Harris Teeter Logs Gains in Q3; Reviews Ex-Winn-Dixie Unit, No. Virginia Plans

CHARLOTTE, N.C. -- Harris Teeter's sales rose 6.1 percent to $663.3 million for the third quarter ended July 3, 2005, while the regional grocer's operating profit jumped 16.8 percent to $28 million, its parent company Ruddick Corp. said late last week. The chain is in the process of transitioning six Winn-Dixie stores it bought into the Harris Teeter banner. Meanwhile, it expects to open five more stores in northern Virginia through fiscal 2006.

Harris Teeter's spike in third-quarter sales came from new store activity and comparable store sales increases, which were 2.89 percent for the quarter and 3.32 percent for the 39-week period. The chain also cited effective retail pricing and targeted promotional spending programs as boosts to its performance. Total sales for the 39-week period rose 4.9 percent to $1.97 billion.

Harris Teeter's operating profit as a percent of sales improved by 39 basis points to 4.23 percent in the third quarter of fiscal 2005, from 3.84 percent in the comparable period last year. The retailer's positive performance helped offset lower operating profit at Ruddick's sewing thread subsidiary, American & Efird.

Harris Teeter's results for fiscal 2005 included a pre-tax charge of $2.9 million for a lease accounting correction recorded in the second quarter that related to rent holidays, while results for fiscal 2004 included a pre-tax charge of $1.7 million related to leasehold improvements that were written off in the third quarter of fiscal 2004 associated with a lease termination. Ruddick said the chain's continued emphasis on operational efficiencies and cost controls has helped offset the lease adjustment, increased fringe benefit costs, and rising fuel expenses.

"[Harris Teeter has] continued to benefit from our focus on growth in our core markets, while providing an exceptional shopping experience for all of our customers," said Thomas W. Dickson, president and c.e.o. of Ruddick, in a statement.

Of the planned acquisition of six Winn-Dixie store locations, Dickson said, "These stores are strategically located in our core markets, and will be instrumental in increasing our core market share. We anticipate a short transition period to remodel these locations in order to open them under the Harris Teeter banner."

The company originally bid for nine Winn-Dixie stores in its core markets, but it lost out on three of them through the bankruptcy process. Harris Teeter is acquiring six stores for a purchase price of $15.9 million for the stores, and approximately $3 million for inventories. In addition, Harris Teeter will assume the leases for these stores. The aggregate gross minimum annual payments pursuant to these leases are approximately $24 million. Harris Teeter said the transaction will close over a two-week period ending on Aug. 17.

The retailer said it anticipates simultaneously closing three of its existing stores, which have a smaller footprint and are in close proximity to the larger acquired Winn-Dixie stores. The incremental pre-opening costs, remodeling expenses, and required reserves associated with the closing of the three existing stores are expected to have a negative impact on fourth quarter fiscal 2005, and overall fiscal 2006 operating results of approximately $500,000 and $2.9 million, respectively.

In addition to its new locations from Winn-Dixie, the company plans to open an additional 16 new stores (including 3 replacement stores) in fiscal 2006.

Harris Teeter opened a store in suburban Ashburn, Va. during the third quarter, and plans to open a store in South Riding, Va. in the fourth quarter, bringing its total Northern Virginia area store base to eight by the end of fiscal 2005. Four additional stores in the Northern Virginia market are anticipated for fiscal 2006, and further development is planned in this market, the company said.
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