Results of the Quarter
Revenues for the third quarter of 2001 increased by 6.4% to a record NIS 1,478.1 million(a) (US $339.4 million)(b) from NIS 1,388.9 million in the third quarter of 2000. Revenues for the quarter reflect the timing of the fall holidays and the addition of new store branches.
Gross profit for the quarter increased by 4.3% to NIS 397.2 million (US $91.2 million) from NIS 381.0 million in the third quarter of 2000, resulting in a gross margin of 26.9%, compared to 27.4% in the third quarter of 2000.
Operating income for the third quarter increased by 10.3% to NIS 77.1 million (US $17.7 million) from NIS 69.9 million in the third quarter of 2000, and operating margins increased to 5.2% from 5.0% for the corresponding period in 2000. This results primarily from the success of the Company's continued efficiency efforts.
During the quarter, the Company recorded net financing income of NIS 1.0 million (US $0.2 million) compared to net financing expenses of NIS 14.8 million in the third quarter of 2000. The substantial decrease in financing expenses derived mainly from two factors, as follows:
1) The increase in the Consumer Price Index ("CPI") eroded the excess of unlinked monetary liabilities over unlinked monetary assets, and the resulting gain on the net monetary position offset the interest expense on bank loans. In addition, the fact that the Company's long-term linked loans as of September 30 2001 are adjusted for the changes in the CPI published prior to September 30, whereas the opening balances of these loans are adjusted for the changes in the CPI based on the index published in respect of September (published on October 15), resulted in lower financing expenses for the third quarter of 2001. 2) The reduction in the prime rate of interest in Israel reduced the Company's financing expenses. In contrast, during the third quarter of 2000, the Company incurred higher financing expenses due to the substantial decrease in the quarter's CPI.
Net income for the third quarter was NIS 41.1 million (US $9.4 million), or NIS 1.07 (US $0.25) per ADS, an increase of 49.4% compared with NIS 27.5 million, or NIS 0.73 per ADS, for the third quarter of 2000.
Same Store Sales for the quarter declined by 3.6%, while they declined 3.5% during the third quarter of 2000. The decline primarily reflects continued competition in the sector and the opening of new stores by the Company and its competitors.
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) for the quarter was NIS 111 million (US $25.5 million), compared to NIS 102 million in the third quarter of 2000. The EBITDA margin for the third quarter of 2001 increased slightly to 7.5% from 7.3% in the comparable quarter of 2000.
Results of the Nine Months
Nine month revenues for 2001 were NIS 4,249.0 million (US $975.7 million), an increase of 6.6% compared to NIS 3.984.1 million for the first nine months of 2000.
Gross profit for the period increased by 6.2% to NIS 1,160.7 million (US $266.5 million) from NIS 1092.7 million for the first nine months of 2000, resulting in a gross margin for the period of 27.3%, compared to 27.4% for the first nine months of 2000.
The Company's operating income for the first nine months of 2001 increased by 11.7% to NIS 233.8 million (US $53.7 million) from NIS 209.4 million in the first nine months of 2000. Operating margin for the period rose to 5.5%, compared to 5.3% for the comparable period in 2000, reflecting the Company's success in monitoring operating expenses and increased efficiency in all levels of the Company's operations.
"Other Income" for the first nine months of 2000 consists mainly of a one-time capital gain related to the sale of the Company's holdings in Home Centers.
"Discontinued Operations" for the first nine months of 2000 includes expense of NIS 1.5 million related to the Company's former holdings in the IKEA chain.
Net income for the first nine months of 2001 was NIS 117.5 million (US $27.0 million), or NIS 3.06 (US $0.70) per ADS. This represents a 39.4% increase over net income for the first nine months of 2000 excluding the abovementioned one-time capital gain (net of taxes). Reported income for the first nine months of 2000 was NIS 108.9 million, or NIS 2.84 per ADS.
During the first nine months of 2001, Same Store Sales declined by 2.4%. For the first nine months of 2000, Same Store Sales declined by 5.2%.
The Company opened 6 stores and closed 3 during the first nine months of 2001, adding a net total of 18,800 square meters to the chain.
EBITDA for the first nine months increased by 12% compared to the previous period, resulting in an EBITDA margin of 7.9%.
Comments of Management
Commenting on the results, Yoram Dar, Blue Square's President and Chief Executive Officer, said, "Despite the continued slowdown in Israel's economy, the third quarter was a period of solid financial and strategic progress for Blue Square. Revenues are at record levels, and margins remain strong. Our sales were affected by the timing of the fall holidays, which resulted in the loss of three selling days, as well as by the closure in early September of a large branch store in Kfar Saba to strengthen its infrastructure. This branch will be opened again in the beginning of January, 2002.
