors		3840
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3941
Item 3. Defaults Upon Senior Securities		3941
Item 4. Mine Safety Disclosures		3941
Item 5. Other Information		3941
Item 6. Exhibits		3941
Signatures		4042

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this report are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “forecast,” “continue,” “plan,” “intend,” “believe,” “may,” “will,” “should,” “can have,” “likely” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. For example, all statements we make relating to our estimated and projected store openings, costs, expenditures, cash flows, growth rates and financial results, our plans and objectives for future operations, growth or initiatives, strategy or the expected outcome or impact of pending or threatened litigation are forward-looking statements. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including:

our ability to increase sales and same store sales;

our ability to maintain or improve our operating margins;

our ability to compete effectively with other retailers;

our ability to maintain price competitiveness;

· our ability to satisfy our ongoing ~~economic~~capital ~~uncertainty~~needs and unanticipated cash requirements;

our history of net losses;

our ability to remain in compliance with the financial or other covenants in our credit agreement;

negative effects to our reputation from real or perceived quality or health issues with our food products;

our ability to achieve the anticipated benefits of our centralized production facility;

rising costs of providing employee benefits, including increased healthcare costs and pension contributions due to unfunded pension liabilities;

ordering errors or product supply disruptions in the delivery of perishable products;

our ability to negotiate reasonable terms with our vendors;

our ability to open new stores on a timely basis or at all;

our ability to achieve sustained sales and profitable operating margins at new stores;

our ability to satisfy our ongoing capital needs and unanticipated cash requirements;

the availability of financing to pursue our new store openings on satisfactory terms or at all;

impairment of our goodwill and/or indefinite-lived intangible assets;

ongoing economic uncertainty;

the failure of our information technology or administrative systems to perform as anticipated;

data security breaches and the release of confidential customer or employee information;

our ability to retain and attract senior management, key employees and qualified store-level employees;

our ability to renegotiate expiring collective bargaining agreements and new collective bargaining agreements;

the geographic concentration of our stores;

· our history of net losses;

additional indebtedness incurred in the future;

our high level of fixed lease obligations;

restrictions on our use of the Fairway name other than on the East Coast and in California and certain parts of Michigan and Ohio;

our ability to protect or maintain our intellectual property;

changes in law;

claims made against us resulting in litigation, and the costs of defending, and adverse developments in, such litigation;

increases in commodity prices;

· severe weather and other natural disasters in areas in which we have stores, warehouses and/or production facilities;

· wartime activities, threats or acts of terror or a widespread regional, national or global health epidemic;

· changes to financial accounting standards regarding store leases;

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· ~~impairment~~severe ofweather ~~our~~and ~~goodwill;~~other natural disasters in areas in which we have stores, warehouses and/or production facilities;

wartime activities, threats or acts of terror or a widespread regional, national or global health epidemic;

changes to financial accounting standards regarding store leases; and

other factors discussed under “Item 1A—Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 29, 2015.

We derive many of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. Although we believe that our assumptions are reasonable, we caution that it is difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations or cautionary statements are disclosed above and under the sections entitled “Item 1A—Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 29, 2015 ~~and~~ , “Part I—Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II—Item 1A—Risk Factors” in this report. All written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements as well as other cautionary statements that are made from time to time in our other filings with the Securities and Exchange Commission (“SEC”) and public communications. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties, and you should not rely upon forward-looking statements as predictions of future events.

We caution you that the important factors described in the Risk Factors and Management’s Discussion and Analysis of Financial Condition and Results of Operations may not be all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our operations in the way we expect. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially and adversely from those contained in any forward-looking statements we may make. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

Unless we state otherwise or the context otherwise requires, the terms “we,” “us,” “our,” “Fairway,” “Fairway Market,” “the Company,” “our business” and “our company” refer to Fairway Group Holdings Corp. and its consolidated subsidiaries as a combined entity.

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Part I — Financial Information

Item 1. FINANCIAL STATEMENTS

FAIRWAY GROUP HOLDINGS CORP. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except per share amounts)

	(Unaudited)
	September 27,		March 29,
	December 27,		March 29,
	2015		2015
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	2935,~~885~~340	$	36,362
Accounts receivable, net		34,~~006~~871		3,404
Merchandise inventories		2831,~~519~~444		29,150
Income tax receivable		~~545~~497		890
Prepaid rent		~~974~~1,407		829
Deferred financing fees		1,743		1,745
Prepaid expenses and other current assets		32,~~827~~729		3,036
Total current assets		6878,~~499~~031		75,416
PROPERTY AND EQUIPMENT, NET		~~140~~134,~~447~~387		148,293
GOODWILL		95,412		95,412
INTANGIBLE ASSETS, NET		27,~~068~~022		27,161
OTHER ASSETS		11,~~621~~105		12,854
Total assets	$	~~343~~345,~~047~~957	$	359,136
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Current portion of long-term debt	$	2,750	$	2,750
Accounts payable		3341,~~435~~033		31,872
Accrued expenses and other		2125,~~363~~084		23,227
Total current liabilities		5768,~~548~~867		57,849
NONCURRENT LIABILITIES
Long-term debt, net of current maturities		254,~~662~~829		254,336
Deferred income taxes		3031,~~556~~460		28,091
Other long-term liabilities		4441,~~122~~922		41,463
Total liabilities		~~386~~397,~~888~~078		381,739
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ DEFICIT
Class A common stock, $0.00001 par value per share, 150,000 shares authorized, 29,826 and 29,366 shares issued at September 27, 2015 and March 29, 2015, respectively		—		—
Class A common stock, $0.00001 par value per share, 150,000 shares authorized, 29,906 and 29,366 shares issued at December 27, 2015 and March 29, 2015, respectively		—		—
Class B common stock, $0.001 par value per share, 31,000 shares authorized, 14,225 shares issued and outstanding at September 27, 2015 and March 29, 2015		14		14
Class B common stock, $0.001 par value per share, 31,000 shares authorized, 14,225 shares issued and outstanding at December 27, 2015 and March 29, 2015		14		14
Treasury stock at cost, 3 shares at September 27, 2015 and March 29, 2015		—		—
Treasury stock at cost, 3 shares at December 27, 2015 and March 29, 2015		—		—
Additional paid-in capital		~~386~~389,~~985~~449		382,271
Accumulated deficit		(~~430~~440,~~840~~584)		(404,888)
Total stockholders’ deficit		(4351,~~841~~121)		(22,603)
Total liabilities and stockholders’ deficit	$	~~343~~345,~~047~~957	$	359,136

The accompanying notes are an integral part of these consolidated financial statements

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FAIRWAY GROUP HOLDINGS CORP. AND SUBSIDIARIES

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

	Thirteen Weeks Ended				~~Twenty~~Thirty-~~Six~~Nine Weeks Ended
	September 27,		September 28,		September 27,		September 28,
	December 27,		December 28,		December 27,		December 28,
	2015		2014		2015		2014
Net sales	$	~~179~~191,~~829~~683	$	~~193~~206,~~979~~219	$	~~373~~565,~~603~~286	$	~~392~~598,~~247~~466
Cost of sales and occupancy costs (exclusive of depreciation and amortization)		~~124~~132,~~320~~006		~~134~~141,~~676~~357		~~257~~389,~~150~~156		~~271~~412,~~548~~905
Gross profit		5559,~~509~~677		5964,~~303~~862		~~116~~176,~~453~~130		~~120~~185,~~699~~561
Direct store expenses		4546,~~521~~470		48,~~621~~516		93139,~~027~~497		95144,~~578~~094
General and administrative expenses		1416,~~882~~011		1719,~~727~~503		3248,~~882~~893		3352,~~022~~525
Store opening costs		1,~~289~~026		21,~~676~~380		23,~~561~~587		45,~~362~~742
Production center start-up costs		~~470~~23		1,~~741~~316		1,~~557~~580		34,~~170~~486
Loss from operations		(63,~~653~~853)		(115,~~462~~853)		(1317,~~574~~427)		(1521,~~433~~286)
Interest expense, net		(4,~~746~~940)		(4,~~833~~807)		(914,~~601~~541)		(914,~~611~~418)
Loss before income taxes		(118,~~399~~793)		(1610,~~295~~660)		(2331,~~175~~968)		(2535,~~044~~704)
Income tax provision		(~~619~~951)		(~~940~~400)		(23,~~777~~728)		(12,~~885~~285)
Net loss	$	(129,~~018~~744)	$	(1711,~~235~~060)	$	(2535,~~952~~696)	$	(2637,~~929~~989)
Basic and diluted loss per common share	$	(0.2722)	$	(0.4025)	$	(0.5981)	$	(0.6288)
Weighted average common shares outstanding		44,~~029~~102		43,~~415~~433		43,~~908~~973		43,~~386~~402

The accompanying notes are an integral part of these consolidated financial statements

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FAIRWAY GROUP HOLDINGS CORP. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Twenty-Six Weeks Ended
	Thirty-Nine Weeks Ended
	September 27,		September 28,
	December 27,		December 28,
	2015		2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(2535,~~952~~696)	$	(2637,~~929~~989)
Adjustments to reconcile net loss to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Deferred income taxes		2,465		1,879
Loss on disposal of assets		1,524		—
Deferred rent		2,172		5,510
Deferred income taxes		3,369		2,279
Depreciation and amortization of property and equipment		13,716		13,949
Deferred rent		214		7,447
Amortization of intangibles		93		147
Depreciation and amortization of property and equipment		21,041		21,085
Amortization of discount on term loans		1,701		1,679
Amortization of intangibles		139		221
Amortization of deferred financing fees		873		876
Amortization of discount on term loans		2,556		2,523
Amortization of prepaid rent		159		159
Amortization of deferred financing fees		1,309		1,314
Stock compensation expense		4,478		7,012
Amortization of prepaid rent		238		239
Stock compensation expense		6,802		10,644
Changes in operating assets and liabilities:
Accounts receivable		~~398~~(1,467)		(21,~~925~~798)
Merchandise inventories		~~632~~(2,293)		(13,~~243~~021)
Prepaid expense and other		~~(591)~~122		~~361~~302
Other assets		203		~~987~~1,386
Accounts payable		19,~~563~~161		32,~~190~~245
Accrued expenses and other		(12,~~749)~~137		16,~~581~~838
Other long-term liabilities		~~608~~341		(~~1,068~~872)
Net cash provided by operating activities		~~769~~9,700		512,~~165~~843
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(58,~~870~~658)		(2428,~~923~~694)
Net cash used in investing activities		(5,870)		(24,923)
Acquisition of intangible assets		—		(1,567)
Net cash used in investing activities		(8,658)		(30,261)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt		(12,~~376~~064)		(1,375)
Cash settlement of vested equity awards		—		(260)
Net cash used in financing activities		(12,~~376~~064)		(1,635)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(61,~~477~~022)		(2119,~~393~~053)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		36,362		58,800
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	2935,~~885~~340	$	3739,~~407~~747
Cash paid during the period for:
Interest, net of capitalized amounts	$	610,~~973~~573	$	67,~~998~~091
Income taxes	$	2	$	2

The accompanying notes are an integral part of these consolidated financial statements

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FAIRWAY GROUP HOLDINGS CORP. AND SUBSIDIARIES

Consolidated Statement of Changes in Stockholders’ Deficit

(In thousands)

(Unaudited)

	STOCKHOLDERS’ DEFICIT
	Class A			Class B			Additional
	Common Stock			Common Stock			Paid in		Treasury Stock			Accumulated
	Shares	Amount		Shares	Amount		Capital		Shares	Amount		Deficit		Total
Balance at March 29, 2015	29,366	$	—	14,225	$	14	$	382,271	3	$	—	$	(404,888)	$	(22,603)
Non-cash stock compensation	—		—	—		—		47,~~714~~178	—		—		—		47,~~714~~178
Issuance of stock for vested RSUs	~~460~~540		—	—		—		—	—		—		—		—
Net loss	—		—	—		—		—	—		—		(2535,~~952~~696)		(2535,~~952~~696)
Balance at September 27, 2015	29,826	$	—	14,225	$	14	$	386,985	3	$	—	$	(430,840)	$	(43,841)
Balance at December 27, 2015	29,906	$	—	14,225	$	14	$	389,449	3	$	—	$	(440,584)	$	(51,121)

The accompanying notes are an integral part of these financial statements

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FAIRWAY GROUP HOLDINGS CORP. AND SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

1.DESCRIPTION OF BUSINESS AND ORGANIZATION

Fairway Group Holdings Corp. was incorporated in the State of Delaware on September 29, 2006 and is controlled by investment funds managed by Sterling Investment Partners and affiliates (collectively, “Sterling”).

Fairway Group Holdings Corp. and subsidiaries (the “Company” or “Fairway”) operate in the retail food industry, selling fresh, natural and organic products, prepared foods and hard-to-find specialty and gourmet offerings along with a full assortment of conventional groceries. The Company operates fifteen stores in the Greater New York metropolitan area, four of which include Fairway Wine & Spirits locations. Fourteen of the stores (including three Wine & Spirits locations) were in operation prior to the beginning of the fiscal year ended March 29, 2015 (“fiscal 2015”), one store opened during the ~~thirteen~~thirty-nine weeks ended ~~September~~December 28, 2014 but prior to the thirteen weeks ended December 28, 2014 and the Company’s fourth Wine & Spirits location was opened during ~~fiscal~~the ~~2015,~~thirteen ~~subsequent~~weeks toended ~~September~~December 28, 2014. The Company has determined that it has one reportable segment. Substantially all of the Company’s revenue comes from the sale of items at its retail food stores.

2.~~BASIS~~OPERATING ~~OF PRESENTATION~~ AND ~~SUMMARY~~LIQUIDITY ~~OF SIGNIFICANT ACCOUNTING POLICIES~~MATTERS

As of December 27, 2015, the Company has an accumulated deficit of $440.6 million, $266.8 million outstanding under its 2013 Senior Credit Facility (“Senior Credit Facility”), as amended, and continues to experience significant losses resulting from lower than expected operating performance. The Company continues to work closely with its advisors to explore alternatives to raise additional capital to de-lever the balance sheet and fund additional growth initiatives, including investments to rebuild sales and pursuing new stores opportunistically.

While the Company was in compliance with all applicable affirmative, negative and financial covenants of the Senior Credit Facility, as amended, at December 27, 2015, if the Company’s financial performance does not improve or additional third-party equity financing is not obtained, the Company anticipates that it will not be in compliance with the maximum total leverage ratio financial covenant at the end of the Company’s fiscal quarter ending April 3, 2016 unless such covenant is amended or compliance waived. If the Company is not in compliance with the covenant, it has the ability to exercise equity cure rights within 150 days following the end of the fiscal quarter ending April, 3, 2016, which allows for the issuance of additional equity and for the proceeds to be treated as Consolidated EBITDA for purposes of the covenant, subject to certain restrictions, including that the amount of equity that can be used as Consolidated EBITDA cannot exceed the Consolidated EBITDA shortfall, the proceeds must be used to repay debt, and the equity cure can only be used twice within a four quarter period and only four times during the term of the loan. In addition, the Company can seek an amendment to the covenant or waiver of the violation from its lenders. In the event of a covenant violation that remains uncured, the lenders have the right to declare all outstanding debt under the Senior Credit Facility, as amended, immediately due and payable, and the Company does not have sufficient working capital to fulfill this obligation.

There can be no assurance that the Company will be successful in obtaining additional capital on favorable terms or at all, or obtaining amended covenants from its lenders, or having compliance with the covenants waived by its lender for a sufficient length of time to allow an improvement in profitability. The Company’s inability to raise additional capital, amend its covenants, have its covenants waived or improve its performance would raise substantial doubt about the Company’s ability to continue as a going concern and pursue its longer-term growth strategy for a reasonable period of time.

These unaudited consolidated financial statements have been prepared on a going concern basis and, as such, do not include any adjustments that might result from the outcome of this uncertainty or the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

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3.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required for complete financial statements in accordance with US GAAP, pursuant to such rules and regulations. Therefore, these unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 29, 2015.

The accompanying unaudited consolidated financial statements as of ~~September~~December 27, 2015, and for the thirteen and ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 and ~~September~~December 28, 2014, reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of the financial position and operating results of the Company. All material intercompany accounts and transactions have been eliminated in the unaudited consolidated financial statements. The results of operations for any interim period may not necessarily be indicative of the results that may be expected for the entire fiscal year or any interim period therein.

Certain amounts in the financial statements for prior periods have been reclassified to conform to the current year presentation and had no effect on previously reported consolidated net loss or stockholders’ deficit.

There have been no changes to the Company’s significant accounting policies described in the Company’s Annual Report on Form 10-K for the fiscal year ended March 29, 2015 that have had a material impact on the Company’s unaudited interim consolidated financial statements and related notes.

