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Smart & Final Posts 4Q 6 Percent Sales Rise, Plans to Open 15 New Stores in 2005

LOS ANGELES -- Smart & Final Inc. late last week reported fourth-quarter 2004 sales for the 13-week quarter ended Jan. 2 of $471.2 million, a jump of $26.8 million or 6.0 percent over year-ago fourth-quarter sales of $444.4 million.

The retailer's 2004 fourth-quarter sales are based on a 13-week period, while the 2003 fourth quarter consisted of 12 weeks and additionally included the positive effect on sales from the Southern California strike/lockout. Adjusting for the effect of the extra week, the 2004 fourth-quarter comparable-store sales growth rate decreased 1.3 percent. On a two-year basis over the 2002 to 2004 period, fourth-quarter comparable store sales have increased by a compounded annual rate of more than 9 percent.

Income from continuing operations was $4.6 million for the fourth quarter 2004, including a $1.5 million after-tax noncash charge for software impairment. Income from continuing operations in the year-ago period was $9.2 million, including the positive impact on sales of the strike/lockout and the partial reversal of litigation and other charges taken earlier in 2003.

President and c.e.o. Etienne Snollaerts said in a statement: "We are very pleased by our operating performance in the fourth quarter, particularly when compared to the extremely robust final quarter of 2003. We continued to hold onto a substantial portion of the Southern California business that we garnered during last year's labor action, and sales in our other geographic regions also grew at impressive rates. In the fourth quarter our average transaction increased 5.3 percent to over $41, which provides continuing evidence of the strong value retailing proposition that we are offering our customers."

"In the fourth quarter we chose to increase marketing expenses and store operating labor, and built store-level inventories, to clearly present our dynamic store concept to both current and potential customers in the key holiday season," he continued. "While these actions modestly impacted operating and financial measures in the quarter, we believe that they are serving to reinforce our value proposition in the marketplace."

Gross margin from continuing operations rose $3.1 million, or 4.1 percent, to $80.2 million for the fourth quarter of 2004 as compared with $77.1 million for the prior year's fourth quarter. The rise in gross margin was mainly because of the rise in sales over the year-ago quarter partially offset by a slight decline in the gross margin rate. As a percentage of sales, gross margin declined to 17.0 percent for fourth quarter 2004, vs. 17.3 percent for fourth quarter 2003. This decline was primarily attributable to higher distribution costs and sales mix changes partially offset by lower occupancy costs as a percentage of sales, because the relatively fixed nature of these costs.

Smart & Final opened three stores in the 2004 fourth quarter, in Chatsworth, Calif.; Tempe, Ariz.; and Tijuana, Baja California, Mexico. Additionally, one store, now in Lawndale, Calif., was relocated during that quarter. The retailer operated 234 stores at the end of 2004 compared with 229 stores at the end of 2003, as reported on a continuing operations basis. During the Smart & Final conference call on Friday Snollaerts said that in 2005 the company planned to open at least 15 new stores within its geographic locations in both store concepts, Smart & Final and Cash & Carry, and that the retailer had already identified some future store locations for 2006. Snollaerts expected that Smart & Final would maintain a growth base of 15 new stores annually "for the next few years." Additionally, Snollaerts said that the Cash & Carry format was moving south, with the first Los Angeles-area store slated to open, although he didn't give a date.

Discussing store initiatives for 2005, Snollaerts mentioned that the retailer was overhauling the culinary sections in its stores, with a view to making them more appealing to restaurant owners and other professional customers, as well as retail shoppers, through the inclusion of "high-quality, long-duration items." He also noted that the grocer was "increasing activity" in its dairy and refrigerated sections by slightly decreasing their size, which would not only cut costs but allow for fresher products, thereby leading to increased customer visits.

For the full year 2004, sales were $1,955.6 million, a rise of $225.5 million or 13.0 percent over full year 2003 sales of $1,730.1 million. Full-year 2004 comparable sales, adjusted for the effect of the extra week, went up 11.0 percent over the 2003 level. Full-year gross margin from continuing operations increased $42.1 million, or 14.2 percent, to $339.1 million for 2004, as opposed to $297.0 million for 2003.

Smart & Final Inc. currently operates 235 nonmembership warehouse stores for food and foodservice supplies in California, Oregon, Washington, Arizona, Nevada, Idaho, and Northern Mexico.
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