Sales Down, Earnings Up in Spartan’s Q3

Spartan Stores Inc. reported consolidated net sales for its third quarter ended Jan. 1 of $782.3 million, a drop of about 0.6 percent compared to the same period last year.

This slight decline was due primarily to lower supermarket sales, substantially offset by higher fuel center and distribution segment sales, the company explained.

“Third-quarter results performed consistent with our previous guidance,” said Dennis Eidson, Spartan’s president and CEO. “Our retail comparable store sales have shown improvement on a sequential basis for the past three quarters and our operating earnings remain at historically strong levels. We continue to generate strong cash flow, as net cash from operations on a year-to-date basis reached a record $62.5 million in the third quarter. The strength of our cash generation is being driven largely by fundamental improvements in our distribution segment, including significantly better inventory management and operating efficiency gains. The improved cash flow allowed us to further improve our balance sheet, placing us in excellent financial condition, as net long-term debt declined by nearly $47 million compared with the same period last year.”

Spartan reported Q3 operating earnings of $16.6 million compared with $13.7 million in the year-ago period. The third-quarter benefit related primarily to lease terminations and he restructuring of the company’s retirement plans. Q3 gross profit margin increased 10 basis points to 21.1 percent from 21 percent in the same period last year, due to improved margin contribution from retail and fuel center operations.

Operating expenses totaled $148.2 million, or 18.9 percent of sales, compared with $151.8 million, or 19.3 percent of sales in the year-ago quarter.

Q3 net sales for the distribution segment rose to $346.9 million from $343.6 million in the year-ago period, due largely to an improvement in pharmacy related sales. Operating earnings for the segment were $15.4 million compared with $11.7 million in the same period last year.

Net Q3 retail sales were $435.4 million compared to $443.4 million in the same period last year. The lower sales were due primarily to a decline in comparable store sales, excluding fuel centers, of 4.4 percent.

“We continue to make incremental changes to our operations that are improving the fundamental operating structure and effectiveness of our business strategy,” Eidson said. “Our inventory management initiatives are improving efficiencies, lowering working capital requirements and reducing borrowing costs to further benefit our long-term growth.”

He continued: “We will continue to work diligently to further improve our sales trends and manage controllable aspects of our business. Currently, we are rolling out our loyalty card program to the VG’s retail consumer and are pleased with the progress of the program, the valuable insight it brings to our marketing and merchandising efforts, and most importantly, the enhanced value it provides our customers. In the fourth quarter, we will incur an additional $500,000 of expenses related to the launch of the program.”

In the remainder of fiscal 2011, the company expects Q4 retail comparable store sales, excluding fuel centers, to continue to improve relative to Q3 results, with distribution sales approximating last year’s levels.

Grand Rapids, Mich.-based Spartan Stores Inc. distributes more than 40,000 corporate and national brand products to approximately 370 independent grocery stores in Michigan, Indiana and Ohio, and to 97 corporate-owned stores in Michigan, including Family Fare Supermarkets, Glen’s Markets, D&W Fresh Markets and VG’s Food and Pharmacy.