Ingles Markets Reports Sales Decline in First Quarter

ASHEVILLE, N.C. - Ingles Markets Inc. today announced that its first-quarter earnings before extraordinary items reached $4.6 million, a 2.4% increase compared with the December 2000 quarter. Both net sales and comparable store sales for the quarter decreased 1.0% vs. December 2000.

Unseasonably warm weather and more conservative consumer buying patterns contributed to the decline, according to the company. Gross profit improved to 25.6% of sales for the December 2001 quarter compared with 25.5% for last year. Increased sales distribution in the higher margin perishable departments such as produce, frozen food, deli and bakery contributed to the higher gross margin, as a percentage of sales.

"Although we had a decline in comparable store sales this quarter, we are very proud of our track record of comparable store sales growth, averaging 3.7% over the last eight years," said Robert P. Ingle, chairman and CEO. "In the winter in the South, sales are very sensitive to weather as sales boom under threat of snowy and icy conditions. The unseasonably warm climate in the December 2001 quarter compared with the December 2000 quarter definitely impacted our sales. Also, economic uncertainty has resulted in more conservative consumer spending. The decline in net sales is attributable to the above factors, as well as a decrease in store count from 209 stores at the end of the December 2000 quarter to 203 stores at the end of the December 2001 quarter."

Increased health care costs were once again a challenge in the first quarter, Ingles noted, adding that labor costs, as a percentage of sales, remained flat during the comparable quarters due to both new labor standards imposed at store level and the loosening of the labor market. Decreases in diesel fuel costs helped to lower warehousing and distribution costs, he said.

An extraordinary charge of $0.4 million, net of income tax, in the December 2001 quarter resulted from the early extinguishment of debt with the proceeds from the issuance of $250 million of 8-7/8% senior unsecured subordinated notes in December 2001, maturing December 2011.

"Our earnings were impacted this quarter and will continue to be impacted during this fiscal year by interest on the $250 million notes. After debt repayment, we had invested excess cash of approximately $80 million. It will take time to put this money to use in the supermarket business as construction of a new store or a major remodel/expansion takes approximately nine months," Ingles said.

"We also intend to use a portion of the excess cash to pay certain of our indebtedness as it matures over the next year. In the present interest rate environment, there is a large spread on the interest being paid and the earnings on the invested cash. However, we believe, in the long-run, this transaction will improve our cash flow due to term extension on our debt, improve our performance as new and remodeled stores are completed, and give us more exposure to the investing community."
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