~~3.NET~~Fair ~~LOSS~~Value ~~PER~~of ~~COMMON~~Financial ~~SHARE~~Instruments

~~Basic~~The ~~net~~Company ~~loss~~applies ~~per common share is calculated by dividing net loss by~~ the ~~weighted~~FASB ~~average~~guidance ~~common shares outstanding~~ for ~~the~~“Fair ~~fiscal~~Value ~~period~~Measurements. ~~Diluted~~” Under ~~net~~this ~~loss~~standard, ~~per~~fair ~~common~~value ~~share~~ is ~~calculated~~defined byas ~~dividing net loss by~~ the ~~weighted~~price ~~average~~that ~~common~~would ~~shares~~be ~~outstanding~~received ~~for~~to ~~the~~sell ~~fiscal~~an ~~period~~asset ~~plus~~or ~~the~~paid ~~effect~~to oftransfer ~~any~~a ~~potential~~liability ~~common shares that have been issued if these additional shares are dilutive~~(i. ~~For~~e., ~~all~~the ~~periods~~“exit ~~presented,~~price”) ~~basic~~in ~~and~~an ~~diluted~~orderly ~~net~~transaction ~~loss~~between ~~per~~market ~~common~~participants ~~share~~at ~~are~~ the ~~same,~~measurement ~~as any additional common stock equivalents would be anti-dilutive~~date.

9In determining fair value, the Company uses various valuation approaches. The hierarchy of those valuation approaches is broken down into three levels based on the reliability of inputs as follows:

Level 1 -	Inputs that are quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. The valuation under this approach does not entail a significant degree of judgment.

Level 2 -	Inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include: quoted prices for similar assets or liabilities in active markets, inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves observable at commonly quoted intervals or current market) and contractual prices for the underlying financial instrument, as well as other relevant economic measures.

Level 3 -	Inputs that are unobservable for the asset or liability. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

The Company’s non-financial assets measured at fair value on a non-recurring basis include goodwill and intangible assets. To estimate fair value for such assets, the Company uses techniques including discounted expected future cash flows (“DCF”) (Level 3 input). A discounted cash flow analysis calculates the fair value by estimating the after-tax cash flows attributable to a reporting unit or asset and then discounting the after-tax cash flows to a present value using a risk-adjusted discount rate. Assumptions used in the DCF require the exercise of significant judgment,

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including judgment about appropriate discount rates and terminal values, growth rates and the amount and timing of expected future cash flows.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate their fair value due to short term maturities as of December 27, 2015 and March 29, 2015. The estimated fair value of the Company’s long-term debt was approximately $221.3 million and $254.6 million as of December 27, 2015 and March 29, 2015, respectively. The fair value was determined by the Company to be Level 2 under the fair value hierarchy, and was based upon review of observable pricing in secondary markets for the debt instrument.

4.NET LOSS PER COMMON SHARE

Basic net loss per common share is calculated by dividing net loss by the weighted average common shares outstanding for the fiscal period. Diluted net loss per common share is calculated by dividing net loss by the weighted average common shares outstanding for the fiscal period plus the effect of any potential common shares that have been issued if these additional shares are dilutive. For all periods presented, basic and diluted net loss per common share are the same, as any additional common stock equivalents would be anti-dilutive.

The following table is a summary of the share amounts (in thousands) used in computing basic and diluted earnings per share and anti-dilutive shares excluded from the computation:

	Thirteen Weeks Ended		~~Twenty~~Thirty-~~Six~~Nine Weeks Ended
	September 27,	September 28,	September 27,	September 28,
	December 27,	December 28,	December 27,	December 28,
	2015	2014	2015	2014
Weighted average shares outstanding - basic and diluted	44,~~029~~102	43,~~415~~433	43,~~908~~973	43,~~386~~402
Anti-dilutive securities excluded from diluted loss per share computation:
Options	~~797~~800	~~971~~940	~~797~~800	~~971~~940
Unvested restricted stock	8	3026	8	3026
Restricted stock units	3,~~345~~382	23,~~742~~049	3,~~345~~382	23,~~742~~049
Total anti-dilutive securities	4,~~150~~190	34,~~743~~015	4,~~150~~190	34,~~743~~015

During the thirteen and ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 and ~~September~~December 28, 2014 ~~certain of the~~ options to purchase shares of Class A common stock had exercise prices in excess of the Company’s publicly quoted stock price and therefore are not considered potentially dilutive.

45.GOODWILL, INTANGIBLE AND ~~INTANGIBLE~~LONG-LIVED ASSETS

The Company’s annual goodwill impairment test is conducted on the first day of the fourth quarter of each fiscal year and interim evaluations are performed when it is determined that events or changes in circumstances exist that would more likely than not reduce the fair value of goodwill below its carrying value. During the thirteen weeks ended September 27, 2015, due to a continued decline in the market price of the Company’s stock ~~price~~ and revisions in expected operating performance, it was determined that an interim evaluation of goodwill for impairment was necessary. As aThe ~~result~~interim ofevaluation ~~these~~during ~~developments~~the thirteen weeks ended September 27, 2015 concluded that the fair values of the Company’s ~~performed~~indefinite-lived anintangible ~~interim~~assets ~~evaluation~~and asreporting unit were substantially in excess of ~~September~~the ~~27,~~carrying ~~2015~~values and no impairment existed.

~~Based~~During ~~upon~~ the ~~results~~thirteen ofweeks ~~this interim impairment test~~ended December 27, 2015, itdue ~~was~~to a ~~preliminarily~~continued ~~determined~~decline ~~that~~in the ~~fair~~market ~~values~~price of the Company’s ~~indefinite-lived~~stock, ~~intangible~~a ~~assets~~downgrade ~~and~~in ~~reporting unit exceed~~ the ~~carrying~~Company’s ~~values,~~debt rating and revisions noin ~~impairment~~expected ~~existed~~operating asperformance, ofit ~~September~~was ~~27,~~determined ~~2015.~~that ~~There~~an ~~were~~interim noevaluation of goodwill orfor ~~indefinite-lived~~impairment ~~intangible~~was ~~asset~~again ~~impairment~~necessary. This ~~charges~~interim ~~recorded~~evaluation took ininto consideration the ~~twenty-six~~additional ~~weeks~~pressures ~~ended~~on ~~September 27, 2015 and~~the ~~September 28, 2014. As~~performance of ~~September 27, 2015~~ the ~~carrying~~business ~~values~~as ofwell ~~goodwill~~as ~~and~~the ~~tradenames~~impact ~~were $95.4 million and~~the ~~$23.6 million,~~change ~~respectively.~~ in the

The Company believes the assumptions used in the evaluations are consistent with the plans and estimates used to manage the business; however, if actual results are not consistent with these estimates or assumptions and if the market price of the Company’s stock continues to decline, the Company may be exposed to a non-cash impairment charge that could be material.11

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5Company’s debt rating had on the fair value of its debt.~~LONG~~ This interim valuation indicated that the fair value of the Company’s indefinite-~~TERM~~lived ~~DEBT~~intangible assets and reporting unit exceeded the carrying value, thus there were no goodwill or indefinite-lived intangible asset impairment charges recorded in the thirteen weeks ended December 27, 2015. As of December 27, 2015 the carrying values of goodwill and tradenames were $95.4 million and $23.6 million, respectively.

The Company believes the assumptions used in the evaluation are consistent with the plans and estimates used to manage the business as well as market conditions as of the date of testing. If actual results are not consistent with these estimates or assumptions the Company may be exposed to a non-cash impairment charge that could be material. Some of the more significant assumptions include the Company’s projected operating performance and the estimated fair value of its debt, which could be impacted by the Company’s operating performance, credit rating and interest rate market conditions.

Long-lived assets, including finite-lived intangible assets, do not require that an annual impairment test be performed. Instead, long-lived assets are tested for impairment upon the occurrence of a triggering event. The impairment test for long-lived assets, including finite-lived intangible assets, utilized estimates of undiscounted future cash flows based on the use of the assets for their remaining useful life. The impairment test as of December 27, 2015 did not result in the impairment of any long-lived assets.

6.LONG-TERM DEBT

A summary of long-term debt is as follows (in thousands):

	September 27,		March 29,
	December 27,		March 29,
	2015		2015
Credit facility, gross	$	~~267~~266,~~438~~750	$	268,813
Less unamortized discount		(109,~~026~~171)		(11,727)
Credit facility, net		257,~~412~~579		257,086
Less current maturities		(2,750)		(2,750)
Long-term debt, net of current maturities	$	254,~~662~~829	$	254,336

A summary of interest expense is as follows (in thousands):

	Thirteen Weeks Ended				~~Twenty~~Thirty-~~Six~~Nine Weeks Ended
	September 27,		September 28,		September 27,		September 28,
	December 27,		December 28,		December 27,		December 28,
	2015		2014		2015		2014
Interest on senior credit facility	$	3,~~745~~610	$	3,~~756~~748	$	711,~~498~~108	$	711,~~483~~231
Amortization of original issue discount		~~852~~854		~~841~~844		12,~~701~~556		12,~~679~~523
Amortization of deferred financing fees		436		438		~~873~~1,309		~~876~~1,314
Other interest (income), net		(287)		(202)		(471)		(427)
Other interest (income) expense, net		50		18		109		62
Total	$	4,746	$	4,833	$	9,601	$	9,611
Capitalized interest		(10)		(241)		(541)		(712)
Effective interest rate on senior credit facility		7.8%		7.8%		7.8%		7.8%
Total	$	4,940	$	4,807	$	14,541	$	14,418
Effective interest rate on senior credit facility		7.6%		7.8%		7.8%		7.8%

Other interest (income) expense, net includes approximately $302,000 and $250,000 of capitalized interest for the thirteen weeks ended September 27, 2015 and September 28, 2014, respectively and $530,000 and $471,000 of capitalized interest for the twenty-six weeks ended September 27, 2015 and September 28, 2014, respectively.12

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The estimated fair value of the Company’s long-term debt was approximately $221.3 million and $254.6 million as of December 27, 2015 and March 29, 2015, respectively. The fair value was determined by the Company to be Level 2 under the fair value hierarchy, and was based upon review of observable pricing in secondary markets for the debt instrument.

2013 Senior Credit Facility

In February 2013, Fairway Group Holdings Corp. and its wholly-owned subsidiary, Fairway Group Acquisition Company, as the borrower, entered into a senior secured credit facility consisting of a $275 million term loan (the “2013 Term Facility”) and a $40 million revolving credit facility, which includes a $40 million letter of credit sub-facility (the “2013 Revolving Facility” and together with the 2013 Term Facility, the “2013 Senior Credit Facility”) with the 2013 Term Facility maturing in August 2018 and the 2013 Revolving Facility maturing in August 2017. The Company used the proceeds from the 2013 Term Facility to repay the $264.5 million of outstanding borrowings (including accrued interest) under its 2012 senior credit facility and pay fees and expenses. On May 3, 2013, the 2013 Senior Credit Facility was amended to, among other things, lower the interest rate margins and eliminate the interest coverage ratio financial covenant.

Borrowings under the 2013 Senior Credit Facility, as amended, bear interest, at the option of the Company, at (i) adjusted LIBOR (subject to a 1.0% floor) plus 4.0% or (ii) an alternate base rate plus 3.0%. In addition, there is a fee payable quarterly in an amount equal to 1.0% per annum of the undrawn portion of the 2013 Revolving Facility, calculated based on a 360-day year. Interest is payable quarterly in the case of base rate loans and on the maturity dates or every three months, whichever is shorter, in the case of adjusted LIBOR loans. The 4.0% and 3.0% margins will each be reduced by 50 basis points at any time when the Company’s corporate family rating from Moody’s Investor Services Inc. is B2 or higher and the Company’s corporate rating from Standard & Poors Rating Service is B or higher, in each case with a stable outlook, and as long as certain events of default have not occurred.

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be reduced by 50 basis points at any time when the Company’s corporate family rating from Moody’s Investor Services Inc. is B2 or higher and the Company’s corporate rating from Standard & Poors Rating Service is B or higher, in each case with a stable outlook, and as long as certain events of default have not occurred.

All of the borrower’s obligations under the 2013 Senior Credit Facility, as amended, are unconditionally guaranteed (the “Guarantees”) by Fairway Group Holdings Corp. and subsidiaries (other than the borrower and any future unrestricted subsidiaries as the Company may designate, at its discretion, from time to time) (the “Guarantors”). Additionally, the 2013 Senior Credit Facility and the Guarantees are secured by a first-priority perfected security interest in substantially all present and future assets of the borrower and each Guarantor, including accounts receivable, property and equipment, merchandise inventories, general intangibles, leases, intellectual property, investment property and intercompany notes among Guarantors.

Mandatory prepayments under the 2013 Senior Credit Facility, as amended, are required with: (i) 50% of adjusted excess cash flow (which percentage shall be reduced to 25% upon achievement and maintenance of a leverage ratio of less than 5.0:1.0, and to 0% upon achievement and maintenance of a leverage ratio of less than 4.0:1.0); (ii) 100% of the net cash proceeds of asset sales or other dispositions of property by the Company and certain of its subsidiaries (subject to certain exceptions and reinvestment provisions); and (iii) 100% of the net cash proceeds of issuances, offerings or placements of debt obligations (subject to certain exceptions).

The 2013 Senior Credit Facility, as amended, contains negative covenants, including restrictions on: (i) the incurrence of additional debt; (ii) liens and sale-leaseback transactions; (iii) loans and investments; (iv) guarantees and hedging agreements; (v) the sale, transfer or disposition of assets and businesses; (vi) dividends on, and redemptions of, equity interests and other restricted payments, including dividends and distributions to the Company by its subsidiaries; (vii) transactions with affiliates; (viii) changes in the business conducted by the Company; (ix) payment or amendment of subordinated debt and organizational documents; and (x) maximum capital expenditures. The Company is also required to comply with a maximum total leverage ratio financial covenant.

The Company was in compliance with all applicable affirmative, negative and financial covenants of the 2013 Senior Credit Facility, as amended, at ~~September~~December 27, 2015. At the time the Company entered into the 2013 Senior Credit Facility, as amended, new levels for the maximum total leverage ratio financial covenant were established. The level at the end of the ~~second~~third ~~and~~fiscal ~~third~~quarter of fiscal ~~quarters~~2016 iswas 6.0:1, ~~before~~but ~~stepping~~steps down to 5.75:1 on April 1, 2016, which is prior to the end of the Company’s fiscal ~~2016~~year. The Company’s current operating performance has been below expectations ~~at the time~~ that the financial covenant levels were established, and if the Company’s financial performance does not improve, it is possible that the Company will not be in compliance with the maximum total leverage ratio financial covenant at some point within the next twelve months. In the event of a covenant violation that remains uncured, the lenders have the right to declare all outstanding debt under the 2013 Senior Credit Facility, as amended, immediately due and payable. The Company has the ability to exercise equity cure rights, which allows for the issuance of additional equity and for the proceeds to be treated as EBITDA for purposes of the covenant, subject to certain restrictions, including that the amount of equity that can be used as EBITDA cannot exceed the EBITDA shortfall, the proceeds must be used to repay debt, and the equity cure can only be used twice within a four quarter period and only four times during the term of the loan.

Although the Company believes that it has sufficient liquidity and capital resources to meet its current operating requirements and to open the stores currently scheduled to open in calendar 2016, in light of the Company’s leverage profile and the constraints that places on its longer-term growth strategy, the Company is currently exploring alternatives to raise additional capital to allow the Company to de-lever the balance sheet and fund additional growth initiatives, including investments to rebuild sales and pursuing new stores opportunistically. Any new growth capital investment, or capital raised in the context of an equity cure, is likely to be in the form of equity or equity linked securities, and is likely to be dilutive to existing stockholder ownership. There can be no assurance that the Company will be successful in obtaining additional capital on favorable terms or at all. If the Company is unable to raise additional capital, the ability to expand would be materially adversely affected and, if the Company’s performance does not improve, make it more difficult to remain in compliance with the net leverage covenant.13

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Atexisted ~~September 27,~~at ~~2015~~the time that the financial covenant levels were established, and if the Company’s ~~had~~financial ~~$33.0~~performance ~~million~~does ofnot ~~outstanding~~improve ~~letters~~or ofadditional ~~credit~~third-party equity financing is not obtained, ~~and~~the ~~$7.0~~Company ~~million~~anticipates that it will not be in compliance with the maximum total leverage ratio financial covenant at the end of ~~availability~~the ~~under~~fourth fiscal quarter unless such covenant is amended or compliance waived. The Company has the ~~2013~~ability ~~Revolving~~to ~~Facility~~exercise equity cure rights, ~~all~~within 150 days following the end of the fourth fiscal quarter, which ~~was~~allows ~~available~~for the issuance of additional equity and for ~~letters~~the proceeds to be treated as Consolidated EBITDA for purposes of ~~credit.~~the ~~Subsequent~~covenant, subject to ~~September 27~~certain restrictions, ~~2015~~including that the amount of equity that can be used as Consolidated EBITDA cannot exceed the Consolidated EBITDA shortfall, the proceeds must be used to repay debt, and the equity cure can only be used twice within a four quarter period and only four times during the term of the loan. In addition, the Company ~~increased~~can ~~its~~seek ~~outstanding~~an ~~letters~~amendment to the covenant or waiver of ~~credit~~the byviolation ~~$0.5~~from ~~million~~its inlenders. In the ~~aggregate~~event of a covenant violation that remains uncured, ~~decreasing~~the ~~its~~lenders ~~availability~~have the right to declare all outstanding debt under the ~~2013~~Senior ~~Revolving~~Credit Facility, as amended, immediately due and payable, and the Company does not have sufficient working capital to ~~$6.5~~fulfill ~~million~~this obligation.

