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Smart & Final's 2Q Results Disappointing

LOS ANGELES - Citing the pressures of increased competition and added costs, Smart & Final Inc. reported a 40 percent fall in net income for the second quarter ended June 16. Income was $2.1 million versus $3.6 million in 2001's second quarter. Year-to-date, net income totaled $2.6 million, compared with $4.2 million during the same period last year.

"The second quarter income results were below our expectations, and represent our most competitively difficult quarter in the past three years," said Ross Roeder, c.e.o. of Smart & Final, an operator of more than 220 supermarkets that places No. 32 on Progressive Grocer's Super 50 list of top chains. "We have taken several steps to address the current environment, and we remain optimistic that fiscal 2002 continues to represent a solid opportunity for growth in sales and operating income."

In the second quarter of 2002, total company sales increased 2.7 percent as compared to the prior year quarter to $476.1 million. Store sales increased 5.7 percent to $386.6 million, with comparable store sales up 3.5 percent for the quarter. Overall, foodservice distribution sales declined 8.4 percent to $89.5 million in the quarter.

"We're pleased to be able to report positive comparable store sales against a very weak industry backdrop, although store-level margins and operating expenses reflected the competitive pressures," Roeder said. "We continue to see good long-term opportunities through expansion of the stores segment, and during the quarter we opened two new stores and continued our aggressive store remodeling program."

Company average gross margin declined by 0.9 percent to $64.8 million for the second quarter 2002 from $65.3 million on a restated basis in the prior year quarter. Year-to-date, 2002 gross margin increased by 1.0 percent to $124.3 million from $123.1 million in 2001.

In the second quarter of 2002, operating and administrative expenses increased by 3.5 percent to $59.0 million, primarily reflecting increased costs from additional stores and marketing programs, as compared to $57.0 million in the prior year quarter as restated. Year-to-date, operating and administrative expenses have increased by 3.0 percent to $114.4 million from $111.1 million in 2001.

Smart & Final opened wo new stores during the second quarter in Chino, Calif. and Las Vegas. Additionally, 15 existing stores were remodeled during the second quarter, bringing the year-to-date total of remodeled stores to 25. Two stores were closed during the quarter, in Berkeley, Calif. and in Hialeah, Fla. At the end of the 2002 second quarter the company operated 235 stores, compared with 226 stores in 2001.
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