"We opened three new stores during the quarter, including two new Mega outlets, bringing this chain to a total of twelve branches. Mega can only be classified as a runaway success -- in fact, the Jerusalem Mega that opened in March has become our number one supermarket."
Mr. Dar continued, "We continue to invest in the efficiency of the chain, further streamlining our logistics, store management, and marketing to keep expenses in line with revenues. We are pleased with initial reaction to our 'Leader Price' Private Label program. Launched last August with an extensive line of top-quality cleaning products, we will soon expand the program with an extensive range of additional non-food and food products. On the technology front, we recently made news with our pilot 'Buy Pass' program, the world's first supermarket Smart Cart system. In addition, we are on track with our preparations to launch an advanced e-commerce site at the end of the fourth quarter, and continue to expand our use of Buy & Bonus club data for one-to-one marketing."
Mr. Dar concluded, "We are proud of our performance record, which shows continuous improvement in efficiency -- and profitability -- during a year-and-a-half of economic slowdown. We are optimistic regarding the long-term prospects of the Israeli economy, and believe the organized food sector offers plenty of room for additional growth. As the key to maximizing long term shareholder value, we remain focused on continually identifying and satisfying the needs of our customers while minimizing our expenses. We are pleased with the results of our efforts so far."
Blue Square is a leading retailer in Israel. A pioneer of modern food retailing in the region, Blue Square currently operates 171 supermarkets under different formats, each offering varying levels of service and pricing.
This press release may contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, with respect to the Company's business, financial condition, prospects and operating results. These statements are based on current expectations and projections that involve a number of risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including risk of market acceptance, the effect of economic conditions, the impact of competitive pricing, supply constraints, the effect of the Company's accounting policies, as well as certain other risks and uncertainties which are detailed in the Company's Annual Report on Form 20-F and other filings with the Securities and Exchange Commission. Forward-looking statements speak only as of the date on which they are made and the Company undertakes no commitment to revise or update any forward-looking statement in order to reflect events or circumstances after the date any such statement is made.
(a)In accordance with applicable Israeli accounting principles, the Company maintains its accounts and presents its financial statements in New Israeli Shekels adjusted for changes in the Israeli consumer price index ("CPI") through the latest balance sheet date ("Adjusted CPI"). The Israeli CPI increased by 0.9% for the three months ended September 30, 2001. (b)The convenience translation of the Adjusted New Israeli Shekel (NIS) into US dollars was made at the rate of exchange prevailing at September 30, 2001: US $1.00 equals NIS 4.355. The translation was made solely for the convenience of the reader. BLUE SQUARE - ISRAEL LTD. CONSOLIDATED BALANCE SHEETS In Adjusted NIS of September 2001 Convenience translation December 31 September 30 September 30 2000 2000 2001 2001 NIS NIS NIS U.S.$ (Audited) (Unaudited) (Unaudited) In thousands ASSETS CURRENT ASSETS Cash and cash equivalents 1,441 2,866 666 153 Marketable securities and short-term deposits 32,812 77,967 -- -- Trade receivables 546,668 662,151 660,339 151,628 Other accounts receivable 38,231 82,754 90,484 20,777 Inventories 297,770 322,314 334,030 76,700 916,922 1,148,052 1,085,519 249,258 LONG-TERM INVESTMENTS Investments in affiliate 2,167 2,336(*) 4,156 954 Long-term loans to proportionately consolidated entities 7,021(*) 6,003(*) -- -- 9,188 8,339 4,156 954 FIXED ASSETS Cost 2,906,246(*) 2,857,310(*) 3,089,256 709,358 Less - accumulated depreciation 844,417 810,795 926,729 212,797 2,061,829 2,046,515 2,162,527 496,561 INTANGIBLE ASSETS AND DEFERRED CHARGES 105,609 107,691 98,788 22,684 3,093,548 3,310,597 3,350,990 769,457 (*) Reclassified. BLUE SQUARE - ISRAEL LTD. CONSOLIDATED BALANCE SHEETS In Adjusted NIS of September 2001 Convenience translation December 31 September 30 September 30 2000 2000 2001 2001 NIS NIS NIS U.S.