6In light of the Company’s lower than expected operating performance and leverage profile and the constraints those place on its current operations and longer-term growth strategy, it has concluded that it will need to raise additional capital to continue as a going concern over the long term.~~STOCK~~ The Company continues to work with its advisors to explore alternatives to raise additional capital to de-~~BASED~~lever ~~COMPENSATION~~the balance sheet and fund additional growth initiatives, including investments to rebuild sales and pursuing new stores opportunistically. Any new growth capital investment, or capital raised in the context of an equity cure, is likely to be in the form of equity or equity linked securities, and is likely to be dilutive to existing stockholder ownership. There can be no assurance that the Company will be successful in obtaining additional capital on favorable terms or at all, obtaining amended covenants, or having compliance with the covenants waived by its lenders for a sufficient length of time to improve profitability. The Company’s inability to raise additional capital, amend its covenants, have its covenants waived, or improve its performance would raise substantial doubt about the Company’s ability continue as a going concern and pursue its longer-term growth strategy for a reasonable period of time.

~~The~~At ~~Company~~December 27, ~~accounts~~2015, ~~for~~the ~~stock-based~~Company ~~compensation~~had ~~awards~~$34.6 inmillion ~~accordance~~of ~~with~~outstanding ~~the~~letters ~~provisions~~ of ~~FASB~~credit, ~~Accounting~~and ~~Standards~~$5.4 ~~Codification~~million ~~(“ASC”)~~of ~~Topic~~availability ~~718~~under —the ~~Compensation~~2013 —Revolving ~~Stock~~Facility, ~~Compensation which~~all ~~requires~~of ~~companies~~which towas ~~estimate~~available ~~the~~for ~~fair~~letters ~~value~~ of ~~share-based~~credit. ~~payment~~Subsequent ~~awards~~to onDecember ~~the~~27, ~~date~~2015, ofin ~~grant.~~connection ~~The~~with ~~value of~~ the ~~portion~~Company’s cancellation of the ~~awards~~TriBeCa ~~ultimately~~lease, ~~expected to vest is recognized as expense over~~ the ~~requisite~~landlord ~~service~~drew ~~period~~$2.4 ~~The~~million ~~Company~~on ~~recognized~~a ~~total~~letter ~~stock-based~~of ~~compensation~~credit ofand ~~$2.1~~surrendered ~~million~~the ~~and~~remaining $41.26 million ~~for~~of the ~~thirteen~~letter ~~weeks~~of ~~ended September 27~~credit, ~~2015~~resulting ~~and~~in ~~September 28,~~a ~~2014, respectively, and~~ $4.50 million ~~and~~increase ~~$7.0~~in ~~million~~availability ~~for~~under the ~~twenty-six~~2013 ~~weeks~~Revolving ~~ended~~Facility. ~~September 27~~Additionally, ~~2015~~on ~~and~~January ~~September~~ 28, ~~2014,~~2016 ~~respectively,~~the asCompany ~~general~~drew ~~and~~down ~~administrative~~$9.0 ~~expenses~~million inon ~~the~~its ~~Company’s~~2013 ~~Consolidated~~Revolving ~~Statements~~Facility ofreducing ~~Operations~~the availability to $0.4 million.

Included in the amounts recorded for the thirteen and twenty-six weeks ended September 28, 2014 are: (i) approximately $96,000 and $192,000, respectively, representing the value of restricted stock units issued to certain directors during such period in payment of the directors’ fees for each of the corresponding calendar quarters ended June 30, 2014 and September 30, 2014; (ii) approximately $41,000 and $82,000, respectively, representing the value of restricted stock units issued during such period to the Company’s chairman in payment of his fees for serving as executive chairman for each of the corresponding calendar quarters; and (iii) $187,500 and $375,000, respectively, representing the value of restricted stock units granted in such period to a former executive officer in partial payment of his salary for each of the corresponding calendar quarters. All of these restricted stock units are vested upon issuance but will be settled in shares of Class A common stock in the future. No such items were included in stock-based compensation expense during the thirteen and twenty-six weeks ended September 27, 2015.14

~~The~~Table ~~Company’s 2007 Equity Compensation Plan (the “2007 Plan”), which provided for the grant~~ of stock options and restricted shares, and the 2013 Long-Term Incentive Plan (the “2013 Plan”), which provides for the grant of stock options, restricted stock units, restricted stock, other stock-based awards and other cash-based awards, are more fully described in the Company’s Annual Proxy Statement for its 2015 annual meeting of stockholders filed with the Securities and Exchange Commission on June 23, 2015 under the caption “Executive Compensation—Equity Compensation Plans.” Changes in equity awards outstanding under the 2007 Plan and 2013 Plan during the twenty-six weeks ended September 27, 2015 are summarized as follows:Contents

7.STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation awards in accordance with the provisions of FASB Accounting Standards Codification (“ASC”) Topic 718 — Compensation — Stock Compensation which requires companies to estimate the fair value of share-based payment awards on the date of grant. The value of the portion of the awards ultimately expected to vest is recognized as expense over the requisite service period. The Company recognized total stock-based compensation of $2.3 million and $3.6 million for the thirteen weeks ended December 27, 2015 and December 28, 2014, respectively, and $6.8 million and $10.6 million for the thirty-nine weeks ended December 27, 2015 and December 28, 2014, respectively, as general and administrative expenses in the Company’s Consolidated Statements of Operations.

Included in the amounts recorded for the thirteen and thirty-nine weeks ended December 28, 2014 are: (i) approximately $55,000 and $247,000, respectively, representing the value of restricted stock units issued to certain directors during such period in payment of the directors’ fees for each of the corresponding calendar quarters ended June 30, 2014, September 30, 2014 and December 31, 2014; (ii) approximately $0 and $82,000, respectively, representing the value of restricted stock units issued during such period to the Company’s chairman in payment of his fees for serving as executive chairman for each of the corresponding calendar quarters ended June 30, 2014 and September 30,2014; and (iii) $112,000 and $487,000, respectively, representing the value of restricted stock units granted in such period to a former executive officer in partial payment of his salary for the calendar quarters ended June 30, 2014 and September 30, 2014 and for the period October 1, 2014 to November 14, 2014. All of these restricted stock units are vested upon issuance but will be settled in shares of Class A common stock in the future. No such items were included in stock-based compensation expense during the thirteen and thirty-nine weeks ended December 27, 2015.

The Company’s 2007 Equity Compensation Plan (the “2007 Plan”), which provided for the grant of stock options and restricted shares, and the 2013 Long-Term Incentive Plan (the “2013 Plan”), which provides for the grant of stock options, restricted stock units, restricted stock, other stock-based awards and other cash-based awards, are more fully described in the Company’s Annual Proxy Statement for its 2015 annual meeting of stockholders filed with the Securities and Exchange Commission on June 23, 2015 under the caption “Executive Compensation—Equity Compensation Plans.” Changes in equity awards outstanding under the 2007 Plan and 2013 Plan during the thirteen and thirty-nine weeks ended December 27, 2015 are summarized as follows:

2007 Equity Compensation Plan

As of ~~September~~December 27, 2015, there was $3216,000 of unrecognized compensation expense related to the restricted stock awards granted under the 2007 Plan.

The status of the Company’s unvested restricted stock grants for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 is summarized as follows:

		Weighted
	Restricted	Average Grant
	Stock	Date Fair Value
Outstanding unvested awards at March 29, 2015	15,573	$	7.81
Granted	—		—
Vested	(7,786)		7.81
Forfeited	—		—
Outstanding unvested awards at September 27, 2015	7,787	$	7.81
Outstanding unvested awards at December 27, 2015	7,787		7.81

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2013 Long-Term Incentive Plan

Restricted Stock Units

As of ~~September~~December 27, 2015, there was $96.07 million of unrecognized compensation expense related to the restricted stock unit awards (“RSU”s) granted under the 2013 Plan.

The status of the Company’s unvested restricted stock units for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 is summarized as follows:

		Weighted
	Restricted	Average Grant
	Stock Units	Date Fair Value
Outstanding unvested awards at March 29, 2015	3,195,624	$	8.26
Granted	~~335~~459,~~229~~514		43.2054
Forfeited	(~~108~~115,~~457~~065)		1211.0177
Vested	(~~331~~422,~~475~~057)		97.2976
Outstanding unvested awards at September 27, 2015	3,090,921	$	7.58
Outstanding unvested awards at December 27, 2015	3,118,016	$	7.50

During the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 40129,~~181~~466 RSUs with a grant-date fair value of approximately $~~187~~281,000 were granted related to executive separation agreements, which were charged to expense during fiscal 2016. As of ~~September~~ December 27, 2015, approximately $~~203~~36,000 is included in accrued expenses related to separation payments to be made in RSUs in future periods.

Stock Options

As of ~~September~~December 27, 2015, there was $1.10 million of unrecognized compensation expense related to the stock option compensation awards granted under the 2013 Plan.

A summary of stock option activity for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 is as follows:

				Weighted
		Weighted		Average
		Average		Remaining
	Stock	Exercise		Contractual
	Options	Price		Life (years)
Balance at March 29, 2015	878,722	$	9.65
Granted	—25,000		—2.05
Forfeited	(81103,~~340~~228)		13.9172
Exercised	—		—
Outstanding awards at September 27, 2015	797,382		9.22	8.4
Outstanding awards at December 27, 2015	800,494		8.89	8.2
Exercisable at September 27, 2015	214,632	$	13.20	7.7
Exercisable at December 27, 2015	192,744	$	13.22	7.5

Stock options outstanding as of ~~September~~December 27, 2015 had no intrinsic value. Aggregate intrinsic value represents the value of the Company’s stock based on the closing stock price on the last trading day of the fiscal period in excess of the weighted average exercise price multiplied by the number of options outstanding or exercisable.

78.RELATED PARTY TRANSACTIONS

Operating Leases and Utility Services

A director who is a former executive officer of the Company:

~~· owns one-sixth of certain entities from which the Company leases certain stores, a production bakery, and warehouses;~~ 16

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owns one-sixth of certain entities from which the Company leases certain stores, a production bakery, and warehouses;

owns one-twelfth of an entity from which the Company leases its Red Hook, Brooklyn, NY (“Red Hook”) store; and

· owns one-twelfth of an entity from which the Company obtains utility services for its Red Hook store. (See Note 10: Commitments and Contingencies)

Total amounts related to the foregoing included $1.5 million ~~and $1.5 million~~ in cost of sales and $0.4 million ~~and $0.4 million~~ in general and administrative expenses for each of the thirteen weeks ended ~~September~~December 27, 2015 and ~~September~~December 28, 2014, respectively and $34.05 million and $24.94 million in cost of sales and $01.82 million and $01.93 million in general and administrative expenses for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~ December 27, 2015 and ~~September~~ December 28, 2014, respectively. At ~~September~~December 27, 2015 and March 29, 2015, amounts payable to related parties included in accrued expenses were $0.1 2 million and $0.1 million, respectively, and receivables from related parties of $0.3 million and $0.2 million, respectively, were included in accounts receivable.

Executive Separations

In connection with the separation of the Company’s then Chief Executive Officer in February 2014, its then Interim Chief Executive Officer in September 2014, and the retirement of an individual who served as an executive officer in November 2014 (although this individual remains a director), the Company entered into separation agreements with ~~the departed individuals. Under certain of~~ these ~~agreements, the Company entered into consulting arrangements with the departed~~ individuals and was obligated to provide salary and benefit continuation, which required the payment of cash and in one instance the grant of restricted stock units in partial payment of severance. In addition, under certain of these agreements, the Company entered into consulting arrangements with the individuals. Under these agreements, the Company paid cash of approximately $~~462~~402,000 and $~~374~~194,000 for the thirteen weeks ended ~~September~~December 27, 2015 and ~~September~~December 28, 2014, respectively, and $1.5 9 million and $~~452~~649,000 for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 and ~~September~~December 28, 2014, respectively. During the thirteen and ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015, the Company granted approximately 2689,~~334~~285 and 40129,~~181~~466 restricted stock units, respectively, with a grant date fair value of approximately $94,000 and $~~187~~281,000 related to these agreements. No restricted stock units related to these agreements were granted during the ~~twenty~~thirteen and thirty-~~six~~nine weeks ended ~~September~~December 28, 2014.

As of ~~September~~December 27, 2015 and March 29, 2015, amounts related to executive separation included in accrued expenses were approximately $~~723~~258,000 and $2.4 million, respectively.

89.INCOME TAXES

The reconciliation of the U.S. statutory rate with the Company’s effective tax rate for the thirteen and ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 and ~~September~~December 28, 2014 is summarized as follows:

	Thirteen Weeks Ended				~~Twenty~~Thirty-~~Six~~Nine Weeks Ended
	September 27,		September 28,		September 27,		September 28,
	December 27,		December 28,		December 27,		December 28,
	2015		2014		2015		2014
Federal statutory rate	34.0	%	34.0	%	34.0	%	34.0	%
Effect of:
State income taxes (net of federal tax benefit)	87.10		8.67		7.43		8.57
Permanent differences	—(0.2)		(0.32)		(1.0.2)		(0.23)
Stock compensation	(25.40)		—		(5.32)		—
Valuation allowance	(4546.16)		(4745.79)		(47.10)		(4948.65)
Other	—		(0.4)		—(0.6)		(0.23)
Effective rate	(510.48)	%	(53.8)	%	(1211.07)	%	(76.54)	%

As a result of historical net operating losses (“NOLs”), the Company currently provides a full valuation allowance against its net deferred tax assets. For the thirteen and ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 and ~~September~~December 28, 2014, income tax expense was computed at the estimated annual effective rate based on the total ~~estimated annual tax provision which included state income taxes and a deferred tax provision related to amortization of certain indefinite-lived intangible assets.~~

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~~Based~~estimated onannual ~~management’s assessment, the Company has placed a valuation reserve against its deferred~~ tax ~~assets,~~provision aswhich itincluded isstate ~~more likely than not that the Company may not generate sufficient taxable~~ income ~~during~~taxes ~~the~~and ~~carryforward~~a ~~period to utilize the NOLs. The Company regularly reviews the net~~ deferred tax ~~valuation~~provision ~~allowance~~related to ~~determine~~amortization ~~if available evidence continues to support the position that it is more likely than not that a portion~~ of orcertain ~~the~~indefinite-lived ~~entire~~intangible ~~deferred tax asset will not be realized in the future. As of September 27, 2015, management could not conclude that it is more likely than not that the deferred tax~~ assets ~~will be realized~~. As a result, the Company continues to maintain a full valuation allowance against its deferred tax assets. The Company will continue to assess its position in future periods to determine if it is appropriate to reduce a portion of its valuation allowance in the future.

Based on management’s assessment, the Company has placed a valuation reserve against its deferred tax assets, as it is more likely than not that the Company may not generate sufficient taxable income during the carryforward period to utilize the NOLs. The Company regularly reviews the net deferred tax valuation allowance to determine if available evidence continues to support the position that it is more likely than not that a portion of or the entire deferred tax asset will not be realized in the future. As of December 27, 2015, management could not conclude that it is more likely than not that the deferred tax assets will be realized. As a result, the Company continues to maintain a full valuation allowance against its deferred tax assets. The Company will continue to assess its position in future periods to determine if it is appropriate to reduce a portion of its valuation allowance in the future.

For more information regarding the Company’s valuation allowance against its deferred tax assets, see Note 13 to the Company’s audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended March 29, 2015.

The valuation allowance was $~~121~~126.73 million and $110.8 million as of ~~September~~December 27, 2015 and March 29, 2015, respectively.

910.COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company occupies premises pursuant to non-cancelable lease agreements, including the lease agreements with related parties as described in Note 78, which expire at various times through 2039. Required rent payments under lease agreements with related parties increase annually by either 50% of the percentage increase in the consumer price index or by the percentage increase in the consumer price index of up to 5%, except for certain lease years when the rent is determined by arbitration. Lease agreements with non-related parties include various escalation clauses.

The Company has signed certain leases for which the Company’s obligation is not yet established because the Company does not yet have possession of the site. The aggregate minimum rental commitments under all operating leases, for which the Company has possession, as of ~~September~~December 27, 2015 are as follows for the fiscal years ending (in thousands):

April 3, 2016	$	198,~~634~~863
April 2, 2017		3835,~~989~~611
April 1, 2018		3734,~~306~~467
March 31, 2019		3734,~~474~~635
March 29, 2020		3735,~~970~~131
Thereafter		~~590~~539,~~068~~697
	$	~~761~~688,~~441~~404

Rent expense for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 and ~~September~~December 28, 2014 was approximately $2233.4 million and $2132.78 million, respectively. Rent expense for the thirteen weeks ended ~~September~~December 27, 2015 and ~~September~~December 28, 2014 was approximately $11.20 million and $11.42 million, respectively.

~~During~~In ~~the~~May ~~twenty-six weeks ended September 27,~~ 2015, the Company entered into an agreement terminating its lease of a site in the new Hudson Yards development in west midtown Manhattan where the Company had expected to open a store in late calendar 2015 or early calendar 2016. In connection with the lease termination, the Company recorded a charge of $3.7 million during the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015, which has been included in general and administrative expenses. The amount recorded includes $3.5 million paid in cash to the landlord during the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015, and the impairment of $0.2 million of previously capitalized investments in the store site.

