Spartan Stores, citing continuing competitive pressure in its Ohio market, has announced that earnings for its fiscal 2002 third quarter will fall significantly below market expectations.

Fiscal 2002 Q3 sales and earnings have declined from previous internal expectations. Sales for the quarter were US$1.06bn, with diluted earnings per share at break-even, compared with fiscal 2001 Q3 sales from continuing operations of US$1.14bn and earnings of US$0.36 per diluted share.

FY fiscal 2002 sales are now expected to approximate US$3.5bn to US$3.55bn, with net earnings ranging from US$14m to US$20m. On a diluted per-share basis, earnings are expected to range from US$0.7 to US$1. This compares with fiscal 2001 sales from continuing operations of US$3.51bn and net earnings of US$23m, or US$1.33 per diluted share.

Spartan attributes the earnings shortfall principally to softer-than-anticipated December sales volume at both its retail and distribution operations, and retail gross margins for the Ohio stores that were below initial company projections. December sales trends are expected to continue through the Q4.

Chairman, president, and CEO James B. Meyer explained that the competitive intensity in our Ohio market has been the driving factor in volume and margin volatility. Blaming the weak economy and the “abnormally warm weather [that has] significantly reduced winter tourism in northern Michigan,” Meyer said “both sales and margins have been effected”.

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He added, however: “We are committed to the Ohio market and will continue to not only provide, but improve on the quality of our products and services at a value customers have come to expect.”

“As a participant in that market for over 53 years, we understand what steps are necessary to significantly improve our competitive posture. Our efforts to improve store performance will be even more aggressive.”

“These initiatives are being taken expeditiously, but the results are not likely to meaningfully improve the Ohio division’s financial results until the H2 of fiscal 2003,” he insisted.

Meyer added that Spartan has also “commenced key initiatives to improve our distribution network’s efficiency, improve our category management focus, and continue efforts to reduce corporate overhead costs. Today, we began implementing a 5% reduction in corporate staffing that should produce a US$2m to US$2.5m after-tax reduction in annual overhead costs.

“We expect all of these company-wide initiatives to improve annualized net earnings by US$5m to US$10m.

“We are resolute in our long-term strategy of developing an efficient network of neighborhood grocery stores operating with the efficiency of a self-distributing chain […] Although many fundamental changes have already taken place, we believe the bulk of our growth opportunities still remain to be realized,” he concluded.