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Spartan Stores 2Q Net Earnings Triple, Operating Earnings Jump More Than 80 Percent

GRAND RAPIDS, Mich. - Despite a drag on consolidated net sales from a decline in its distribution segment, Spartan Stores' overall fiscal 2005 second quarter results reflected skyrocketing net earnings and operating income, the company reported yesterday.

"We are pleased to report a substantial increase in profitability during the second quarter," stated Craig C. Sturken, Spartan Stores' chairman, president and c.e.o. "The second-quarter operating and net earnings are at the highest levels in the past three years. Our business focus of maintaining an appropriate balance of sales growth, cost control, and profit growth led to this dramatic improvement. "

Consolidated net sales for the 12-week second quarter were $486.7 million compared with $491.4 million in the corresponding 12-week period last year. Second-quarter retail comparable store sales increased 1.4 percent due to a strong performance in the company's supermarket division and the previously disclosed change in accounting for bottle deposits, which contributed 0.7 percent to the comparable store sales increase.

Operating earnings increased by more than 80 percent to $13.2 million from $7.3 million in last year's second quarter. The operating earnings improvement was due to a higher gross margin rate and lower operating expenses.

Second-quarter net earnings of $7.0 million, or $0.34 per diluted share, were more than three times higher than last year's second-quarter net earnings of $1.8 million, or $0.09 per diluted share.

Gross margin improved 60 basis points to 19.5 percent compared with 18.9 percent in last year's second quarter as a result of the change in timing of certain new product initiatives disclosed in the prior quarter.

Operating expenses declined 4.4 percent to $81.8 million from $85.6 million in last year's second quarter. As a percentage of sales, operating expenses declined 60 basis points to 16.8 percent compared with 17.4 percent in the corresponding quarter last year. The operating expense improvement was due to more efficient store labor, lower depreciation expense, and the effects of the company's continuing cost containment policies, partially offset by higher employee benefit costs, Spartan said. Also contributing to the operating earnings improvement was a non-recurring $1 million contract termination and non-performance payment received from a former distribution customer, which was recorded as an offset to selling, general, and administrative expense.
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