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During the thirteen weeks ended December 27, 2015, the Company entered into an agreement terminating its lease of a site in the TriBeCa neighborhood of lower Manhattan where the Company had expected to open a store in calendar 2016. In connection with the lease termination, the Company recorded a charge of $4.2 million during the thirteen and thirty-nine weeks ended December 27, 2015, included in general and administrative expenses. The amount recorded includes $2.7 million of expense for the lease termination fee and $1.5 million of expense for the write-off of fixed assets. In addition the Company reversed the deferred rent liability related to this lease of $2.9 million also included in general and administrative expenses. A partial payment of $0.3 million was made in the thirteen weeks ended December 27, 2015 and the balance of $2.4 million, paid in January 2016, is reflected in accrued liabilities at December 27, 2015.

Other Contingencies

The Company obtains its utility services for the Red Hook store from an entity which is one twelfth owned by an individual who is a Company director and former executive officer. The Company believes that the entity has overcharged for utilities since its initial occupancy of the premises. Since November 2008, with the exception of the post-Hurricane Sandy period through fiscal 2014, when the Company received utilities from the local utility provider because the co-generation plant was not operational, the Company has taken deductions from the utility invoices based on the methodology that the Company believes represents the parties’ original intentions with respect to the utility calculations. The Company believes that it will be successful in negotiating an amicable resolution of this matter between the parties. The Company also believes that the resolution of this matter will not have a material adverse effect on its financial condition and results of operations.

In February and March 2014, three purported securities class action lawsuits alleging the violation of the federal securities laws were filed in the United States District Court for the Southern District of New York against the Company and certain of the Company’s current and former officers and directors and the underwriters for the Company’s initial public offering. The actions were consolidated on June 3, 2014 under the caption In re Fairway Group Holdings Corp. Securities Litigation, No. 14-cv-0950. On July 18, 2014, an amended class action complaint was filed, adding affiliates of Sterling Investment Partners as defendants. The complaint sought unspecified damages and alleged misleading statements in the registration statement and prospectus for the Company’s initial public offering and in subsequent communications regarding the Company’s business and financial results. On September 9, 2015, the district judge to whom the case was assigned granted the Company’s motion to dismiss the case.

In April 2014, a purported stockholder derivative action was filed against certain of the Company’s current and former directors in New York state court, asserting claims for breach of fiduciary duties and gross mismanagement based on substantially similar allegations as in the securities class action. In June 2014, the Company and the other defendants moved to dismiss the derivative complaint. On July 30, 2014, plaintiffs filed an amended complaint, adding affiliates of Sterling Investment Partners as defendants and asserting claims against them for breach of fiduciary duty and unjust enrichment. On September 29, 2014, the Company and the other defendants moved to dismiss the amended derivative complaint. On November 10, 2014, the court granted the Company and the other defendants’ motion to dismiss on the grounds that under the Company’s certificate of incorporation the derivative action must be brought in the State of Delaware. On June 18, 2015, the court denied the plaintiffs’ motion for reconsideration, and the plaintiffs’ opportunity to appeal the decision has expired. A similar case was filed in the Delaware Chancery Court in February 2015. On October 15, 2015, the plaintiff voluntarily dismissed this case.

The Company, from time to time, is and may be subject to legal proceedings and claims which arise in the ordinary course of its business. The Company has not accrued any amounts in connection with these uncertainties, including those discussed above as the Company has determined that losses from these uncertainties are not probable. For all matters, including unasserted claims, where a loss is reasonably possible, the aggregate range of estimated losses is not material to the financial position, results of operations, liquidity or cash flows of the Company.

Regardless of the outcome, litigation may require significant attention from management and could result in significant legal expenses, settlement costs or damage awards that could have a material impact on the Company’s financial position, results of operations and cash flows.

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1011.RECENTLY ISSUED ACCOUNTING STANDARDS

The Company does not believe that any recently issued, but not yet effective, accounting standards if currently ~~adopted~~effective would have a material effect on the accompanying consolidated financial statements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 amends existing revenue recognition requirements and provides a new comprehensive revenue recognition model requiring entities to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This ASU was amended by ASU No. 2015-14, issued in August 2015, which deferred the original effective date by one year;. ~~the~~The ~~effective~~ASU ~~date~~ is ~~effective~~ now for fiscal years, and interim reporting periods within those years, beginning after December 15, 2017. The Company does not expect this ~~adoption~~ASU to have a material impact on its financial statements.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. ASU 2014-15 is effective for the fiscal years ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company does not expect this ~~adoption~~ASU to have a material impact on its financial statements.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 amends existing requirements for debt issuance costs, requiring entities to present debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015, and requires retrospective application. Early adoption is permitted for financial statements that have not been previously issued. The Company does not expect this ~~adoption~~ASU to have a material impact on its financial statements.

In April 2015, the FASB issued ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. ASU 2015-05 provides clarification about a customer’s accounting for fees paid in a cloud computing arrangement, and provides guidance to customers about whether a cloud computing arrangement includes a software license, and the portion of the arrangement that should be accounted for as a service contract. ASU 2015-05 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015 and may be applied either prospectively or retrospectively, and early adoption is permitted. The Company does not expect this ~~adoption~~ASU to have a material impact on its financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended March 29, 2015, as filed with the Securities and Exchange Commission. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q. See “Special Note on Forward Looking Statements” above. The results of operations for the thirteen and ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 may not necessarily be indicative of the results that may be expected for the entire fiscal year ending April 3, 2016.

Our fiscal year is the 52- or 53-week period ending on the Sunday closest to March 31. For ease of reference, we identify our fiscal years by reference to the calendar year in which the fiscal year ends. Accordingly, “fiscal 2015” refers to our fiscal year ended on March 29, 2015 and “fiscal 2016” refers to our fiscal year ending April 3, 2016. The thirteen week periods ended ~~September~~December 28, 2014 and ~~September~~December 27, 2015 are the ~~second~~third fiscal quarters of fiscal 2015 and fiscal 2016, respectively.

Overview

Fairway Market is a growth-oriented food retailer offering customers a differentiated one-stop shopping experience “Like No Other Market”. Since beginning as a small neighborhood market in the 1930s, Fairway has established itself as a leading food retailing destination in the Greater New York City metropolitan area, which we estimate is the largest food retail market in the United States. Our stores emphasize an extensive selection of fresh, natural and organic products, prepared foods and hard-to-find specialty and gourmet offerings, along with a full assortment of conventional groceries. Our prices typically are lower than natural/specialty stores and competitive with conventional supermarkets. We believe that the combination of our broad product selection, in-store experience and value pricing creates a premier food shopping experience that appeals to a broad demographic.

We operate fifteen locations in New York, New Jersey and Connecticut, four of which include Fairway Wines & Spirits locations. Fourteen of the stores were in operation prior to the beginning of fiscal 2015; one store was opened during the thirty-nine weeks ended December 28, 2014 but prior to the thirteen weeks ended ~~September~~December 28, 2014 and ~~one~~our fourth Wine & Spirits location was opened during ~~fiscal~~the ~~2015,~~thirteen ~~subsequent~~weeks toended ~~September~~December 28, 2014.

We believe our stores are among the most productive in the industry in net sales per store and net sales per square foot as a result of our distinctive merchandising strategies and value positioning.

We intend to continue our growth by expanding our store base in the Greater New York City metropolitan area, improving our operating margins and increasing sales at existing stores. For the next several years, we intend to grow our store base in the Greater New York City metropolitan area ~~and, over time, we also plan to expand Fairway’s presence into new, high-density metropolitan markets~~.

We believe that we are well positioned to capitalize on evolving consumer preferences and other key trends currently shaping the food retail industry. These trends include an increasing consumer focus on fresh, quality offerings, including locally sourced products, the shopping experience and the growing interest in high-quality, value-oriented private label product offerings.

We intend to improve our operating margins through improved business processes, continued cost discipline and enhancements to our merchandise offerings. We expect store growth will also permit us to benefit from economies of scale in sourcing products and will enable us to continue to better leverage our existing infrastructure.

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Factors Affecting Our Operating Results

Various factors affect our operating results during each period, including:

Store Openings

We expect new stores will be a key driver of the growth in our sales and operating profit in the future. Our results of operations have been and will continue to be materially affected by the timing and number of new store openings and the amount of new store opening costs. For example, we typically incur higher than normal employee costs at the time of a new store opening associated with set-up and other opening costs. Operating margins are also affected by promotional discounts and other marketing costs and strategies associated with new store openings, as well as higher shrink, primarily due to overstocking, and costs related to hiring and training new employees. Additionally, promotional activities may result in higher than normal net sales in the first several weeks following a new store opening. A new store builds its sales volume and its customer base over time and, as a result, generally has lower margins and higher operating expenses, as a percentage of sales, than our more mature stores. A new store can take more than a year to achieve a level of operating performance comparable to our similarly existing stores. Stores that we have opened in higher density urban markets typically have generated higher sales volumes and margins than stores in suburban areas.

Unless we are able to raise additional capital, our current limited cash resources and significant leverage will adversely affect our ability to open new stores.

We believe our differentiated format and destination one-stop shopping appeal attracts customers from as far as twenty-five miles away. As we open new stores in closer proximity to our customers who currently travel longer distances to shop at our stores, we expect some of these customers to take advantage of the convenience of our new locations. As a result, we have experienced in the past, and expect to experience in the future, some sales volume transfer from our existing stores to our new stores as some of our existing customers switch to these new, closer locations. Consequently, while we expect our new stores will impact sales at our existing stores in close proximity, we believe that by making shopping at our stores for those customers who travel longer distances more convenient, our overall sales to these customers will increase as they increase the frequency and amount of purchases from our stores.

General Economic Conditions and Changes in Consumer Behavior

The overall economic environment in the Greater New York City metropolitan area and related changes in consumer behavior have a significant impact on our business. In general, positive conditions in the broader economy promote customer spending in our stores, while economic weakness results in a reduction in customer spending. Macroeconomic factors that can affect customer spending patterns, and thereby our results of operations, include employment rates, business conditions, changes in the housing market, the availability of consumer credit, interest rates, tax rates and fuel and energy costs.

Inflation and Deflation Trends

Inflation and deflation can impact our financial performance. During inflationary periods, our financial results can be positively impacted in the short term as we sell lower-priced inventory in a higher price environment. Over the longer term, the impact of inflation is largely dependent on our ability to pass price increases to our customers, which is subject to competitive market conditions.

Infrastructure Investment

Our historical operating results reflect the impact of our on-going investments to support our growth. We have made significant investments in management, information technology systems, compliance and marketing. These investments include additions to our company’s personnel, including experienced industry executives and management and merchandising teams to support our long-term growth objectives.

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Pricing Strategy

Our strategy is to price our broad selection of fresh, natural and organic foods, hard-to-find specialty and gourmet items and prepared foods at prices typically lower than those of natural/specialty stores. We price our full assortment of conventional groceries at prices competitive with those of conventional supermarkets.

Productivity Initiatives

We have undertaken a number of initiatives to improve our gross margin and operating costs, including (i) business process improvements, (ii) labor productivity, (iii) supply chain management and (iv) shrink reduction.

Developments in Competitive Landscape

The food retail industry as a whole, particularly in the Greater New York City metropolitan area, is highly competitive. Because we offer a full assortment of fresh, natural and organic products, prepared foods and hard-to-find specialty and gourmet offerings, along with a full assortment of conventional groceries, we compete with various types of retailers, including alternative food retailers such as natural foods stores, smaller specialty stores and farmers’ markets, conventional supermarkets, supercenters and membership warehouse clubs. Our principal competitors include alternative food retailers such as Whole Foods and Trader Joe’s, traditional supermarkets such as Stop & Shop, ShopRite, ~~Food Emporium~~ and ~~A&P~~Acme, retailers with “big box” formats such as Target and Wal-Mart, warehouse clubs such as Costco and BJ’s Wholesale Club and online food retailers. These businesses compete with us for customers, products and locations. In addition, some are expanding aggressively in marketing a range of natural and organic foods, prepared foods and quality specialty grocery items. Some of these potential competitors have more experience operating multiple store locations or have greater financial or marketing resources than we do and are able to devote greater resources to sourcing, promoting and selling their products. Due to the increasingly competitive environment in which we operate, our operating results have been, and in the future may be, negatively impacted through a loss of sales, reduction in margin from competitive price changes, and/or greater operating costs such as marketing. In addition, other established food retailers could enter our markets, increasing competition for market share.

Changes in Interest Expense

Our interest expense in any particular period is impacted by our overall level of indebtedness during that period and changes in the interest rates payable on such indebtedness.

Effect of Weather-related and Other Emergencies

During any fiscal period, events of extreme weather and other emergencies such as mass utility outages can cause changes in consumer behavior, labor availability, suppliers’ ability to meet our demand and in some cases our ability to keep our stores open immediately before, during, and immediately following such events, which can have a significant impact on our operating results.

How We Assess the Performance of Our Business

In assessing performance, we consider a variety of performance and financial measures, principally growth in net sales, gross profit, and Adjusted EBITDA and Central Services as a percentage of net sales. The key measures that we use to evaluate the performance of our business are set forth below:

Net Sales

We evaluate sales because it helps us measure the impact of economic trends and inflation or deflation, the effectiveness of our merchandising, marketing and promotional activities, the impact of new store openings and the effect of competition over a given period. Our net sales comprise gross sales net of coupons and discounts. We do not record sales taxes as a component of retail revenues as we consider ourselves a pass-through conduit for collecting and remitting sales taxes.

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We evaluate same store sales as one measure of our performance; however, we do not consider same store sales to be as meaningful a measure for us as it may be for other retailers because as a destination food retailer with a small number of stores in a concentrated market area we have in the past experienced, and in the future expect to experience, sales transfer from our existing stores to our newly opened stores that are in closer proximity to some of our customers. Our practice is to include sales from a store in same-store sales beginning on the first day of the fifteenth full month following the store’s opening. This practice may differ from the methods that our competitors use to calculate same-store or “comparable” sales. As a result, data in this report regarding our same-store sales may not be comparable to similar data made available by our competitors.

Our practice is to include sales from a store in same-store sales beginning on the first day of the fifteenth full month following the store’s opening. This practice may differ from the methods that our competitors use to calculate same-store or “comparable” sales. As a result, data in this report regarding our same-store sales may not be comparable to similar data made available by our competitors.

Various factors may affect our same-store sales, including:

our competition, including competitor store openings or closings near our stores;

our opening of new stores in the vicinity of our existing stores;

our price optimization initiative;

the pricing of our products, including the effects of competition, inflation or deflation and promotions;

the number and dollar amount of customer transactions in our stores;

overall economic trends and conditions in our markets;

consumer preferences, buying trends and spending levels;

our ability to provide product offerings that generate new and repeat visits to our stores;

the level of customer service that we provide in our stores;

our in-store merchandising-related activities;

our ability to source products efficiently;

whether a holiday falls in the same or a different fiscal period; and

the occurrence of severe weather conditions and other natural disasters during a fiscal period, which can cause store closures and/or consumer stocking of products.

As we continue to pursue our growth strategy, we expect that a significant percentage of our increase in net sales will continue to come from the opening of new stores rather than increased sales at existing stores.

The food retail industry and our sales are affected by general economic conditions and seasonality, as well as the other factors discussed below, that affect store sales performance. Consumer purchases of high-quality perishables and specialty food products are particularly sensitive to a number of factors that influence the levels of consumer spending, including economic conditions, the level of disposable consumer income, consumer debt, interest rates and consumer confidence. In addition, our business is seasonal and, as a result, our average weekly sales fluctuate during the year and are usually highest in our third fiscal quarter, from October through December, when customers make holiday purchases, and typically lower during the summer months in our second fiscal quarter.

Gross Profit

We use gross profit to measure the effectiveness of our pricing and procurement strategies as well as initiatives to increase sales of higher margin items and to reduce shrink. We calculate gross profit as net sales less cost of sales and occupancy costs. Gross margin measures gross profit as a percentage of our net sales. Cost of sales includes the cost of merchandise inventory sold during the period (net of discounts and allowances), distribution costs, food preparation costs (primarily labor) and shipping and handling costs. Occupancy costs include store rental costs and property taxes. The components of our cost of sales and occupancy costs may not be identical to those of our competitors. As a result, data in this report regarding our gross profit and gross margin may not be comparable to similar data made available by our competitors.

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Changes in the mix of products sold may impact our gross margin. Unlike natural / specialty stores, we also carry a full assortment of conventional groceries, which generally have lower margins than fresh, natural and organic foods, prepared foods and specialty and gourmet items. We expect to enhance our gross margins through:

purchasing benefits and economies of scale resulting from expanding the store base;

our price optimization initiative;

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productivity gains through process and program improvements including the benefits we expect to derive over time from our production center; and

reduced shrink as a percentage of net sales

Stores that we operate in higher density urban markets typically have generated higher sales volumes and margins than stores that we operate in suburban areas. As the percentage of our sales volumes provided by our suburban stores increases, our overall gross margins may decline.

