Spartan Q1 Net Sales, Operating Earnings Grow by Double Digits

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Spartan Q1 Net Sales, Operating Earnings Grow by Double Digits

Spartan Stores, Inc. yesterday posted consolidated net sales for its 12-week first quarter ended June 21, 2008 of $586.7 million, an increase of 12.8 percent from the $520.2 million reported last year, and a six-year high, according to the company.

Last year's first quarter included incremental sales related to the Easter holiday of about $6.0 million. Spartan attributed the net sales improvement to its acquisition of Felpausch Food Center stores, retail comparable-store sales growth of 1.6 percent (excluding fuel sales and Easter holiday sales last year), incremental fuel sales, and higher distribution sales to new and existing customers.

Operating earnings shot up 26.4 percent to $15.0 million from $11.9 million in the year-ago period. The improvement was due mainly to the acquired Felpausch stores and new distribution business, partially offset by the absence of Easter holiday sales this year, Spartan said. The operating earnings include $0.8 million in startup costs related to remodeling activity during the first quarter, vs. $0.5 million of startup costs related to the Felpausch acquisition last year.

First-quarter earnings from continuing operations grew 22.4 percent, reaching $7.6 million, or 35 cents per diluted share, vs. $6.2 million, or 29 cents per diluted share in the year-ago period.

Net earnings for the quarter rose an impressive 52.2 percent to $9.9 million, or 46 cents per diluted share, from $6.5 million, or 30 cents per diluted share, last year.

"We remain very pleased with the execution of our business plan during this challenging economic climate," said Spartan chairman and c.e.o. Craig C. Sturken. "Our first-quarter net earnings reached a record level, while net sales improved for the ninth consecutive quarter."

In the distribution segment, net sales went up 5.6 percent to $298.1 million from $282.4 million in the same period last year. The sales increase was due to incremental sales to new and existing customers, according to Spartan, which added that the increase was partly offset by the reclassification of $20.6 million in distribution sales to the acquired Felpausch stores and the absence of about $3.0 million in Easter holiday sales included in last year's first quarter.

Distribution segment operating earnings reached a first-quarter record, growing 43.7 percent to $7.5 million from $5.2 million last year. Spartan attributed the improvement to higher sales volumes to new and existing customers, better fixed-cost leverage, and improved gross profit margin rates. The margin rate improvement was caused mainly by the elimination of sales to the now corporately owned Felpausch retail stores and a higher mix of retailer support services sales, partly offset by higher LIFO inventory charges.

First-quarter retail net sales zoomed up 21.4 percent to $288.6 million from $237.8 million in year-ago period. The increase was mainly because of incremental sales from the acquired Felpausch retail stores, incremental fuel sales, and favorable sales growth from stores remodeled last year as part of the company's continuing capital investment initiatives, Spartan said. Excluding fuel sales, comparable-store sales for the quarter grew 0.2 percent. The Easter holiday contributed about $3.0 million in retail sales to last year's first quarter. Adjusted for the Easter shift and excluding fuel sales, comparable-store sales edged up 1.6 percent.

The retail sales growth was tempered by slower sales at stores the company's northern Michigan tourist markets, which experienced unseasonably cool and rainy weather during late spring and early summer, consumer response to higher fuel costs, and general economic conditions.

"Although our first-quarter comparable store sales performance was not at our historical run rate...our second-quarter rate should improve as we more fully realize the benefits of our capital investment program and because of the more favorable recent weather conditions in our northern Michigan markets," noted Sturken. "During the first quarter we completed major remodels on three Felpausch retail stores, which we grand reopened under the Family Fare banner. The preliminary sales trends from these stores are in line with our expectations and with the positive results we achieved at stores remodeled late in fiscal 2008."

First-quarter retail operating earnings rose 12.8 percent to $7.5 million from $6.7 million last year. The improvement in retail operating earnings was mainly due to the Felpausch retail store acquisition, partly offset by the aforementioned startup and promotional costs associated with remodeled store openings.

"As the year progresses, we will continue to execute our capital investment program, integrate our Felpausch retail stores, and further improve the efficiency and service levels in our distribution operation," noted Sturken, adding that in addition to several remodels in the second and third quarters, the company planned to execute "a major store relocation project and substantially complete a new store during the fourth quarter."

The new store is slated to open early in the first quarter fiscal 2010, and Spartan also expects to open as many as four more fuel centers during the rest of the current fiscal year, said Sturken.

Grand Rapids, Mich.-based Spartan Stores, Inc. is the 10th-largest grocery distributor in the United States, with warehouse facilities in Grand Rapids and Plymouth, Mich. The company distributes over 40,000 private-label and national brand products to nearly 400 independent grocery stores in Michigan, Indiana, and Ohio. Spartan also owns and operates 84 retail supermarkets in Michigan, including Family Fare Supermarkets, Glen's Markets, D&W Fresh Markets, and Felpausch Food Centers.