Nash Finch Q2 Hit by One-time Charge; Food Distribution Profit Drops

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Nash Finch Q2 Hit by One-time Charge; Food Distribution Profit Drops

MINNEAPOLIS -- On the heels of retail customer Carter's Food Centers filing Chapter 7 bankruptcy, Nash Finch here bore the brunt of that grocer's misfortune with a 58 percent plunge in second-quarter profits.

Citing a pre-tax charge of $5.5 million ($3 million, or $0.22 per diluted share, net of tax) relating to the impairment of its longtime retail customer's subleased properties and bad debt expenses related to accounts and notes receivable owed by Carter's, Nash Finch said quarterly profit dropped to $4.13 million, or 31 cents per share, from a profit of $9.74 million, or 75 cents per share, during the same period last year.

The company's second quarter net earnings were also adversely affected, coming in at $8 million, or $0.60 per share, vs. net earnings of $16.7 million, or $1.28 for the same period last year. Total sales for the first 24 weeks of 2006 were $2.106 billion vs. $1.967 billion in the prior-year period, primarily reflecting Nash Finch's acquisition of distribution centers in Lima, Ohio and Westville, Ind. from Roundy's Supermarkets, Inc.

Food distribution segment sales for the second quarter were $639.5 million, a 1.3 percent decrease from the second quarter 2005; and $1.260 billion for the first half of 2006, a 14.7 percent increase from the year earlier period, the latter increase attributable to the acquisition of the two former Roundy's divisions mentioned above. Excluding the impact of that acquisition, Nash Finch's food distribution sales decreased in both the quarterly and year-to-date comparisons due to slower growth in new accounts and somewhat greater customer attrition, as well as sales declines among its existing customer base relative to last year. The company also said it had transitional warehousing and transportation costs as the company works to integrate two distribution centers.

"We continue to work diligently to properly integrate the Westville and Lima distribution centers into our network and allocate distribution network resources in the most efficient manner," said Alec Covington, who recently assumed the helm of Nash Finch as its c.e.o. "Integrating a large acquisition is a complex process and we are proceeding carefully so as not to adversely affect the level of service we provide to our customers. At the same time, we continue to deal with increased pricing pressures and operational issues that negatively impact margins throughout our network. In the context of a very competitive industry, issues such as these are not easy to resolve and we will continue to see evidence of them in our financial results throughout the rest of the year."

Food distribution segment profits decreased 22.5 percent in the quarterly comparison, to $17.6 million this year from $22.7 million last year; this added to an 8.3 percent decline in the year-to-date comparison. Segment profits as a percentage of sales were also down 2.8 percent in both 2006 periods vs. 3.5 percent in both 2005 periods, reflective of the second quarter 2006 charge related to bad debt expense discussed earlier as well as the impact of larger and non-traditional customers and the associated margins negatively affecting food distribution margins.

As for its corporate retail segment, sales for the second quarter of 2006 were down 10 percent vs. a year ago to $152.6 million and $304.0 million for the first twenty-four weeks of 2006. The company said the sales decrease reflects the sale or closure of 15 stores since the second quarter 2005, as well as a decline in same store sales of 0.4 percent and 2.3 percent in the quarterly and year-to-date comparisons, respectively.

Retail segment 2006 second quarter profits increased to $6.6 million, or 4.3 percent of sales vs. $6.2 million, or 3.6 percent of sales, in the second quarter of 2005 while year-to-date retail segment profits were $11 million, or 3.6 percent of sales, compared to $11.9 million, or 3.5 percent of sales, in the year earlier period.

Second quarter same store sales and profits represent significant improvements over the same quarter last year, due in large measure to the closing of underperforming stores in the intervening year, the timing of the Easter holiday in 2006 vs. 2005 and successful management of operational expenses. The company's corporate store count at the end of the second quarter of 2006 was 69, compared to 78 at the end of fiscal 2005.

During the 24 weeks of 2006, the company repaid $35.6 million of revolving debt outstanding under its senior secured credit facility.

Nash Finch's core food distribution business serves independent retailers and military commissaries in 31 states, the District of Columbia, Europe, Cuba, Puerto Rico, Iceland, the Azores and Honduras. It also owns and operates a base of supermarkets trading under the Econofoods, Family Thrift Center and Sun Mart banners.