Direct Store Expenses

Direct store expenses consist of store-level expenses such as salaries and benefits for our store work force, supplies, store depreciation and store-specific advertising and marketing costs. Store-level labor costs are generally the largest component of our direct store expenses. Direct store expenses, as a percentage of net sales, at our new stores are typically higher than at our more established stores during the first few quarters of operations. The components of our direct store expenses may not be identical to those of our competitors. As a result, data in this report regarding our direct store expenses may not be comparable to similar data made available by our competitors.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel costs that are not store specific, depreciation and amortization expense as well as other expenses associated with our corporate headquarters, management expenses and expenses for accounting, information systems, legal, business development, human resources, purchasing and other administrative departments.

The components of our general and administrative expenses may not be identical to those of our competitors. As a result, data regarding our general and administrative expenses may not be comparable to similar data made available by our competitors.

Store Opening Costs

Store opening costs include rent expense incurred during construction of new stores and costs related to new location openings, including costs associated with hiring and training personnel, supplies, the costs associated with our dedicated store opening team and other miscellaneous costs. Rent expense is recognized upon receiving possession of a store site, which generally ranges from three to six months before the opening of a store, although in some situations the possession period can exceed twelve months. Store opening costs vary among locations due to several key factors, including the length of time between possession date and the date on which the location opens for business along with the time designated as the training period for new staff for the store. Accordingly, we expect store opening costs to vary from period to period depending on the number of new stores opened in the period, whether such stores opened early or late in the period and whether new stores will open early in the following period. Store opening costs are expensed as incurred.

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Production Center Start-up Costs

Production center start-up costs include rent expense incurred during construction of a new facility and costs related to the location opening, including costs associated with hiring and training personnel, supplies and other miscellaneous costs. Rent expense is recognized upon receiving possession of the site. Production center start-up costs are expensed as incurred.

Income from Operations

Income from operations consists of gross profit minus direct store expenses, general and administrative expenses, store opening costs and production center start-up costs. Income from operations will vary from period to period based on a number of factors, including the number of stores open and the number of stores in the process of being opened in each period.

~~Adjusted EBITDA~~25

We present Adjusted EBITDA, a non-GAAP measure, in this report to provide investors with a supplemental measure of our operating performance. We believe that Adjusted EBITDA is a useful performance measure to evaluate our core on-going operations and we use it to facilitate a comparison of our core on-going operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business than GAAP measures alone can provide. We also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for employees, including our senior executives. Management and our board also use Adjusted EBITDA as one of the key measures in determining the value of any strategic, investing or financing opportunity. In addition, the financial covenant in our senior credit facility is based on Adjusted EBITDA, subject to dollar limitations on certain adjustments. The adjustments and related amounts included in Adjusted EBITDA are in substantial accordance with Consolidated EBITDA as defined in our existing senior credit agreement, subject to dollar limitations on certain adjustments. Consolidated EBITDA as computed under our existing senior credit agreement for the four fiscal quarter period ended September 27, 2015 and September 28, 2014 was $40.4 million and $46.4 million, respectively, compared to Adjusted EBITDA for the four fiscal quarter period ended September 27, 2015 and September 28, 2014 of $38.7 million and $43.3 million, respectively. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

We define Adjusted EBITDA as earnings before interest expense, income taxes, depreciation and amortization expense, amortization of deferred financing costs, equity compensation charges, store opening costs (including pre-opening advertising costs), production center start-up costs, severance related expenses, organizational realignment costs, transaction expenses and bonuses, and other one-time charges and non-operating expenses which we believe may distort period-to-period comparison. Omitting interest, taxes and the other items provides a financial measure that facilitates comparisons of our results of operations with those of companies having different capital structures. Since the levels of indebtedness and tax structures that other companies have are different from ours, we omit these amounts to facilitate investors’ ability to make these comparisons. Similarly, we omit depreciation and amortization because other companies may employ a greater or lesser amount of owned property, and because in our experience, whether a store is new or one that is fully or mostly depreciated does not necessarily correlate to the contribution that such store makes to operating performance. Items such as production center start-up costs, severance-related expenses, non-recurring charges, organizational realignment costs and transaction expenses and bonuses were incurred and associated with discrete and different events not relating to our core on-going operations, including an organizational realignment to remove redundant costs and streamline parts of our business model to enhance overall productivity that we began in the fourth quarter of fiscal 2014 and completed in fiscal 2015. We also believe that investors, analysts and other interested parties view our ability to generate Adjusted EBITDA as an important measure of our operating performance and that of other companies in our industry. Adjusted EBITDA should not be considered as an alternative to net income for the periods indicated as a measure of our performance.

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Adjusted EBITDA

We present Adjusted EBITDA, a non-GAAP measure, in this report to provide investors with a supplemental measure of our operating performance. We believe that Adjusted EBITDA is a useful performance measure to evaluate our core on-going operations and we use it to facilitate a comparison of our core on-going operating performance on a consistent basis from period-to-period and to provide for a more complete understanding of factors and trends affecting our business than GAAP measures alone can provide. We also use Adjusted EBITDA as one of the primary methods for planning and forecasting overall expected performance and for evaluating on a quarterly and annual basis actual results against such expectations, and as a performance evaluation metric in determining achievement of certain compensation programs and plans for employees, including our senior executives. Management and our board also use Adjusted EBITDA as one of the key measures in determining the value of any strategic, investing or financing opportunity. In addition, the financial covenant in our senior credit facility is based on Adjusted EBITDA, subject to dollar limitations on certain adjustments. The adjustments and related amounts included in Adjusted EBITDA are in substantial accordance with Consolidated EBITDA as defined in our existing senior credit agreement, subject to dollar limitations on certain adjustments. Consolidated EBITDA as computed under our existing senior credit agreement for the four fiscal quarter period ended December 27, 2015 and December 28, 2014 was $38.6 million and $45.6 million, respectively, compared to Adjusted EBITDA for the four fiscal quarter period ended December 27, 2015 and December 28, 2014 of $35.7 million and $42.2 million, respectively. Other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.

We define Adjusted EBITDA as earnings before interest expense, income taxes, depreciation and amortization expense, amortization of deferred financing costs, equity compensation charges, store opening costs (including pre-opening advertising costs), lease termination costs, production center start-up costs, severance related expenses, organizational realignment costs, transaction expenses and bonuses, and other one-time charges and non-operating expenses which we believe may distort period-to-period comparison. Omitting interest, taxes and the other items provides a financial measure that facilitates comparisons of our results of operations with those of companies having different capital structures. Since the levels of indebtedness and tax structures that other companies have are different from ours, we omit these amounts to facilitate investors’ ability to make these comparisons. Similarly, we omit depreciation and amortization because other companies may employ a greater or lesser amount of owned property, and because in our experience, whether a store is new or one that is fully or mostly depreciated does not necessarily correlate to the contribution that such store makes to operating performance. Items such as lease termination costs, production center start-up costs, severance-related expenses, non-recurring charges, organizational realignment costs and transaction expenses and bonuses were incurred and associated with discrete and different events not relating to our core on-going operations, including an organizational realignment to remove redundant costs and streamline parts of our business model to enhance overall productivity that we began in the fourth quarter of fiscal 2014 and completed in fiscal 2015. We also believe that investors, analysts and other interested parties view our ability to generate Adjusted EBITDA as an important measure of our operating performance and that of other companies in our industry. Adjusted EBITDA should not be considered as an alternative to net income for the periods indicated as a measure of our performance.

The use of Adjusted EBITDA has limitations as an analytical tool and you should not consider this performance measure in isolation from, or as an alternative to, US GAAP measures such as net income (loss). Adjusted EBITDA is not a measure of liquidity under US GAAP or otherwise, and is not an alternative to cash flow from continuing operating activities. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by the expenses that are excluded from that term or by unusual or non-recurring items. The limitations of Adjusted EBITDA include: (i) it does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments; (ii) it does not reflect changes in, or cash requirements for, our working capital needs; (iii) it does not reflect income tax payments we may be required to make; (iv) it does not reflect the cash requirements necessary to service interest or principal payments associated with indebtedness; and (v) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.

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To properly and prudently evaluate our business, we encourage you to review our consolidated financial statements included elsewhere in this report and the reconciliation to Adjusted EBITDA from net loss, the most directly comparable financial measure presented in accordance with US GAAP, set forth in the table below. All of the items included in the reconciliation from net loss to Adjusted EBITDA are either (i) non-cash items or (ii) items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are less susceptible to variances in actual performance resulting from depreciation, amortization and other non-cash charges and more reflective of other factors that affect operating performance. In the case of the other items that management does not consider in assessing our on-going operating performance, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact may not reflect on-going operating performance.

	Thirteen Weeks Ended								~~Twenty~~Thirty-~~Six~~Nine Weeks Ended
	September 27,				September 28,				September 27,				September 28,
	December 27,				December 28,				December 27,				December 28,
	2015				2014				2015				2014
			% of				% of				% of				% of
			Net Sales				Net Sales				Net Sales				Net Sales
	(dollars in thousands)
Net loss	$	(129,~~018~~744)	(65.71)	%	$	(1711,~~235~~060)	(85.94)	%	$	(2535,~~952~~696)	(6.93)	%	$	(2637,~~929~~989)	(6.93)	%
Interest expense, net (a)		4,~~746~~940	2.6			4,~~833~~807	2.53			914,~~601~~541	2.6			914,~~611~~418	2.54
Income tax provision		~~619~~951	0.35			~~940~~400	0.52			23,~~777~~728	0.7			12,~~885~~285	0.54
Store depreciation and amortization		6,~~105~~022	3.41			6,~~218~~310	3.21			1218,~~353~~375	3.3			1218,~~238~~548	3.1
Corporate depreciation and amortization		~~773~~1,429	0.47			~~981~~980	0.5			13,~~614~~043	0.45			2,~~017~~997	0.5
Non-operating expenses (b)		21	0.0			31	0.0			3,782	1.0			31	0.0
Lease termination fees (b)		2,692	1.4			—	—			6,192	1.1			—	—
Equity compensation charge		2,061	1.1			4,155	2.1			4,478	1.2			7,012	1.8
Write-off of fixed assets (c)		1,524	0.8			—	—			1,724	0.3			—	—
Store opening costs		1,289	0.7			2,676	1.4			2,561	0.7			4,362	1.1
Deferred rent liability reversal (d)		(2,907)	(1.5)			—	—			(2,907)	(0.5)			—	—
Production center start-up costs		470	0.3			1,741	0.9			1,557	0.4			3,170	0.8
Other (e)		148	0.1			297	0.1			230	0.0			328	0.1
Professional services (b)		303	0.2			815	0.4			598	0.2			1,519	0.4
Subtotal non-operating expenses		1,457	0.8			297	0.1			5,239	0.9			328	0.1
Severance (c)		1,223	0.7			869	0.4			1,331	0.4			1,636	0.4
Equity compensation charge		2,324	1.2			3,632	1.8			6,802	1.2			10,644	1.8
Pre-opening advertising costs		—	—			639	0.3			—	—			1,243	0.3
Store opening costs		1,026	0.5			1,380	0.7			3,587	0.6			5,742	1.0
Adjusted EBITDA	$	5,592	3.1	%	$	6,663	3.4	%	$	14,700	3.9	%	$	17,795	4.5	%
Production center start-up costs		23	0.0			1,316	0.6			1,580	0.3			4,486	0.7
Professional services (e)		50	0.0			656	0.3			648	0.1			2,175	0.4
Severance (f)		212	0.1			2,960	1.4			1,543	0.3			4,596	0.8
Pre-opening advertising costs		—	—			18	0.0			—	—			1,261	0.2
Adjusted EBITDA	$	8,690	4.5	%	$	11,696	5.7	%	$	23,390	4.1	%	$	29,491	4.9	%

(a)

Includes amortization of deferred financing costs and original issue discount.

(b) Consists of ~~charges~~approximately ~~that~~$3.5 ~~were~~million ~~incurred~~for ~~and~~the ~~associated~~thirty-nine ~~with~~weeks ~~discrete~~ended ~~and~~December ~~different~~27, ~~events~~2015 ~~that~~related ~~do not relate~~ to ~~and~~the ~~are~~termination ~~not~~of ~~indicative~~the oflease for our ~~core~~former ~~on-going~~Hudson ~~operations.~~Yards ~~Includes~~location ~~approximately~~and $32.7 million for the ~~twenty~~thirteen and thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 related to the termination offor the lease ~~for~~of our former ~~Hudson~~TriBeCa ~~Yards~~ location.

(c) ~~Represents~~Consists ~~severance~~of ~~charges~~the ~~related~~write-off toof ~~our~~fixed ~~organizational~~assets ~~realignment, including payments required to be paid under agreements~~ in connection with the ~~separation~~termination of ~~certain~~the oflease for our former ~~executive~~TriBeCa ~~officers~~location.

25 (d) Consists of the reversal of the deferred rent liability related to the lease for our former TriBeCa location in connection with the termination of the lease.

(e)

Consists of charges that were incurred and associated with discrete and different events that do not relate to and are not indicative of our core on-going operations.

(f)

Represents severance charges related to our organizational realignment, including payments required to be paid under agreements in connection with the separation of certain of our former executive officers.

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Central Services

We define Central Services as general and administrative expenses less: depreciation and amortization related to general and administrative activities, ~~management~~lease ~~fees~~termination costs, transaction expenses, severance and equity compensation charges and other non-operating expenses. We have made significant investments in Central Services to support our long-term growth objectives. We believe that Central Services as a percentage of net sales is a useful performance measure and we use it to facilitate an evaluation of our infrastructure investment without distortions that may result from general and administrative expenses that do not directly relate to the operation of our business. To properly and prudently evaluate our business, we encourage you to review our consolidated financial statements included elsewhere in this report and the reconciliation to Central Services from general and administrative expenses, the most directly comparable financial measure presented in accordance with US GAAP.

Goodwill Impairment

Our annual goodwill impairment test is conducted on the first day of the fourth quarter of each fiscal year and interim evaluations are performed when it is determined that events or changes in circumstances exist that would more likely than not reduce the fair value of goodwill below its carrying value. During the thirteen weeks ended September 27, 2015, due to a continued decline in the market price of our stock ~~price~~ and revisions in expected operating performance, it was determined that an interim evaluation of goodwill for impairment was necessary. As aThe ~~result~~interim ofevaluation ~~these~~during ~~developments~~the thirteen weeks ended September 27, we2015 ~~performed~~concluded anthat ~~interim~~the ~~evaluation~~fair asvalues of ~~September~~our ~~27,~~indefinite-lived ~~2015~~intangible assets and reporting unit were sufficiently in excess of the carrying values and no impairment existed.

~~Based~~During ~~upon~~the thirteen weeks ended December 27, 2015, due to a continued decline in the ~~results~~market price of ~~this~~our ~~interim~~stock, ~~impairment~~a ~~test~~downgrade in our debt rating and revisions in expected operating performance, it was ~~preliminarily~~ determined that an interim evaluation of goodwill for impairment was again necessary. This interim evaluation took into consideration the additional pressures on the performance of the business as well as the impact the change in our debt rating had on the fair ~~values~~value of our debt. This interim valuation indicated that the fair value of our indefinite-lived intangible assets and reporting unit ~~exceed~~exceeded the carrying ~~values~~value, ~~and~~thus ~~no impairment existed as of September 27, 2015. Accordingly,~~ there were no goodwill or or indefinite-lived intangible asset impairment charges recorded in the ~~twenty-six~~thirteen weeks ended ~~September~~ December 27, ~~2015 and~~ ~~September 28, 2014~~2015. As of ~~September~~December 27, 2015 the carrying values of goodwill and tradenames were $95.4 million and $23.6 million, respectively.

We believe the assumptions used in the ~~evaluations~~evaluation are consistent with the plans and estimates used to manage the business; ~~however,~~as ifwell as market conditions as of the date of testing. If actual results are not consistent with these estimates or assumptions ~~and if the market price of our stock continues to decline,~~ we may be exposed to a non-cash impairment charge that could be material. Some of the more significant assumptions include our projected operating performance and the estimated fair value of our debt, which could be impacted by our operating performance, credit rating and interest rate market conditions.

26Long-lived assets, including finite-lived intangible assets, do not require that an annual impairment test be performed. Instead, long-lived assets are tested for impairment upon the occurrence of a triggering event. The impairment test for long-lived assets, including finite-lived intangible assets, utilized estimates of undiscounted future cash flows based on the use of the assets for their remaining useful life. The impairment test as of December 27, 2015 did not result in the impairment of any long-lived assets.

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Results of Operations

The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of net sales and have been derived from our consolidated financial statements.

