US: Sales up amid mixed Harris Teeter Q1 results

By Dean Best | 4 February 2013

  • Q1 comp sales up
  • New stores also boost turnover
  • Operating profit down, net income increases

Regional US retailer Harris Teeter has reported higher underlying sales for its fiscal first quarter in a set of mixed financial results.

The company saw comparable-store sales increase 2.5% in the quarter ending 1 January.

The higher underlying sales helped total sales grow 3.7% to US$1.16bn. During the quarter, Harris Teeter also opened three stores, two of which were part of the group of outlets it acquired from Lowe's Food Stores last June. The two stores were opened under a new banner - 201central.

However, costs related to starting up the ten stores bought from Lowe's hit operating profit, which fell 12.5% to $40.5m.

Net income was up, growing from $13.7m to $22.8m. Harris Teeter said charges from the sale last year of its industrial thread unit American and Efird hit net income in the first quarter the year before.

Show the press release

Harris Teeter Supermarkets, Inc. Reports Results for the First Quarter of Fiscal 2013

MATTHEWS, N.C.--(BUSINESS WIRE)--Jan. 31, 2013-- Harris Teeter Supermarkets, Inc.(NYSE:HTSI) (the “Company”) today reported that sales for the first quarter of fiscal 2013 endedJanuary 1, 2013 increased by 3.7% to $1.16 billion from $1.12 billion in the first quarter of fiscal 2012. The increase in sales was driven by an increase in comparable store sales of 2.53% and sales from new stores, partially offset by store closings. During the first quarter of fiscal 2013, the Company opened three new stores, two of which were the stores acquired from Lowe’s Food Stores, Inc. (“Lowes Foods”) that were re-opened under a new format and banner - “201central”. Since the end of the first quarter of fiscal 2012, the Company has opened twelve new stores, opened one store that replaced a store closed in the first quarter of fiscal 2012, closed two stores and sold six stores to Lowes Foods, for a net addition of five stores. The closed stores included one that will be replaced with a new store scheduled to open in the third quarter of fiscal 2013 and one that was temporarily closed due to damage caused by flooding. The Company is in the process of repairing damages to the temporarily closed store and expects to re-open it once repairs are completed. The Company operated 211 stores as of January 1, 2013.

Gross profit in the first quarter of fiscal 2013 increased by 2.4% to $334.7 million (28.83% of sales) from $326.8 million (29.19% of sales) in the first quarter of fiscal 2012. The LIFO charge for the first quarter of fiscal 2013 was $0.7 million (0.06% of sales) as compared to $3.6 million(0.32% of sales) for the first quarter of fiscal 2012. The fiscal 2013 annual inflation rate as estimated by the Company has moderated since the first quarter of fiscal 2012.

Selling, general and administrative (“SG&A”) expenses in the first quarter of fiscal 2013 increased by 4.9% to $294.3 million (25.34% of sales) from $280.6 million (25.06% of sales) in the first quarter of fiscal 2012. The increase primarily resulted from incremental store growth and its impact on associated operational costs, along with the Company’s continued investment to remodel existing stores that enhance the product offering and customer experience. The Company’s emphasis on cost controls and improved labor management has been effective in offsetting a portion of the increases in pension expense and other fringe benefit costs and credit card expense.

Operating profit for the first quarter of fiscal 2013 was $40.5 million (3.48% of sales), compared to$46.3 million (4.13% of sales) for the first quarter of fiscal 2012. Operating profit decreased by$3.1 million, or 27 basis points between the first quarter of fiscal 2012 and the first quarter of fiscal 2013 related to the operations and start-up costs of the ten stores acquired from Lowes Foods and the six stores sold to Lowes Foods. Net earnings for the first quarter of fiscal 2013 were $22.8 million, or $0.46 per diluted share, compared to net earnings of $13.7 million, or $0.28 per diluted share, for the first quarter of fiscal 2012. Net earnings for the first quarter of fiscal 2012 were comprised of earnings from continuing operations of $25.8 million, or $0.53 per diluted share, and losses from discontinued operations of $12.1 million, or $0.25 per diluted share.

As previously disclosed, pre-tax losses from discontinued operations for the first quarter of fiscal 2012 amounted to $18.0 million and were primarily driven by non-cash charges for the settlement of pension liabilities and other employee benefits in connection with the sale of the Company’s wholly-owned industrial thread manufacturing company American & Efird (“A&E”). The final purchase price allocation for the sale and its impact on income taxes will not be complete until the Company files its tax return in the third quarter of fiscal 2013. Additional adjustments to taxes or other costs related to the A&E sale could occur in the future.

Thomas W. Dickson, Chairman of the Board and Chief Executive Officer stated, “We continue to focus on driving unit sales and growing our market share. During the first quarter of fiscal 2013, our pricing and promotional strategies were effective in this regard, as evidenced by an increase in the number of active households and number of customer visits we experienced over the prior year. However, aggressive pricing by competitors, low inflation during the period and the generally sluggish retail environment experienced during the holiday season combined to put downward pressure on our gross profit. We believe it is important to continue to drive sales and grow our market share and remain committed to our customers to deliver outstanding values and excellent customer service.”

The Company’s operating performance and strong financial position provides the flexibility to continue with our store development program for new and replacement stores along with the remodeling and expansion of existing stores. Capital expenditures for fiscal 2013 are planned to total approximately $219 million. During the remainder of fiscal 2013, the Company plans to open nine new stores (which includes two replacements) and complete major remodels on eight stores (three of which will be expanded in size). The remaining store openings for fiscal 2013 are expected to include two in the third quarter (one of which is a replacement for a store closed in fiscal 2012) and seven in the fourth quarter. In addition, the Company anticipates re-opening the store in the Washington D.C. market that was closed to repair damage caused by flooding. The fiscal 2013 store development program and re-opening of the temporarily closed store is expected to result in a 5.9% increase in retail square footage, as compared to a 4.1% increase in fiscal 2012. The Company routinely evaluates its existing store operations in regards to its overall business strategy and from time to time will close or divest underperforming stores.

The Company’s capital expenditure plans entail the continued expansion of its existing markets, including the Washington, D.C. metro market area which incorporates northern Virginia, theDistrict of Columbia, southern Maryland and coastal Delaware. Real estate development by its nature is both unpredictable and subject to external factors including weather, construction schedules and costs. Any change in the amount and timing of new store development can impact the expected capital expenditures, sales and operating results.

The Company’s management remains cautious in its expectations for fiscal 2013 due to the current economic environment and its impact on the Company’s customers. The Company will continue to refine its merchandising strategies to respond to the changing shopping demands. The retail grocery market remains intensely competitive, and any operating improvement will be dependent on the Company’s ability to increase its market share and to effectively execute the Company’s strategic expansion plans.

Original source: Harris Teeter

Sectors: Financials, Retail

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