Spartan Stores Reports Sales, Earnings Growth

October 18, 2007
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BYRON CENTER — Spartan Stores Inc. reported growth in operating earnings and consolidated net sales for the second quarter on Thursday.

Operating earnings saw the seventh straight quarter of growth, improving by 11.9 percent to $20.1 million, compared to $17.9 million in last year’s second quarter. Consolidated net sales were boosted by 13.5 percent to $627.1 million. Craig Sturken, CEO, president and chairman, attributed the six-year sales high to the June acquisition of the Felpausch Food Centers and growth on the distribution side with expansion of service to the Martin Super Markets in Indiana and to Detroit-area Spartan customers taking over former Farmer Jack’s stores. Sturken said so far Spartan customers have re-opened nine former Farmer Jack’s stores, and five more are expected.

In distribution, net sales increased by 4.4 percent to $293.8 million. Growth in Indiana and Southeast Michigan was offset by the Felpausch stores, formerly a distribution customer, joining Spartan’s retail family. Distribution expansion is prompting some changes in the local warehouse, Sturken said.

“Now we’re going through the process of re-racking and re-distributing so we can put the product where it belongs,” Sturken told analysts Thursday. “There are lots of opportunities for us to incorporate both technology and expertise from other people such as consultants that know how there’s a better way to do it.”

In retail, net sales increased 22.9 percent, to $333 million, over the same period last year. Sturken attributed that to strong comparable sales growth and the Felpausch acquisition. He said sales at three recently remodeled D&W Fresh Markets exceeded expectations and Spartan was delighted when a test re-branding that turned an Eaton Rapids Felpausch store into a Family Fare was well-received by consumers.

COO Dennis Eidson said Spartan’s private label products are proving to be a sales hit.

“Private label really has been a driver for us, and the profitability is significantly better than on the branded side,” he said. “It’s paying great dividends on both sides of the house. We ran TV on Spartan brand product in the state of Michigan and in northern Indiana, in markets where we don’t have corporate stores, supporting our distribution customers.”

The company still is on target for $40 million to $45 million in capital expenditures for the fiscal year, with seven more remodels planned over the third and fourth quarters.

Sturken told analysts that customer count and sales per transaction “have more or less flattened out.” He said Spartan remains open to additional acquisitions in Michigan or neighboring states. Also generic drugs and multi-month prescriptions are pressuring pharmacy financials, he added, as they are for competitors.

Spartan’s (NASDAQ:SPTN) stock price this morning bumped up to $24.17.

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