	Thirteen Weeks Ended								~~Twenty~~Thirty-~~Six~~Nine Weeks Ended
	September 27,				September 28,				September 27,				September 28,
	December 27,				December 28,				December 27,				December 28,
	2015				2014				2015				2014
	(dollars in thousands)
Net sales	$	~~179~~191,~~829~~683	100.0	%	$	~~193~~206,~~979~~219	100.0	%	$	~~373~~565,~~603~~286	100.0	%	$	~~392~~598,~~247~~466	100.0	%
Cost of sales and occupancy costs (exclusive of depreciation and amortization)		~~124~~132,~~320~~006	6968.19			~~134~~141,~~676~~357	6968.45			~~257~~389,~~150~~156	68.8			~~271~~412,~~548~~905	69.20
Gross profit		5559,~~509~~677	3031.91			5964,~~303~~862	3031.65			~~116~~176,~~453~~130	31.2			~~120~~185,~~699~~561	3031.80
Direct store expenses		4546,~~521~~470	2524.32			48,~~621~~516	2523.15			93139,~~027~~497	24.97			95144,~~578~~094	24.41
General and administrative expenses		1416,~~882~~011	8.34			1719,~~727~~503	9.15			3248,~~882~~893	8.86			3352,~~022~~525	8.48
Store opening costs		1,~~289~~026	0.75			21,~~676~~380	10.47			23,~~561~~587	0.76			45,~~362~~742	1.10
Production center start-up costs		~~470~~23	0.30			1,~~741~~316	0.96			1,~~557~~580	0.43			34,~~170~~486	0.87
Loss from operations		(63,~~653~~853)	(32.70)			(115,~~462~~853)	(52.98)			(1317,~~574~~427)	(3.61)			(1521,~~433~~286)	(3.96)
Interest expense, net		(4,~~746~~940)	(2.6)			(4,~~833~~807)	(2.53)			(914,~~601~~541)	(2.6)			(914,~~611~~418)	(2.54)
Loss before income taxes		(118,~~399~~793)	(64.36)			(1610,~~295~~660)	(85.42)			(2331,~~175~~968)	(65.27)			(2535,~~044~~704)	(6.40)
Income tax provision		(~~619~~951)	(0.35)			(~~940~~400)	(0.52)			(23,~~777~~728)	(0.7)			(12,~~885~~285)	(0.54)
Net loss	$	(129,~~018~~744)	(65.71)	%	$	(1711,~~235~~060)	(85.94)	%	$	(2535,~~952~~696)	(6.93)	%	$	(2637,~~929~~989)	(6.93)	%

Thirteen Weeks Ended ~~September~~December 27, 2015 Compared With Thirteen Weeks Ended ~~September~~December 28, 2014

Net Sales

We had net sales of $~~179~~191.87 million in the thirteen weeks ended ~~September~~December 27, 2015, a decrease of $14.15 million, or 7.30%, from $~~194~~206.02 million in the thirteen weeks ended ~~September~~December 28, 2014. ~~This~~Comparable ~~decrease was primarily attributable to lower same~~ store sales ~~and~~decreased ~~lower~~7.5% ~~net~~in ~~sales~~the ~~from~~thirteen ~~the~~weeks ~~new~~ended ~~store~~December ~~that~~27, ~~opened~~2015 ~~during~~compared to the thirteen weeks ended ~~September~~December 28, 2014. ~~due~~Customer totransactions at our comparable stores decreased by 8.5%, although the ~~typical~~average ~~higher~~transaction ~~than~~size ~~normal~~at ~~net~~our comparable stores increased by 1.0%. We estimate that comparable store sales wewere ~~experienced~~impacted ~~during~~by approximately 90 basis points from the ~~grand~~competitive opening ~~period. Promotional~~on ~~activity~~the Upper Eastside and 100 basis points from our Lake Grove location which joined the same store sales base during the thirteen weeks ended ~~September~~December 27, 2015. ~~was~~Excluding ~~approximately~~the ~~$0.8~~impacts ~~million~~of the Upper Eastside and Lake Grove, ~~compared~~we toestimate $0comparable store sales decreased 5.36% ~~million~~in ~~during~~the thirteen weeks ended December 27, 2015 compared to the thirteen weeks ended ~~September~~December 28, 2014.

Comparable store sales decreased 6.5% in the thirteen weeks ended September 27, 2015 compared to the thirteen weeks ended September 28, 2014, in part due to a decrease in sales at our Upper Eastside location as a result of a competitive opening and an increase in promotional activity. Customer transactions in our comparable stores decreased by 9.2%, although the average transaction size at our comparable stores increased by 3.0%. We estimate that comparable store sales were impacted by approximately 140 basis points from the competitive opening on the Upper Eastside and 30 basis points from increased promotional activity. Excluding the impacts of the Upper Eastside and the promotional activity from both periods, we estimate comparable store sales decreased 4.8% in the thirteen weeks ended September 27, 2015 compared to the thirteen weeks ended September 28, 2014.

Gross Profit

Gross profit was $5559.57 million for the thirteen weeks ended ~~September~~December 27, 2015 compared to $5964.39 million for the thirteen weeks ended ~~September~~December 28, 2014. Gross ~~profit~~margin ~~during~~for the thirteen weeks ended ~~September~~December 2827, ~~2014~~2015 ~~included~~decreased aapproximately $40 basis points to 31.1% from 31.25% ~~million~~for ~~benefit~~the inthirteen ~~connection~~weeks ~~with~~ended ~~the~~December ~~accelerated~~28, ~~recognition~~2014. ofThe adecrease ~~deferred~~in ~~vendor~~gross ~~discount~~margin ~~resulting~~was ~~from~~driven ~~the~~by ~~early~~an ~~termination~~increase in occupancy costs, as a percentage of ~~the~~sales, ~~related~~partially ~~vendor~~offset ~~contract~~by improved merchandise margins due to better vendor ~~non-performance~~management and price optimization.

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Gross margin for the thirteen weeks ended September 27, 2015 increased approximately 30 basis points to 30.9% from 30.6% for the thirteen weeks ended September 28, 2014. Excluding the $1.2 million benefit in the prior year, gross margin for the thirteen weeks ended September 27, 2015 increased approximately 90 basis points to 30.9% from 30.0% for the thirteen weeks ended September 28, 2014. The increase in gross margin was driven by improved merchandise margins due to better shrink, vendor management and price optimization, partially offset by an increase in occupancy costs, as a percentage of sales.

Direct Store Expenses

Direct store expenses were $4546.5 million in the thirteen weeks ended ~~September~~December 27, 2015, a decrease of $32.10 million, or 6.4.2%, from $48.65 million for the thirteen weeks ended ~~September~~December 28, 2014. The decrease in direct store expenses was primarily due to ~~enhanced cost disciplines and~~ a reduction in store labor. Store labor for the thirteen weeks ended ~~September~~December 27, 2015 decreased $1.45 million compared to the thirteen weeks ended ~~September~~December 28, 2014. Other store operating expenses decreased $1.6 million for the thirteen weeks ended September 27, 2015, compared to the thirteen weeks ended September 28, 2014. The portion of our depreciation expense included in direct store expenses, which includes amortization of prepaid rent, was $6.1 million for the thirteen weeks ended September 27, 2015, compared to direct store depreciation expense for the thirteen weeks ended September 28, 2014 of $6.2 million.

Direct store expenses, as a percentage of net sales, increased approximately 20 basis points to 25.3% for the thirteen weeks ended September 27, 2015 from 25.1% for the thirteen weeks ended September 28, 2014. Excluding depreciation and amortization, store expenses as a percentage of sales were 21.9% for both the thirteen weeks ended September 27, 2015 and the thirteen weeks ended September 28, 2014. 29

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decreased $0.2 million for the thirteen weeks ended December 27, 2015, compared to the thirteen weeks ended December 28, 2014. The portion of our depreciation expense included in direct store expenses, which includes amortization of prepaid rent, was $6.0 million for the thirteen weeks ended December 27, 2015, compared to direct store depreciation expense for the thirteen weeks ended December 28, 2014 of $6.3 million.

Direct store expenses, as a percentage of net sales, increased approximately 70 basis points to 24.2% for the thirteen weeks ended December 27, 2015 from 23.5% for the thirteen weeks ended December 28, 2014. Excluding depreciation and amortization, direct store expenses as a percentage of sales increased to 21.1% for the thirteen weeks ended December 27, 2015 from 20.5% for the thirteen weeks ended December 28, 2014 due to the reduction in net sales.

General and Administrative Expenses

General and administrative expenses were $1416.90 million for the thirteen weeks ended ~~September~~December 27, 2015, a decrease of $23.85 million, ~~or 16.0%,~~ from $1719.75 million for the thirteen weeks ended ~~September~~December 28, 2014. The decrease in general and administrative expenses was primarily due to a decrease in severance, equity compensation expense, ~~pre-opening advertising~~ and professional services, partially offset by an increase in ~~severance~~non-operating ~~expense~~expenses. Non-operating expenses for the thirteen weeks ended December 27, 2015 includes $2.7 million for the lease termination fee related to our former TriBeCa location and $1.5 million for the write-off of fixed assets, partially offset by a reversal of the deferred rent liability of $2.9 million. The portion of depreciation and amortization included in general and administrative expense was $01.84 million for the thirteen weeks ended ~~September~~December 27, 2015, aan ~~decrease~~increase of $0.24 million from $1.0 million for the thirteen weeks ended ~~September~~December 28, 2014. The Central Services component of general and administrative expenses ~~increased~~decreased $0.34 million to $10.5 million for the thirteen weeks ended ~~September~~December 27, 2015 compared to $11.0 million for the ~~same~~thirteen ~~period~~weeks inended ~~the~~December ~~prior~~28, ~~year~~2014.

General and administrative expenses, as a percentage of net sales, decreased to 8.34% for the thirteen weeks ended ~~September~~December 27, 2015, from 9.15% for the thirteen weeks ended ~~September~~December 28, 2014. Excluding the costs related to the TriBeCa lease termination, general and administrative expenses, as a percentage of net sales, were 7.7% for the thirteen weeks ended December 27, 2015.

The following table sets forth a reconciliation to Central Services from general and administrative expenses:

	Thirteen Weeks Ended
	September 27,				September 28,
	December 27,				December 28,
	2015				2014
			% of				% of
			Net Sales				Net Sales
	(dollars in thousands)
General and administrative expenses	$	1416,~~882~~011	8.34	%	$	1719,~~727~~503	9.15	%
Non-operating expenses		(21)	—			(31)	—
Lease termination fees		(2,692)	(1.4)			—	—
Equity compensation charge		(2,061)	(1.1)			(4,155)	(2.1)
Write-off of fixed assets		(1,524)	(0.8)			—	—
Corporate depreciation and amortization		(773)	(0.4)			(981)	(0.5)
Deferred rent liability reversal		2,907	1.5			—	—
Professional services		(303)	(0.2)			(815)	(0.4)
Other		(148)	(0.1)			(297)	(0.1)
Severance		(1,223)	(0.7)			(869)	(0.4)
Subtotal non-operating expenses		(1,457)	(0.8)			(297)	(0.1)
Pre-opening advertising costs		—	—			(639)	(0.3)
Equity compensation charge		(2,324)	(1.2)			(3,632)	(1.8)
Central services	$	10,501	5.8	%	$	10,237	5.3	%
Corporate depreciation and amortization		(1,429)	(0.7)			(980)	(0.5)
Professional services		(50)	—			(656)	(0.3)
Severance		(212)	(0.1)			(2,960)	(1.4)
Pre-opening advertising costs		—	—			(18)	—
Central services	$	10,539	5.5	%	$	10,960	5.3	%

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Store Opening Costs

Store opening costs were $1.30 million for the thirteen weeks ended ~~September~~December 27, 2015, a decrease of ~~approximately~~ $10.4 million from $21.74 million for the thirteen weeks ended ~~September~~December 28, 2014. Store opening costs for the thirteen weeks ended ~~September~~December 27, 2015 ~~were~~primarily ~~incurred~~consisted inof ~~connection~~expenses ~~with~~related to the store in TriBeCa ~~which~~before ~~has~~the ~~not~~lease ~~yet~~was ~~opened~~terminated. ~~Store~~Also included in store opening costs for the thirteen weeks ended ~~September~~December 2827, ~~2014~~2015 ~~were~~was in$73,000 ~~connection~~related ~~with~~to the new store wecurrently ~~opened~~scheduled into ~~Lake~~open ~~Grove, New York~~ in ~~July~~Brooklyn ~~2014~~during ~~and~~calendar ~~the~~2016 ~~store in TriBeCa which has not yet opened. Approximately $0.1 million~~ and $~~1.2~~60,000 ~~million of store opening costs~~ for the ~~thirteen~~implementation ~~weeks ended September 27, 2015 and September 28, 2014, respectively, did not require the expenditure~~ of ~~cash~~our ~~in the period, primarily due to deferred rent.~~

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new e-commerce platform. Store opening costs for the thirteen weeks ended December 28, 2014 were in connection with the store in TriBeCa. Approximately $0.1 million and $1.1 million of store opening costs for the thirteen weeks ended December 27, 2015 and December 28, 2014, respectively, did not require the expenditure of cash in the period, primarily due to deferred rent.

Production Center Start-up Costs

Start-up costs for the new production center in the Hunts Point area of the Bronx were $~~0.5 million for the thirteen weeks ended September 27, 2015, a decrease of approximately $~~1.3 million ~~from $1.7 million~~ for the thirteen weeks ended ~~September~~December 28, 2014. ~~Approximately $0.1 million of these costs for the thirteen weeks ended September 28, 2014 did not require the expenditure of cash in the period, primarily due to deferred rent.~~

Loss from Operations

For the thirteen weeks ended ~~September~~December 27, 2015, our operating loss was $63.79 million, a decrease of $42.80 million from a loss of $~~11.~~5.9 million for the thirteen weeks ended ~~September~~December 28, 2014. The decrease in the loss from operations was due to a decrease in ~~direct store expenses,~~ general and administrative expenses, ~~store~~production center start-~~opening~~up costs, ~~and~~direct ~~production~~store ~~center~~expenses ~~start~~and store-up opening costs, partially offset by a reduction in gross profit. Excluding the costs related to the lease termination at our former TriBeCa location our operating loss was $2.5 million for the thirteen weeks ended December 27, 2015.

Interest Expense

Interest expense ~~decreased~~increased $0.1 million, to $4.79 million for the thirteen weeks ended ~~September~~December 27, 2015, from $4.8 million for the thirteen weeks ended ~~September~~December 28, 2014. The cash portion of interest expense for ~~both~~ the thirteen weeks ended ~~September~~December 27, 2015 ~~and~~ the thirteen weeks ended ~~September~~December 28, 2014 was $3.6 million and $3.7 million, respectively.

Income Taxes

We recorded an income tax provision of $01.60 million for the thirteen weeks ended ~~September~~December 27, 2015 compared to a provision of $0.94 million for the thirteen weeks ended ~~September~~December 28, 2014. We record an income tax provision although we incur pretax losses in both periods because we do not record any income tax benefit related to the operating losses and recognize income tax expense related to indefinite-lived intangible assets. Our current expectation of the income tax provision for the full year is in the range of approximately $3.5 million to $4.0 million, which is expected to be primarily non-cash.

Net Loss

Our net loss was $129.07 million for the thirteen weeks ended ~~September~~December 27, 2015, a decrease of $51.23 million, from a net loss of $1711.21 million for the thirteen weeks ended ~~September~~December 28, 2014. The decrease in net loss was due to a decrease in ~~direct store expenses,~~ general and administrative expenses, ~~store-opening costs,~~ production center start-up costs, direct store expenses and ~~income~~store- ~~tax~~opening ~~provision~~costs, partially offset by a reduction in gross profit and an increase in the income tax provision.

Our adjusted net loss was $63.5 million for the thirteen weeks ended ~~September~~December 27, 2015, aan ~~decrease~~increase of $21.6 million compared to an adjusted net loss of $9.1.8 million for the thirteen weeks ended ~~September~~December 28, 2014. We define adjusted net loss as net loss plus any transaction expenses, non-cash charges, one-time charges and non-operating expenses which we believe may distort period-to-period comparison.

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The following table sets forth a reconciliation to adjusted net loss from net loss:

	Thirteen Weeks Ended
	September 27,				September 28,
	December 27,				December 28,
	2015				2014
			% of				% of
			Net Sales				Net Sales
	(dollars in thousands)
Net loss	$	(129,~~018~~744)	(65.71)	%	$	(1711,~~235~~060)	(85.94)	%
Non-operating expenses		21	—			31	—
Lease termination fees		2,692	1.4			—	—
Equity compensation charge		2,061	1.1			4,155	2.1
Write-off of fixed assets		1,524	0.8			—	—
Income tax provision		619	0.3			940	0.5
Deferred rent liability reversal		(2,907)	(1.5)			—	—
Non-cash interest		1,288	0.7			1,279	0.7
Other		148	0.1			297	0.1
Professional services		303	0.2			815	0.4
Subtotal non-operating expenses		1,457	0.8			297	0.1
Severance		1,223	0.7			869	0.4
Equity compensation charge		2,324	1.2			3,632	1.8
Adjusted net loss	$	(6,503)	(3.6)	%	$	(9,146)	(4.7)	%
Income tax provision		951	0.5			400	0.2
Non-cash interest		1,290	0.7			1,282	0.6
Professional services		50	—			656	0.3
Severance		212	0.1			2,960	1.4
Adjusted net loss	$	(3,460)	(1.8)	%	$	(1,833)	(0.9)	%

~~The Twenty~~Thirty-~~Six~~Nine Weeks Ended ~~September~~December 27, 2015 Compared With The ~~Twenty~~Thirty-~~Six~~Nine Weeks Ended ~~September~~December 28, 2014

Net Sales

We had net sales of $~~373~~565.63 million in the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015, a decrease of $1833.62 million, or 45.85%, from $~~392~~598.25 million in the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014. This decrease was primarily attributable to lower same store sales, partially offset by the ~~inclusion~~full ofperiod ~~twenty~~net sales contribution in the thirty-~~six~~nine weeks ofended ~~net~~December ~~sales~~27, 2015 from the location that opened in July, 2014, compared to approximately 1023 weeks of net sales during same period in the prior year. Promotional activity during the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 was approximately $34.5 million, compared to $01.3 million during the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014.

