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Q2 Sales Up Nearly 3% at Spartan Stores

Consolidated net sales at Grand Rapids, Mich.-based Spartan Stores Inc. for the 12-week second quarter ending Sept. 10 increased 2.9 percent to $619.6 million, compared to $602.1 million in the same period last year.

Both the distribution and retail segments reported increased sales during the quarter. “The consolidated net sales increase, combined with our management team’s focus on tightly managing the controllable aspects of our business enabled us to report both improved earnings from continuing operations, excluding unusual items, and adjusted EBITDA as compared to the same period last year,” said Dennis Eidson, Spartan president and CEO. “Our efforts to provide the consumer with a quality shopping experience are paying off as we have improved nearly every key driver of overall consumer satisfaction, specifically with our focus on fresh excellence. These efforts, combined with our chain-wide loyalty card, will enable us to provide even more value and to have a better connection to the consumer than ever before.”

Adjusted earnings for the quarter increased 3.8 percent to $31.1 million, or 5 percent of net sales, compared to $30 million, or 5 percent of net sales in the year-ago period.

Q2 gross profit margin decreased 110 basis points to 21.4 percent from 22.5 percent in the same period last year. The decline was primarily due to a higher mix of distribution and fuel sales, a lower fuel gross margin rate and an increased LIFO expense of approximately $2.3 million this year versus last year. The increased LIFO expense was due to higher inflation in this year’s second quarter and a $1.5 million LIFO credit generated in last year’s second quarter as a result of lower inventories from the warehouse consolidation initiative.

Operating expenses totaled $112.8 million, or 18.2 percent of net sales, compared to $113.1 million, or 18.8 percent of sales in the year-ago quarter.

Q2 net sales for the distribution segment increased 3.1 percent to $256.2 million from $248.6 million in the year-ago period due to new customer growth, improvement in pharmacy-related sales and increased sales to existing customers. This is the fourth consecutive quarter that distribution sales have increased.

Net sales for the retail segment in Q2 increased 2.8 percent to $363.4 million compared to $353.5 million in the same period last year. The higher sales were due to increased fuel retail selling prices and increased fuel volume, partially offset by a decline in comparable store sales, excluding fuel, of 1.3 percent. The decrease in comparable store sales was due to a shift in the timing of food stamp distributions by the state of Michigan to the third quarter from the second quarter of fiscal 2012 and weaker comparable store sales over the Labor Day holiday selling period due to unfavorable weather conditions and a more cautious consumer.

“While the Michigan economy has improved from its lows, overall consumer discretionary spending is still negatively pressured due to an increase in unemployment rates since last year end, higher fuel prices and an increase in food inflation,” Eidson said. “Therefore, while we still expect the Michigan economy to grow, it will be at a slower rate than we originally anticipated. We remain confident that as the economy improves Spartan Stores is well positioned for increased growth as we continue to execute our capital investment program and we benefit from the rollout of our loyalty program to our Family Fare and D&W Fresh Market locations. The rollout began in mid September and while it is still early we are pleased with the initial consumer response. Consequently, we continue to remain cautiously optimistic about our operating outlook and the continued improvement of our key financial metrics in fiscal 2012.”

Spartan Stores Inc. distributes more than 40,000 corporate and national brand products to approximately 375 independent grocer locations in Michigan, Indiana and Ohio, and to 97 corporate owned stores located in Michigan, including D&W Fresh Markets, Family Fare Supermarkets, Glen’s Markets and VG’s Food and Pharmacy.

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