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    Ingles Markets Q3 Sales Up, but Earnings Dip

    Ingles Markets, Inc. yesterday posted higher sales (excluding gasoline) for the three- and nine-month periods ended June 27,2009, vs. the same periods of the previous year. Net income was lower for the three- and nine-month periods, however, which the Southeast regional grocer attributed to increased costs related to store development, general economic conditions, and costs associated with the company’s refinancing in the third quarter of fiscal 2009.

    Ingles Markets, Inc. yesterday posted higher sales (excluding gasoline) for the three- and nine-month periods ended June 27,2009, vs. the same periods of the previous year. Net income was lower for the three- and nine-month periods, however, which the Southeast regional grocer attributed to increased costs related to store development, general economic conditions, and costs associated with the company’s refinancing in the third quarter of fiscal 2009.

    Net income came to $4.7 million for the three months ended and $23.6 million for the nine months ended June 27, compared with $16.0 million and $41.6 million in the year-ago periods. The 2009 results include $10.2 million of prepayment penalties and loan cost write-offs in connection with the grocer’s issuance of $575 million in bonds in May 2009. The senior notes were issued at a yield of 9.5 percent per annum and are due 2017. Proceeds were used to repay $350 million aggregate principal amount of subordinated notes due 2011, repay amounts outstanding under its lines of credit, and repay other debts with either high interest rates or upcoming maturity.

    “The credit markets have been substantially closed for the past couple of years and could continue to be difficult for the foreseeable future,” noted Ingles CEO Robert P. Ingle. “A window of opportunity opened in May, and we took advantage of favorable conditions to implement this refinancing.”

    Net sales were $826.8 million for the three months ended June 27, vs. $835.3 million last year. Excluding gasoline, net sales rose 5.1 percent. The average retail price of gasoline declined by about $1.50 per gallon compared with the year-ago period.

    Sales comparisons for the quarter were additionally affected by the timing of Easter, which in fiscal 2008 fell in the company’s second fiscal quarter, but occurred in its third quarter in fiscal 2009. Excluding gasoline sales and the effect of Easter sales, grocery segment comps increased 1.9 percent for the three months ended June 27, 2009, compared with last year. The number of customer transactions (excluding gasoline) grew 7.8 percent, while the average transaction size (excluding gasoline) declined by about 1.3 percent.

    Gross profit for the third quarter of 2009 went up 6.4 percent, to $203.4 million, a $12.3million increase over the year-ago period. Gross profit, as a percentage of sales, grew to 24.6% for the quarter compared with 22.9 percent last year. The increase in gross profit dollars was due to higher sales, the company said, adding that gross profit as a percentage of sales increased mainly because of lower gasoline prices. Excluding gas sales, grocery segment gross profit as a percentage of sales was 27.6 percent for the third quarter of 2009, vs. 27.7 percent for the year-ago period. Ingles noted that it “has responded to the current competitive and economic environment by keeping prices as low as possible in order to grow sales and build market share.”

    For the nine months ended June 2009, Net sales grew $25.5 million, or 1.1 percent, to $2.42 billion. Excluding gas sales where the retail per gallon price was 36 percent lower, sales rose 5.3 percent over the comparable nine-month periods and comps sales for the nine-month period ended June 2009 went up 3.9 percent. Excluding gas, the number of customer transactions increased 7.2 percent and the average transaction size declined by 18 cents. The company said it thought the reason for this was that customers are eating at home more often and are buying private label and value-priced products more often.

    Gross profit dollars for the June 2009 nine-month period increased $37.0 million, or 6.7 percent, to $593.2 million, vs. $556.2 million for the year-ago period. Gross profit as a percentage of sales was 24.5 percent and 23.2 percent for the nine months ended June 27, 2009, and June 28, 2008, respectively. Excluding gas sales, grocery segment gross profit as a percentage of sales was 27.0 percent for the nine months ended June 27, 2009, compared with 27.2 percent last year.

    Net income amounted to $23.6 million, 1.0 percent of sales, for the nine-month period ended June 27,2009, compared with $41.7 million, 1.7 percent of sales, for year-ago period.

    During the June 2009 nine-month period, Ingles completed four new stores, two remodeled stores and four replacement stores, and built nine fuel centers. Capital expenditures for the June 2009 nine-month period were $127.4 million and are expected to come to about $150 million for the full fiscal year, including expenditures for stores slated to open in fiscal 2010.

    Asheville, N.C.-based Ingles operates 201 supermarkets in six southeastern states. The company also operates 73 neighborhood shopping centers, all but 16 of which contain an Ingles supermarket.

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