Comparable store sales decreased 56.94% in the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 compared to the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014, in part due to a decrease in sales at our Upper Eastside location ~~due~~as toa result of a competitive opening and higher promotional activity during the quarter. Customer transactions in our comparable stores decreased by 8.34%, although the average transaction size at our comparable stores increased by 2.71%. We estimate that comparable store sales were impacted by approximately ~~160~~130 basis points from the competitive opening on the Upper Eastside and 8060 basis points from increased promotional activity. Excluding the impacts of the Upper Eastside and the promotional activity from both periods, we estimate comparable store sales decreased 34.5% in the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 compared to the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014.

Gross Profit

Gross profit was $~~116~~176.51 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 compared to $~~120~~185.76 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014. Gross profit during the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014 included a $1.2 million benefit in connection with the accelerated recognition of a deferred vendor discount resulting from the early termination of the related vendor contract due to vendor non- performance.

Gross margin for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 increased approximately 4020 basis points to 31.2% from 3031.80% for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014. Excluding the $1.2 million benefit in the prior year, gross margin for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 increased approximately 7040 basis points to 31.2% from 30.58% for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014. The increase in gross margin was driven by improved merchandise margins due to better shrink, vendor management and price optimization, partially offset by an increase in occupancy costs, as a percentage of sales.

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Direct Store Expenses

Direct store expenses were $93139.05 million in the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015, a decrease of $24.6 million, or 23.72%, from $95144.61 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014. The decrease in direct store expenses was primarily attributable to a reduction in store labor of $12.49 million. Other store operating expenses decreased $1.25 million in the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015, compared to the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014. The portion of our depreciation expense included in direct store expenses, which includes amortization of prepaid rent, ~~increased~~decreased approximately $0.12 million to $1218.4 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015, compared to direct store depreciation expense for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014 of $1218.25 million.

Direct store expenses, as a percentage of net sales, increased approximately 5060 basis points to 24.97% for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 from 24.51% for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014. Excluding depreciation and amortization, store expenses as a percentage of sales ~~were~~increased to 21.64% for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 compared to 21.20% for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014 due to the reduction in net sales.

General and Administrative Expenses

General and administrative expenses were $3248.9 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015, a decrease of $03.16 million from $3352.05 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014. The ~~General~~decrease in general and administrative expenses ~~for~~was ~~the~~primarily ~~twenty-six~~due ~~weeks~~to ~~ended~~a ~~September~~decrease 27in equity compensation expense, ~~2015~~severance, ~~include~~professional services and pre-opening advertising, partially offset by a $35.70 million ofincrease ~~costs~~in non-operating expenses primarily related to the termination of leases for our former Hudson Yards and TriBeCa locations. The lease termination atamount recorded includes $3.7 million of expenses related to our former Hudson Yards location and $1. 3 million of net expenses related to our former TriBeCa location. Excluding the impact of ~~this~~these ~~item~~items, general and administrative expenses were $2943.29 million for the thirteen weeks ended ~~September~~December 27, 2015, a decrease of $3.8.6 million compared to the same period in the prior year. The Central Services component of general and administrative expenses increased $1.51 million in the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 compared to the same period in the prior year.

General and administrative expenses, as a percentage of net sales, ~~increased~~decreased to 8.86% for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015, from 8.48% for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014. Excluding the ~~cost~~costs related to the lease ~~termination~~terminations at our former Hudson Yards ~~location~~and TriBeCa locations, general and administrative expenses, as a percentage of sales, were 7.8%.

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The following table sets forth a reconciliation to Central Services from general and administrative expenses:

	Twenty-Six Weeks Ended
	Thirty-Nine Weeks Ended
	September 27,				September 28,
	December 27,				December 28,
	2015				2014
			% of				% of
			Net Sales				Net Sales
	(dollars in thousands)
General and administrative expenses	$	3248,~~882~~893	8.86	%	$	3352,~~022~~525	8.48	%
Non-operating expenses		(3,782)	(1.0)			(31)	—
Lease termination fees		(6,192)	(1.1)			—	—
Equity compensation charge		(4,478)	(1.2)			(7,012)	(1.8)
Write-off of fixed assets		(1,724)	(0.3)			—	—
Corporate depreciation and amortization		(1,614)	(0.4)			(2,017)	(0.5)
Deferred rent liability reversal		2,907	0.5			—	—
Professional services		(598)	(0.2)			(1,519)	(0.4)
Other		(230)	—			(328)	(0.1)
Severance		(1,331)	(0.4)			(1,636)	(0.4)
Subtotal non-operating expenses		(5,239)	(0.9)			(328)	(0.1)
Pre-opening advertising costs		—	—			(1,243)	(0.3)
Equity compensation charge		(6,802)	(1.2)			(10,644)	(1.8)
Central services	$	21,079	5.6	%	$	19,564	5.0	%
Corporate depreciation and amortization		(3,043)	(0.5)			(2,997)	(0.5)
Professional services		(648)	(0.1)			(2,175)	(0.4)
Severance		(1,543)	(0.3)			(4,596)	(0.8)
Pre-opening advertising costs		—	—			(1,261)	(0.2)
Central services	$	31,618	5.6	%	$	30,524	5.1	%

Store Opening Costs

Store opening costs were $23.6 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015, a decrease of approximately $12.82 million from $45.47 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014. Store opening costs for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 ~~were~~primarily ~~incurred~~consisted inof ~~connection~~expenses ~~with~~related to the store in TriBeCa ~~which~~before ~~has~~the ~~not~~lease ~~yet~~was ~~opened~~terminated. Also included in store opening costs for the thirty-nine weeks ended December 27, 2015 was $73,000 related to the new store expected to open in Brooklyn during calendar 2016 and $60,000 for the implementation of our new e-commerce platform. Store opening costs for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014 were in connection with the store we opened in Lake Grove, New York in July 2014 and the store in TriBeCa. ~~which~~Approximately ~~has~~$0.7 million and $2.7 million of store opening costs for the thirty-nine weeks ended December 27, 2015 and December 28, 2014, respectively, did not ~~yet~~require ~~opened. Approximately~~the expenditure of cash in the period, primarily due to deferred rent.

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$0.6 million and $1.6 million of store opening costs for the twenty-six weeks ended September 27, 2015 and September 28, 2014, respectively, did not require the expenditure of cash in the period, primarily due to deferred rent.

Production Center Start-up Costs

Start-up costs for the new production center in the Hunts Point area of the Bronx were $1.6 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015, a decrease of $12.69 million from $34.25 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014. Approximately $0.45 million of these costs for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014 did not require the expenditure of cash in the period, primarily due to deferred rent.

Loss from Operations

For the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015, our operating loss was $1317.6 4 million, a decrease of $13.9 million from a loss of $1521.43 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014. The decrease in the loss from operations was due to a decrease direct store expenses, ~~store-opening~~general ~~costs~~and administrative expenses, production center start-up costs and ~~general~~store-opening ~~and administrative expenses~~costs, partially offset by a reduction in gross profit. Excluding the ~~cost~~costs related to ~~the~~ lease ~~termination~~terminations at our former Hudson Yards ~~location~~and TriBeCa locations, our operating loss was $912.94 million.

Interest Expense

Interest expense was $914.65 million for ~~both~~ the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 and $14.4 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014. The cash portion of interest expense for ~~both~~ the ~~twenty~~thirty-~~six~~nine weeks ended ~~September 27, 2015 and the twenty-six weeks ended September 28, 2014 was $7.5 million.~~

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December 27, 2015 and the thirty-nine weeks ended December 28, 2014 was $10.7 million and $11.2 million, respectively.

Income Taxes

We recorded an income tax provision of $23.87 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 compared to a provision of $12.93 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014. We record an income tax provision although we incur pretax losses in both periods because we do not record any income tax benefit related to the operating losses and recognize income tax expense related to indefinite-lived intangible assets. Our current expectation of the income tax provision for the full year is in the range of approximately $3.5 million to $4.0 million, which is expected to be primarily non-cash.

Net Loss

Our net loss was $2635.07 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015, a decrease of $12.09 million, from a net loss of $2638.90 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014. The decrease in net loss was due to a decrease in direct store expenses, ~~store-opening~~general ~~costs~~and administrative expenses, production center start-up costs and ~~general~~store-opening ~~and administrative expenses~~costs, partially offset by a reduction in gross profit and an increase in income tax provision. Our adjusted net loss was $1013.49 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015, a decrease of $10.92 million compared to an adjusted net loss of $1214.31 million for the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 28, 2014. We define adjusted net loss as net loss plus any transaction expenses, non-cash charges, one-time charges and non-operating expenses which we believe may distort period-to-period comparison.

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The following table sets forth a reconciliation to adjusted net loss from net loss:

	Twenty-Six Weeks Ended
	Thirty-Nine Weeks Ended
	September 27,				September 28,
	December 27,				December 28,
	2015				2014
			% of				% of
			Net Sales				Net Sales
	(dollars in thousands)
Net loss	$	(2535,~~952~~696)	(6.60)	%	$	(2637,~~929~~989)	(6.93)	%
Non-operating expenses		3,782	1.0			31	—
Lease termination fees		6,192	1.0			—	—
Equity compensation charge		4,478	1.1			7,012	1.8
Write-off of fixed assets		1,724	0.3			—	—
Income tax provision		2,777	0.7			1,885	0.5
Deferred rent liability reversal		(2,907)	(0.5)			—	—
Non-cash interest		2,574	0.7			2,555	0.7
Other		230	—			328	0.1
Professional services		598	0.2			1,519	0.4
Subtotal non-operating expenses		5,239	0.9			328	0.1
Severance		1,331	0.3			1,636	0.4
Equity compensation charge		6,802	1.1			10,644	1.8
Adjusted net loss	$	(10,412)	(2.7)	%	$	(12,291)	(3.1)	%
Income tax provision		3,728	0.6			2,285	0.4
Non-cash interest		3,864	0.6			3,837	0.6
Professional services		648	0.1			2,175	0.4
Severance		1,543	0.3			4,596	0.8
Adjusted net loss	$	(13,872)	(2.3)	%	$	(14,124)	(2.2)	%

Liquidity and Capital Resources

Overview

Our primary sources of liquidity are cash generated from operations and borrowings under our 2013 Senior Credit Facility, as amended. Our primary uses of cash are purchases of merchandise inventories, operating expenses, capital expenditures, primarily for opening new stores and infrastructure, and debt service. We believe that our cash on hand and the cash generated from operations, together with the borrowing availability under our 2013 Senior Credit Facility, as amended, will be sufficient to meet our normal working capital needs for at least the next twelve months, including investments made and expenses incurred in connection with opening new stores. Our ability to continue to fund these items may be affected by general economic, competitive and other factors, many of which are outside of our control. If our future cash flow from operations and other capital resources are insufficient to fund our liquidity needs, we may be forced to reduce or delay our expected new store openings, sell assets, obtain additional debt or equity capital or refinance all or a portion of our debt. Our working capital position benefits from the fact that we generally collect cash from sales to customers the same day or, in the case of credit or debit card transactions, within a few business days of the related sale.

At ~~September~~December 27, 2015, we had $2935.93 million in cash and cash equivalents and $75.04 million in borrowing availability pursuant to our 2013 ~~Senior~~Revolving ~~Credit~~ Facility. Subsequent to ~~September~~ December 27, 2015, ~~outstanding~~ ~~letters~~in ofconnection ~~credit~~with ~~were~~the ~~increased~~our ~~by $0.5~~cancellation ~~million~~of inthe ~~aggregate~~TriBeCa lease, ~~decreasing~~ ~~our~~the ~~borrowing~~landlord ~~availability~~drew ~~under~~$2.4 ~~the~~million ~~2013~~on ~~Senior~~a ~~Credit~~letter ~~Facility~~of tocredit and surrendered the remaining $61.56 ~~million.~~

We were in compliance with all applicable affirmative, negative and financial covenants of the 2013 Senior Credit Facility, as amended, at September 27, 2015. At the time we entered into the 2013 Senior Credit Facility, as amended, new levels for the maximum total leverage ratio financial covenant were established. The level at the end of the second and third fiscal quarters is 6.0:1, before stepping down to 5.75:1 prior to the end of fiscal 2016. Our current operating performance has been below expectations at the time that the financial covenant levels were established, and if our financial performance does not improve, it is possible that we will not be in compliance with the maximum total leverage ratio financial covenant at some point within the next twelve months. In the event of a covenant violation that remains uncured, the lenders have the right to declare all outstanding debt under the 2013 Senior Credit Facility, as amended, immediately due and payable. We have the ability to exercise equity cure rights, which allows for the issuance of additional equity and for the proceeds to be treated as EBITDA for purposes of the covenant, subject to certain restrictions, including that the amount of equity that can be used as EBITDA cannot exceed the EBITDA shortfall, the proceeds must be used to repay debt, and the equity cure can only be used twice within a four quarter period and only four times during the term of the loan.35

Although we believe we have sufficient liquidity and capital resources to meet our current operating requirements and to open the stores currently scheduled to open in calendar 2016, in light of our leverage profile and the

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~~constraints~~million ~~that~~of ~~places on our longer-term growth strategy, we are currently exploring alternatives to raise additional capital to allow us to de-lever~~ the ~~balance~~letter ~~sheet~~of ~~and fund additional growth initiatives~~credit, ~~including~~resulting ~~investments~~in toa ~~rebuild sales and pursuing new stores opportunistically~~$4. ~~Any~~0 ~~new~~million ~~growth~~increase ~~capital investment, or capital raised~~ in ~~the~~availability ~~context~~under ~~of an equity cure, is likely to be in~~ the ~~form~~2013 ofRevolving ~~equity~~Facility. ~~or equity linked securities~~Additionally, ~~and is likely to be dilutive to existing stockholder ownership. There can be no assurance that we will be successful in obtaining additional capital~~ on ~~favorable~~January ~~terms~~28, ~~or at all.~~2016 If we drew ~~are~~down ~~unable~~$9.0 tomillion ~~raise~~on ~~additional capital,~~ our ~~ability~~2013 toRevolving ~~expand~~Facility ~~would~~reducing bethe ~~materially~~availability ~~adversely affected and, if our performance does not improve, make it more difficult~~ to ~~remain~~$0.4 ~~in compliance with the net leverage covenant~~million.

We were in compliance with all applicable affirmative, negative and financial covenants of the 2013 Senior Credit Facility, as amended, at December 27, 2015. At the time we entered into the 2013 Senior Credit Facility, as amended, new levels for the maximum total leverage ratio financial covenant were established. The level at the end of the third fiscal quarter of fiscal 2016 was 6.0:1, but steps down to 5.75:1 on April 1, 2016, which is prior to the end of our fiscal year. Our current operating performance has been below expectations that existed at the time that the financial covenant levels were established, and if our financial performance does not improve or additional third-party equity financing is not obtained, we anticipate that we will not be in compliance with the maximum total leverage ratio financial covenant at the end of the fourth fiscal quarter unless such covenant is amended or compliance waived. We have the ability to exercise equity cure rights within 150 days following the end of the fourth fiscal quarter, which allows for the issuance of additional equity and for the proceeds to be treated as Consolidated EBITDA for purposes of the covenant, subject to certain restrictions, including that the amount of equity that can be used as Consolidated EBITDA cannot exceed the Consolidated EBITDA shortfall, the proceeds must be used to repay debt, and the equity cure can only be used twice within a four quarter period and only four times during the term of the loan. In addition, we can seek an amendment to the covenant or waiver of the violation from our lenders. In the event of a covenant violation that remains uncured, the lenders have the right to declare all outstanding debt under the 2013 Senior Credit Facility, as amended, immediately due and payable and we do not have sufficient working capital to fulfill this obligation.

In light of our lower than expected operating performance and leverage profile and the constraints those place on our current operations and longer-term growth strategy, we have concluded that we will need to raise additional capital to continue as a going concern over the long term. We continue to work with our advisors to explore alternatives to raise additional capital to allow us to de-lever the balance sheet and fund additional growth initiatives, including investments to rebuild sales and pursuing new stores opportunistically. Any new growth capital investment, or capital raised in the context of an equity cure, is likely to be in the form of equity or equity linked securities, and is likely to be dilutive to existing stockholder ownership. There can be no assurance that we will be successful in obtaining additional capital on favorable terms or at all, obtaining amended covenants, or having compliance with the covenants waived by our lenders for a sufficient length of time to improve profitability. Our inability to raise additional capital, amend our covenants, have our covenants waived or improve our performance would raise substantial doubt about our ability to continue as a going concern and pursue our longer-term growth strategy for a reasonable period of time.

A summary of our operating, investing and financing activities is shown in the following table:

	Twenty-Six Weeks Ended
	Thirty-Nine Weeks Ended
	September 27,			September 28,
	December 27,			December 28,
	2015			2014
	(in thousands)
Net cash provided by operating activities	$	~~769~~9,700	$	512,~~165~~843
Net cash used in investing activities		(58,~~870~~658)		(2430,~~923~~261)
Net cash used in financing activities		(12,~~376~~064)		(1,635)
Net decrease in cash and cash equivalents	$	(61,~~477~~022)	$	(2119,~~393~~053)

Operating Activities

Net cash provided by operating activities consists primarily of net loss adjusted for non-cash items, including depreciation and amortization, stock compensation and changes in deferred income taxes and the effect of working capital changes.

