Spartan retail sales grow, but pharmacy unit crimps distribution

February 5, 2009
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Spartan Stores continued its pattern of growth in the third quarter, with a 12th consecutive quarter of double-digit growth in operating earnings.

However, third-quarter consolidated net sales pulled back to $781.9 million from $787.8 million. 

Net earnings grew from $7.9 million, 36 cents per diluted share, in fiscal 2008’s third quarter, adjusted for a one-time $2.7 million tax credit prompted by the change in the state tax code, to $8.9 million, or 41 cents per diluted share.

Net earnings were reported for last year’s third quarter at $10.6 million, 49 cents per diluted share, thanks to the state tax credit. Spartan Vice President Jeanne Norcross said the effect of the 2008 implementation of the Michigan Business Tax was to inflate last year’s numbers.

The Byron Center-based grocery store owner and grocery distributor posted comparable store retail sales growth of 3.3 percent for the third quarter, while overall retail sales grew 1.8 percent. Net retail sales increased from $377.1 million last year to $384 million.

Spartan’s distribution segment saw net sales drop by about 3 percent, from $410.7 million to $397.9 million. The company attributed that to a drop in pharmacy product sales of $9.1 million and $2.6 million in sales to VG’s Food and Pharmacy stores, which Spartan has purchased and added to its retail segment.

However, distribution operating earnings grew from $10.9 million in last year’s third quarter to $11.1 million, reflecting expense control, the company said.

In a statement, CEO Dennis Eidson was cautious about fourth-quarter retail sales.

“We expect comparable retail store sales to increase in the low single-digits during the remainder of fiscal 2009, but be below our third-quarter results, due to the cycling of sales from sales remodeled last year,” Eidson said.

He also noted that the 2009 fiscal year is devoid of an Easter holiday, which accounted for a 1.2 percent bump in comparable store sales last year.

He said the fourth quarter also will host start-up and transition costs for Spartan’s acquisition of VG’s in the eastern Lower Peninsula, as well as $1 million in costs for store openings and remodeling projects.

With distribution service to Martin’s Super Markets in Indiana and some former Farmer Jack’s stores in Detroit now integrated into Spartan’s operations, no big boosts are expected in the fourth quarter for the grocery distribution side of the business, Eidson said.

Third quarter operating earnings grew by 17.4 percent, from $15.2 million last year to $17.9 million.

Norcross said Spartan still is planning on adding stores in the Grand Rapids area, including at East Beltline Avenue and Knapp Street NE, in Metro Health Village, at Fuller Avenue and Michigan Street NE and in Plainfield Township. The company is waiting for developers and the municipalities to work through zoning and design issues, she said.

“Each one takes time. Each on has a different set of issues,” Norcross said. “Hopefully we can move forward on them.”

The former Feldpausch store in Hastings has been remodeled and re-opened as a Family Fare recently, she added. Remodeling is underway at stores in Battle Creek and Gaylord, and a replacement store is under construction in Manistee, Norcross said.

Spartan has sold two stores in the Grand Rapids area and two elsewhere in Michigan and closed a Felpausch store in Jackson, she added.

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