Spartan Earnings Up 65 Percent

July 25, 2005
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GRAND RAPIDS — Spartan Stores Inc. reported its sixth consecutive quarter of year-over-year earnings improvement Thursday, posting a 65.7 percent increase in first quarter net earnings, which were $2.8 million, or 13 cents per diluted share, compared with $1.7 million, or 8 cents per share, in 2005's first quarter. The company added new distribution customers and new stores to its base, while seven new supercenters provide competition.

Another highlight of the quarter was an operating earnings improvement of 23 percent to $6 million.

Net sales for the quarter ended June 18, however, declined to $459.3 million, compared with $474.3 million in the prior year's first quarter. The company attributed the sales decline to:

  • Disposition and closure of a Pharm store ($6 million);
  • Openings of competitive supercenters in the quarter ($7 million);
  • Shift in the Easter holiday from the first quarter of fiscal 2006 to the fourth quarter of 2005 ($6 million); and
  • Transition of two distribution accounts to new suppliers ($5 million).

The nearly 66 percent increase in earnings was achieved despite the opening of an additional five supercenters and one Costco, noted President, Chairman and CEO Craig C. Sturken.

"With additions since August of last year, we have been competing with as many as seven new supercenters and two new Costco's," he pointed out.

Excluding the effect of the Easter holiday shift, first quarter distribution sales were consistent with the same period last year, and the sale of the two distribution accounts was offset by an increase in sales to new and existing customers, Sturken further pointed out.

Spartan welcomed several new distribution customers during the quarter and added 27 stores to its distribution base. He said the company expects that all the stores will be fully operational by the end of the second quarter and to generate $30 million to $35 million in annual distribution sales.

Overall retail sales in Spartan's core supermarkets declined during the quarter to $202.6 million from $213.5 million in the corresponding period last year. Sturken said stores not affected by the supercenter openings showed solid sales growth. The three fuel centers and four in-store pharmacies opened since third quarter 2004 continued to add to sales, he noted, and the company continued to make progress with its private label program.

With the Easter holiday shift and sale of the two distribution accounts, first-quarter distribution net sales were $256.7 million compared with $260.8 million in last year's first quarter.

"From a profit perspective, fiscal 2006 is off to a good start," Sturken said, but the competitive environment will continue to be very challenging. Two new supercenters will open in fiscal 2005 but will not cycle in until the second half of fiscal 2006.

The company intends to expand one store, complete store remodels and/or merchandise resets at 10 to 13 additional stores and begin construction on one or two new stores during fiscal 2006.

"We expect earnings for fiscal 2006's second quarter to approach the results of last year's second quarter, excluding one-time events," Sturken stated.    

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