Net cash provided by operating activities was $09.7 million and $12.8 million during the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015, ~~while~~and ~~operating~~December ~~activities provided $5.2 million of cash during the twenty-six weeks ended September~~ 28, 2014, respectively. The decrease in cash provided by operating activities is primarily related to the $3.0 million payment in connection with the termination of our Hudson Yards lease and lower operating performance in the twenty-six weeks ended September 27, 2015 and the benefit of a tenant improvement allowance received during the twenty-six weeks ended September 28, 2014.

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primarily related to the $3.5 million payment in connection with the termination of our Hudson Yards lease and lower operating performance in the thirty-nine weeks ended December 27, 2015 and the benefit of a tenant improvement allowance received during the thirty-nine weeks ended December 28, 2014.

Investing Activities

Cash used in investing activities consists primarily of capital expenditures for opening new stores and infrastructure, as well as investments in information technology and merchandising enhancements.

We made capital expenditures of $58.97 million in the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015, of which $2.26 million was in connection with our new production facility and $0.1 million was in connection with the ~~store~~former ~~in the~~ TriBeCa ~~neighborhood of New York City, which has not yet opened~~store. The remaining approximately $3.6.0 million of capital expenditures was for merchandising initiatives and equipment upgrades and enhancements to existing stores.

We made capital expenditures of $2428.9 7 million in the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~ December 28, 2014, of which $1011.9 0 million was in connection with ~~our new production facility, $10.7 million was in connection with~~ the store we opened in Lake Grove, New York in July 2014, $12.8 million was in connection with our new production facility, and $1.13 million was in connection with the ~~store~~former in TriBeCa ~~which has not yet opened~~store. The remaining approximately $2.3.6 million of capital expenditures was for merchandising initiatives and equipment upgrades and enhancements to existing stores. In addition, we acquired a liquor license for a total cost of approximately $1.6 million during the thirty-nine weeks ended December 28, 2014, which allowed us to open our fourth Wine & Spirits location in Paramus, New Jersey.

We plan to spend approximately $93 million to $115 million on capital expenditures during the remainder of fiscal 2016, primarily related to the new ~~stores~~store ~~expected~~currently scheduled to open during calendar year 2016 and equipment upgrades and enhancements at existing stores.

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Financing Activities

Cash flows from financing activities consists principally of borrowings and payments under our senior credit facility and proceeds from the issuance of capital stock, net of equity issuance costs. We currently do not intend to pay cash dividends on our common stock.

Net cash used in financing activities during the ~~twenty~~thirty-~~six~~nine weeks ended ~~September~~December 27, 2015 and ~~September~~December 28, 2014 was $12.41 million and $1.6 million, respectively, consisting primarily of principal payments on our outstanding debt.

Senior Credit Facility

In February 2013, we and our wholly-owned subsidiary Fairway Group Acquisition Company, as the borrower, entered into a senior secured credit facility consisting of a $275 million term loan (the “Term Facility”) and a $40 million revolving credit facility, which includes a $40 million letter of credit subfacility (the “Revolving Facility” and together with the Term Facility, as amended by the May 2013 amendment referred to below, the “Credit Facility”), with the Term Facility maturing in August 2018 and the Revolving Facility maturing in August 2017. We used the proceeds from the Term Facility to repay the $264.5 million of outstanding borrowings (including accrued interest) under our prior senior credit facility, pay fees and expenses and provide us with $3.5 million to repay our outstanding subordinated note, which we repaid in March 2013. In May 2013, we amended the Credit Facility to, among other things, further reduce the interest rate we pay under the Credit Facility and eliminate the interest coverage ratio financial covenant.

Borrowings under the Credit Facility bear interest, at our option, at (i) adjusted LIBOR (subject to a 1.0% floor) plus 4.0% or (ii) an alternate base rate plus 3.0%. The 4.0% and 3.0% margins will each be reduced by 50 basis points at any time when our public corporate family rating from Moody’s Investor Services Inc. is B2 or higher and our public corporate rating from Standard & Poors rating service is B or higher, in each case with a stable outlook, and as long as certain events of default have not occurred. In addition, there is a fee payable quarterly in an amount equal to 1% per annum of the undrawn portion of the Revolving Facility, calculated based on a 360-day year. Interest is payable quarterly in the case of base rate loans and on maturity dates or every three months, whichever is shorter, in the case of adjusted LIBOR loans.

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annum of the undrawn portion of the Revolving Facility, calculated based on a 360-day year. Interest is payable quarterly in the case of base rate loans and on maturity dates or every three months, whichever is shorter, in the case of adjusted LIBOR loans.

All of the borrower’s obligations under the Credit Facility are unconditionally guaranteed (the “Guarantees”) by us and each of our direct and indirect subsidiaries (other than the borrower and any future unrestricted subsidiaries as we may designate, at our discretion, from time to time) (the “Guarantors”). Additionally, the Credit Facility and the Guarantees are secured by a first-priority perfected security interest in substantially all present and future assets of the borrower and each Guarantor, including accounts receivable, equipment, inventory, general intangibles, leases, intellectual property, investment property and intercompany notes among Guarantors.

Mandatory prepayments under the Credit Facility are required with (i) 50% of adjusted excess cash flow (which percentage will decrease to 25% upon achievement and maintenance of a leverage ratio of less than 5.0:1.0, and to 0% upon achievement and maintenance of a leverage ratio of less than 4.0:1.0); (ii) 100% of the net cash proceeds of assets sales or other dispositions of property by us and our restricted subsidiaries (subject to certain exceptions and reinvestment provisions); and (iii) 100% of the net cash proceeds of issuances, offerings or placements of debt obligations (subject to certain exceptions). In addition, the Credit Facility required that by May 15, 2013, we either fully repay our outstanding subordinated note or make a $7.7 million repayment of the outstanding term loan. On March 7, 2013, we repaid in full our outstanding subordinated promissory note in the aggregate principal amount of $7.3 million, together with all accrued interest aggregating $440,000.

The Credit Facility contains customary affirmative covenants, including (i) maintenance of legal existence and compliance with laws and regulations; (ii) delivery of consolidated financial statements and other information; (iii) maintenance of properties in good working order; (iv) payment of taxes; (v) delivery of notices of defaults, litigation, ERISA events and material adverse changes; (vi) maintenance of adequate insurance; and (vii) inspection of books and records.

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The Credit Facility also contains customary negative covenants, including restrictions on (i) the incurrence of additional debt; (ii) liens and sale-leaseback transactions; (iii) loans and investments; (iv) guarantees and hedging agreements; (v) the sale, transfer or disposition of assets and businesses; (vi) dividends on, and redemptions of, equity interests and other restricted payments, including dividends and distributions to the issuer by its subsidiaries; (vii) transactions with affiliates; (viii) changes in the business conducted by us; (ix) payment or amendment of subordinated debt and organizational documents; and (x) maximum capital expenditures. We are also required to comply with a maximum total leverage ratio financial covenant, however, we have the ability to exercise equity cure rights, which allows us to issue additional equity and treat the proceeds as EBITDA for purposes of the covenant, subject to certain restrictions, including that the amount of equity that can be used as EBITDA cannot exceed the EBITDA shortfall, the proceeds must be used to repay debt and the equity cure can only be used twice within a four quarter period and only four times during the term of the loan.

Events of default under the Credit Facility include:

failure to pay principal, interest, fees or other amounts under the Credit Facility when due, taking into account any applicable grace period;

any representation or warranty proving to have been incorrect in any material respect when made;

failure to perform or observe covenants or other terms of the Credit Facility subject to certain grace periods;

a cross-default and cross-acceleration with certain other debt;

bankruptcy events;

a change in control, which includes any person other than Sterling Investment Partners owning, directly or indirectly, beneficially or of record, shares representing more than 35% of the voting power of our outstanding common stock or a majority of our directors being persons who were not nominated by the board or appointed by directors so nominated;

certain defaults under ERISA; and

the invalidity or impairment of any security interest.

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In the event of a covenant violation or other default that remains uncured, the lenders have the right to declare all outstanding debt under the Senior Credit Facility immediately due and payable.

The foregoing is a brief summary of the material terms of the Credit Facility and is qualified in its entirety by reference to the Credit Facility filed by reference as an exhibit to our Annual Report on Form 10-K for the fiscal year ended March 29, 2015.

Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with US GAAP requires us to make estimates, assumptions and judgments that affect amounts of assets and liabilities reported in the consolidated financial statements, the disclosure of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenues and expenses during the year. We believe our estimates and assumptions are reasonable; however, future results could differ from those estimates under different assumptions or conditions.

Critical accounting policies are policies that reflect material judgment and uncertainty and may result in materially different results using different assumptions or conditions. We identified the following critical accounting policies and estimates: merchandise inventories, goodwill and other intangible assets, impairment of long-lived assets, income taxes and stock-based compensation. For a detailed discussion of accounting policies, refer to our Annual Report on Form 10-K for the fiscal year ended March 29, 2015.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in our exposure to market risk from the information provided in Item 7A. Quantitative and Qualitative Disclosures About Market Risk of our Annual Report on Form 10-K for the fiscal year ended March 29, 2015.

Item 4. Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), our chief executive officer and chief financial officer, together with our management, evaluated Fairway’s disclosure controls and procedures as of ~~September~~December 27, 2015, the end of the period covered by this report. Based on that evaluation, our chief executive officer and chief financial officer concluded that Fairway’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) were effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

In connection with the evaluation described above, there were no changes in our internal control over financial reporting during the quarter ended ~~September~~December 27, 2015, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

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Part II — Other Information

Item 1. Legal Proceedings

We are subject to various legal claims and proceedings which arise in the ordinary course of our business, including employment related claims, involving routine claims incidental to our business. Although the outcome of these routine claims cannot be predicted with certainty, we do not believe that the ultimate resolution of these claims will have a material adverse effect on our results of operations, financial condition or cash flows.

In February and March 2014, three purported securities class action lawsuits alleging the violation of the federal securities laws were filed in the United States District Court for the Southern District of New York against us and certain of our current and former officers and directors and the underwriters for our initial public offering. The actions were consolidated on June 3, 2014 under the caption In re Fairway Group Holdings Corp. Securities Litigation, No. 14-cv-0950. On July 18, 2014, an amended class action complaint was filed, adding affiliates of Sterling Investment Partners as defendants. The complaint sought unspecified damages and alleged misleading statements in the registration statement and prospectus for our initial public offering and in subsequent communications regarding our business and financial results. On September 9, 2015, the district judge to whom the case was assigned granted our motion to dismiss the case.

In April 2014, a purported stockholder derivative action was filed against certain of our current and former directors in New York state court, asserting claims for breach of fiduciary duties and gross mismanagement based on substantially similar allegations as in the securities class action. In June 2014, we and the other defendants moved to dismiss the derivative complaint. On July 30, 2014, plaintiffs filed an amended complaint, adding affiliates of Sterling Investment Partners as defendants and asserting claims against them for breach of fiduciary duty and unjust enrichment. On September 29, 2014, we and the other defendants moved to dismiss the amended derivative complaint. On November 10, 2014, the court granted our and the other defendants’ motion to dismiss on the grounds that under our certificate of incorporation the derivative action must be brought in the State of Delaware. On June 18, 2015, the court denied the plaintiffs’ motion for reconsideration, and the plaintiffs’ opportunity to appeal the decision has expired. A similar case was filed in the Delaware Chancery Court in February 2015. On October 15, 2015, the plaintiff voluntarily dismissed this case.

Monitoring and defending against legal actions, whether or not meritorious, is time-consuming for our management and detracts from our ability to fully focus our internal resources on our business activities and we cannot predict how long it may take to resolve these matters. In addition, legal fees and costs incurred in connection with such activities may be significant and we could, in the future, be subject to judgments or enter into settlements of claims for significant monetary damages. A decision adverse to our interests on these actions or resulting from these matters could result in the payment of substantial damages and could have a material adverse effect on our cash flow, results of operations and financial position.

With respect to any litigation, our insurance may not reimburse us or may not be sufficient to reimburse us for the expenses or losses we may suffer in contesting and concluding such lawsuits. Substantial litigation costs or an adverse result in any litigation may adversely impact our business, operating results or financial condition.

Item 1A. Risk Factors

~~There~~We ~~were~~have noconcluded ~~material~~that ~~changes~~we inneed ~~risk~~to ~~factors~~raise ~~for~~additional ~~the~~capital ~~Company~~to inde-lever ~~the~~our ~~period~~balance ~~covered~~sheet byto ~~this~~allow ~~report.~~us ~~See~~to ~~the~~continue ~~discussion~~as ofa ~~risk~~going ~~factors~~concern inover ~~Part I, Item~~the 1Along ofterm, ~~our~~but ~~Annual~~can ~~Report~~provide onno ~~Form 10-K~~assurances ~~for~~of the ~~fiscal~~terms ~~year~~thereof ~~ended~~or ~~March 29, 2015~~how it will impact our securityholders.

38As a result of our significant leverage, recent underperformance compared to expectations and challenging current market conditions, we believe we will need to raise additional capital to de-lever our balance sheet to allow us to continue as a going concern in the long term. Any new growth capital investment, or capital raised in the context of an equity cure of a breach of our maximum total leverage ratio financial covenant, is likely to be in the form of equity or equity linked securities, and is likely to be dilutive to existing stockholder ownership. If our financial performance does not improve or additional third-party equity financing is not obtained, we anticipate that we will not be in compliance with the maximum total leverage ratio financial covenant in our Senior Credit Facility, as amended, at the end of the fourth fiscal quarter unless such covenant is amended or compliance waived. We have the ability to exercise equity cure rights, which allows for the issuance of additional equity and for the proceeds to be treated as Consolidated EBITDA for purposes of the covenant, subject to certain restrictions, including that the amount of equity that can be used as Consolidated EBITDA cannot exceed the Consolidated EBITDA shortfall, the proceeds must be used to repay debt, and the equity cure can only be used twice within a four quarter period and only four times during the term of the loan. In the event of a covenant violation that remains uncured, the lenders have the right to declare all outstanding debt under the Senior Credit Facility, as amended, immediately due and payable and we do not have sufficient working capital to fulfill this obligation. In the event we are unable to raise additional capital to de-lever our balance sheet, our auditors may include a paragraph in their opinion on our audited financial statements for the fiscal year ended April 3, 2016 that raises questions about our ability to continue as a going concern. The issuance of such an opinion will constitute an event of default under our Senior Credit Facility, as amended.

We may not be able to maintain compliance with the continued listing requirements of The Nasdaq Global Market.

Our Class A common stock is listed on the Nasdaq Global Market. In order to maintain that listing, we must satisfy minimum financial and other requirements including, without limitation, a requirement that our closing bid price be at least $1.00 per share. On January 7, 2016, we received a notice from the Listing Qualifications Department of The

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Nasdaq Stock Market (“Nasdaq”) stating that we were not in compliance with Nasdaq Listing Rule 5450(a)(1) (the “Rule”) because our Class A common stock failed to maintain a minimum closing bid price of $1.00 for 30 consecutive business days from November 20, 2015 through January 6, 2016. We have 180 days, until July 5, 2016, to regain compliance with the Rule. If, at any time during this 180-day period, the closing bid price of our Class A common stock is at least $1.00 per share or more for a minimum of ten consecutive business days, Nasdaq will provide written confirmation to us that we have regained compliance with the Rule. In the event we do not regain compliance with the Rule by July 5, 2016, our Class A common stock will no longer be listed on the Nasdaq Global Market. The delisting of our Class A common stock could adversely affect the market liquidity of our Class A common stock, our ability to obtain financing to repay debt and fund our operations. There can be no assurance that the Company will be able to regain compliance with the Nasdaq minimum bid price requirement or maintain compliance with Nasdaq’s other listing requirements.

Except as set forth above, there were no material changes in risk factors for the Company in the period covered by this report. See the discussion of risk factors in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended March 29, 2015.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Sales of Unregistered Securities

From March 30, 2015 through ~~September~~December 27, 2015, we issued to one of our non-employee directors who is a former executive officer 40129,~~181~~466 restricted stock units in accordance with the individual’s separation agreement and granted to our officers and employees an aggregate of ~~295~~330,048 restricted stock units to be settled in shares of our Class A common stock under our 2013 Long-Term Incentive Plan.

Use of Proceeds

Not applicable.

Issuer Purchases of Equity Securities

Not applicable.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

Reference is made to the separate exhibit index contained on page 4143 filed herewith.

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Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Fairway Group Holdings Corp.
	By:	/s/ John E. Murphy
		John E. Murphy
		Chief Executive Officer
	Date: October 29, 2015
	Date: February 5, 2016
	By:	/s/ Edward C. Arditte
		Edward C. Arditte
		Co-President and Chief Financial Officer
	Date: October 29, 2015
	Date: February 5, 2016
	By:	/s/ Linda M. Siluk
		Linda M. Siluk
		Senior Vice President - Finance & Chief Accounting Officer
	Date: October 29, 2015
	Date: February 5, 2016

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Exhibit Index


Exhibit Number		Description


31.1		Certification Statement of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification Statement of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	#	Certification Statement of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	#	Certification Statement of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

#This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act.

4143

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