Spartan Stock Slips On Quarterly News

February 6, 2006
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GRAND RAPIDS — Sales are up. Costs are up. Profits are down, and so are shares of Spartan Stores Inc., following the announcement last week of the grocery wholesaler and retailer’s performance in the third quarter of fiscal 2006.

Despite growth in a number of areas, the company’s financial results for the period ending Dec. 31 were hampered by intense retail competition, increased utility costs, and several unusual one-time charges and credits.

Investors were quick to react to the unfavorable news. Within two hours of the company’s earnings report, the NASDAQ-traded stock had fallen in value by nearly 7 percent.

The company expects stronger performance in 2007, as it will likely complete the acquisition of 20 D&W Food Centers stores, as well as adding several profitable fuel centers and pharmacies to its existing facilities.

The company recorded quarterly net sales of $642,274, a 2.8 percent increase from 2005 revenues. However, expenses and cost of sales were up 3.4 percent collectively, causing the company’s operating earnings to dip to $8.4 million for the quarter, down 27 percent from the third quarter of fiscal 2005. Quarterly net earnings fell 26 percent to $3.4 million, or 16 cents per share.

Despite the decrease in profitability, Spartan Chairman, President & CEO Craig C. Sturken put a positive spin on the company’s areas of growth.

“We are very pleased with our third-quarter results,” he said. “We continue to gain distribution business through incremental product sales to existing customers, and by securing new accounts. Excluding the unusual items, third-quarter profitability improved on a year-over-year basis.”

Those unusual items accounted for roughly $2 million in expenses in this quarter (including a $300,000 purchase of “banana-ripening equipment”), compared to a $1 million credit in the third quarter of 2005.

As Sturken mentioned, the company’s wholesale distribution business saw a revenue increase of 8.2 percent. Because of lower margins and higher operating expenses, operating income increased by just 5.7 percent.

Retail sales, on the other hand, were off 4 percent from last year’s quarterly results. Quarterly operating earnings of $1.1 million from the retail segment were off by 75 percent from last year’s $4.6 million. On a year-to-date basis, however, they are down just 12 percent.

The company does not expect the final quarter of fiscal 2006 to represent a rally in terms of sales or profitability.

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