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GRAND RAPIDS, Mich. -- Consolidated net sales for the 12-week first quarter at Spartan Stores here jumped 15 percent to $528 million from $459.3 million in last year's first quarter, representing a five-year high, the company said.
The company said the improvement was due primarily to the inclusion of sales from the recently acquired D&W Food Centers stores, new distribution business, the Easter holiday sales shift to this year's first quarter and incremental fuel center sales.
During the first quarter ended June 17, 2006, Spartan's earnings, including a $4.5 million pretax asset impairments and exit costs charge related to the closure of two retail stores and a central bakery operation, were $6.9 million vs. $6 million in the same period last year. Excluding the asset impairments and exit costs charge, year-over-year first-quarter operating earnings improved significantly, company officials said.
"Our fiscal 2007 is off to a very strong start," said Craig C. Sturken, Spartan Stores' chairman, president and c.e.o. "Our retail and distribution operations achieved solid sales gains despite higher fuel costs and a challenging economic environment." Notwithstanding the asset impairments and exit costs charge, Spartan achieved the highest levels of first-quarter profitability in retail and distribution operations since becoming a public company, said Sturken.
"We remain optimistic about our sales and profit growth prospects for fiscal 2007," he added. "We expect that our distribution sales will continue to benefit from the stores added to our base late in the fiscal 2006 fourth quarter, and we expect to further increase sales penetration with certain existing customers."
While fiscal 2007 earnings are expected to continue showing improvement from a greater mix of higher margin retail sales and operational efficiencies from the D&W acquisition, Sturken said Spartan's first-quarter gross margin improvements will be partially offset by a higher level of promotional activity amid a challenging economic environment.
The store base rationalization inclusive of two stores and associated charge was incurred due to the proximity of certain acquired stores to the existing store base, said Sturken, noting that "this minor reduction of our store network was based on an evaluation of stores that were best positioned to provide our customers with the highest quality overall shopping experience. Although the charge reduced our first-quarter earnings performance, we expect the store rationalization decision to improve our ongoing earnings trends. In addition, we are pleased to report that the integration of our retail acquisition is on schedule and progressing as planned."
First-quarter net earnings were flat at $2.7 million, or $0.12 per share, compared with $2.7 million, or $0.12, in the same period last year. Spartan's first-quarter gross margin increased 90 basis points to 19.6 percent compared with 18.7 percent, an increase primarily attributable to a larger concentration of higher margin retail sales, market efficiencies and product mix changes resulting from the company's retail acquisition. These gains were partially offset by an increase in lower margin distribution and fuel center sales.
First-quarter operating expenses increased to $96.6 million, or 18.3 percent of sales compared with 17.4 percent of sales in the same quarter last year. The increase in operating expenses as a percentage of sales was due primarily to the asset impairments and exit costs charge, higher operating costs associated with the acquired retail operations, including approximately $1.1 million of training and other start-up related costs, and the higher concentration of retail sales as a percentage of consolidated net sales.
First-quarter earnings before interest, taxes, depreciation and amortization (EBITDA), increased by more than 44 percent to $17.6 million compared with EBITDA of $12.2 million in the same period last year. The EBITDA increase resulted from higher sales volumes in both the retail and distribution segments and improved gross margin rates at the company's retail operations due to market efficiency gains related to its recent retail store acquisition, which more than offset higher costs of utilities, fuel and bank card fees Spartan said.
First-quarter distribution net sales increased 7.5 percent to $275.9 million from $256.7 million in the same period last year, resulting from the addition of new distribution customers and sales increases among existing customers; and Easter holiday sales. Operating earnings for the segment increased 63.4 percent to $5.7 million vs. $3.5 million in the same period last year.
First-quarter retail sales increased 24.5 percent to $252.2 million from $202.6 million, due primarily to incremental sales from the acquired retail stores, and higher comparable store sales due to the Easter holiday and increased fuel center sales. However, the sales increase was partially offset by the previously disclosed closing of two Pharm stores in the prior fiscal year first quarter, and the influence of higher energy costs on consumer spending.
Same store sales at Spartan's supermarkets increased 4.7 percent during the first quarter, while Pharm comparable store sales increased 0.8 percent, resulting in a combined increase of 4 percent. Fuel center sales increased comparable store sales by 3.1 percent, while the Easter holiday sales contributed 1.5 percent to the comparable store sales increase.
Including the previously mentioned $4.5 million pretax asset impairments and exit costs charge, retail operating earnings were $1.2 million compared with $2.5 million in the same period last year. Last year's first-quarter retail operating earnings included a $0.4 million pretax charge for asset impairments.
With warehouse facilities in Grand Rapids and Plymouth, Mich., Spartan Stores supplies over 350 independent grocery stores in Michigan. Spartan Stores also owns and operates 68 retail supermarkets and 19 deep-discount food and drug stores in Michigan and Ohio, including Family Fare Supermarkets, Glen's Markets, D&W Fresh Markets, and The Pharm.