$ (Audited) (Unaudited) (Unaudited) In thousands LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES CURRENT LIABILITIES Short-term credit from banks and others 334,717 316,387 107,538 24,693 Trade payables 696,536 858,869 871,711 200,163 Short-term credit from parent cooperative 4,750 3,625 -- -- Other payables and accrued expenses 250,119 338,905 341,910 78,510 1,286,122 1,517,786 1,321,159 303,366 LONG-TERM LIABILITIES Long-term loans from banks and others 284,734(*) 298,323(*) 438,359 100,656 Debentures 32,204 32,356 7,664 1,760 Deferred taxes 24,857 25,478 26,902 6,177 Accrued severance pay 16,930 17,102 20,062 4,607 358,725 373,259 492,987 113,200 MINORITY INTEREST 144,784 138,728 159,282 36,575 SHAREHOLDERS' EQUITY Share capital - Ordinary share of NIS 1 par value each - Authorized: 100,000,000 shares; Issued and outstanding: 38,400,000 shares 50,171 50,171 50,171 11,520 Additional paid-in capital 707,086 707,086 713,297 163,788 Retained earnings 546,660 523,567 614,094 141,008 1,303,917 1,280,824 1,377,562 316,316 3,093,548 3,310,597 3,350,990 769,457 BLUE SQUARE - ISRAEL LTD. CONSOLIDATED STATEMENTS OF INCOME In Adjusted NIS of September 2001 For the nine months For the three months Convenience ended September 30 ended September 30 translation for the three months ended September 30 2000 2001 2000 2001 2001 NIS NIS NIS NIS U.S.$ (Unaudited) (Unaudited) In thousands (except share and per share data) Sales 3,984,082 4,248,956 1,388,949 1,478,070 339,396 Cost of sales 2,891,333(*) 3,088,263 1,007,969(*) 1,080,832 248,182 Gross profit 1,092,749 1,160,693 380,980 397,238 91,214 Selling, general and administrative expenses 883,389(*) 926,941 311,097(*) 320,159 73,515 Operating income 209,360 233,752 69,883 77,079 17,699 Financing income (expenses), net (28,913) (5,001) (14,796) 1,065 245 180,447 228,751 55,087 78,144 17,944 Amortization of goodwill (4,506) (3,800) (1,485) (1,276) (293) Other income (expenses), net 25,510(*) (8,917) (4,833)(*) (5,331) (1,224) Income before taxes on income 201,451 216,034 48,769 71,537 16,427 Taxes on income 75,263 82,133 15,556 25,040 5,750 Income after taxes on income 126,188 133,901 33,213 46,497 10,677 Equity in net earnings of affiliates 1,418(*) 2,216 909(*) 546 125 Minority interest (17,184) (18,643) (6,065) (5,913) (1,358) Income from continuing operations 110,422 117,474 28,057 41,130 9,444 Loss from discontinued operations (1,547)(*) -- (531)(*) -- -- Net income 108,875 117,474 27,526 41,130 9,444 Adjusted net income (**) 84,296 117,474 Earnings (loss) per Ordinary Share or ADS: From continuing operations 2.88 3.06 0.73 1.07 0.25 From discontinued operations (0.04) -- (0.01) -- -- Net income 2.84 3.06 0.72 1.07 0.25 Weighted average number of shares or ADS outstanding during the period 38,400,000 38,400,000 38,400,000 38,400,000 38,400,000 (*) Reclassified (**) Adjusted Net Income for the 9 months ended September 30, 2000 excludes a one-time capital gain related to the sale of Home Centers. Adjusted Net Income is not a measurement of financial performance under generally accepted accounting principles, but has been provided solely to assist the reader in evaluating the Company's results. BLUE SQUARE-ISRAEL LTD. SELECTED OPERATING DATA (adjusted to the NIS of September 2001) Convenience Translation into US$ Three months Ended Nine months ended Three months ended Sept. 30, Sept. 30, 2001 2000 2001 2000 2001 Sales (in millions) 4,249 3,984 1,478 1,389 $339 Operating income (in millions) 234 209 77 70 $ 18 Number of stores (at end of period) 171 169 171 169 na Stores opened during the period 6 7 3 3 na Stores closed during the period 3 3 1 1 na Total square meters (at end of period) 276,800 257,700 276,800 257,700 na Sq. meters added during the period 18,800 18,700 11,900 8,100 na Same store sales -2.40% -5.20% -3.57% -3.50% na Sales per sq. mtr. (in thousands) 15,976 16,080 5,425 5,469 $1,246 Sales per employee (in thousands) 544 542 182 178 $ 42 EBITDA (in millions) 335 299 111 102 $ 25 EBITDA Margin 7.9% 7.5% 7.5% 7.3% na