Asheville, North Carolina-based grocer Ingles Markets has reported Q2 net sales up 3.8% year on year to US$493.2m. Comparable store sales for the same period, ended 30 March, grew 4.7%.

The company explained however that in the current fiscal year, Easter fell on the day following the Q2 end; therefore, Easter-related sales were included in Q2. In the prior fiscal year, Easter sales fell in Q3. Therefore, comparable store sales growth for the Q2 excluding the effect of Easter sales rose 4%.

Gross profit for Q2 increased 5.7% to 26.9% of sales, compared with 26.4% of sales for the same quarter last year. Operating and administrative expenses increased 4.1% to 23.7% of sales compared with 23.6% of sales in 2001. Interest expense increased US$2m due to the issuance in December 2001 of US$250m 8-7/8% Senior Unsecured Subordinated Notes, due December 2011.

Net income for Q2 increased 4.6% to US$3.3m, but earnings per diluted share were US$0.14 for both quarters.

For H1, net sales increased 1.3% to US$992.6m compared with US$979.9m for the March 2001 six-month period. Comparable store sales grew 1.8% for the same period and gross profit was up 2.6% to 26.3% of sales year on year.

Operating and administrative expenses increased 2.8% to 23.3% of sales in H1 2002. Other income, net increased US$2.4m. During Q1 2002, Ingles sold three tracts of land, all adjacent to store properties, for a gain of US$1.8m.

Earnings before extraordinary items increased 3.3% to US$7.9m for H1 2002 compared with US$7.6m for H1 2001. Diluted earnings per share before the extraordinary charge were US$0.34 for both six-month periods.

During H1 2002, Ingles completed two major remodels, five minor remodels, and closed two older stores. Current capital expenditure plans for the entire fiscal year are about US$75m, including expenditures for stores to open in fiscal 2003.

Commenting on the results, Robert P. Ingle, chairman and CEO, stated: "We are extremely pleased that both our net sales growth and our comparable store sales growth in Q2 2002 returned to the levels we have experienced in the past. During our Q1, unseasonably warm weather and a more conservative consumer-spending pattern challenged sales. During Q2 2002, our sales increased over the prior year's quarter, in spite of the closing of seven stores since March 2001. We are currently operating 201 stores, a net decrease of six stores from this time last year.

"Although operating and administrative costs continued to increase, payroll costs as a percentage of sales decreased.

"Our earnings for Q2 and H1 were impacted by the interest accrued on the Notes. A portion of the net proceeds of the Notes, after repayment of US$162.4m of existing debt, is being used to improve and expand our existing store base.

"However, the construction of new and replacement stores and major remodelling of existing stores is a slow process. We continue to seek opportunities to retire debt early when it makes economic sense. We are also using a portion of the excess cash to pay certain of our indebtedness as it matures over the next year.

"We are very proud of our financial results for this quarter, especially in light of the increased interest rate burden from the additional debt. We continue to explore and examine new ways to improve sales and margins, and control operating and administrative expenses."