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LOS ANGELES -- While sales for non-membership warehouse retailer Smart & Final Inc. grew, weak demand from business customers caused a drop in income for the company's fiscal second quarter.
For the 12-week period ending June 18, the retailer saw sales of $493.7 million, an increase of $9.6 million, or 2 percent, over last year's $484.1 million. Income from continuing operations was $5.8 million, or 18 cents per share, however, compared with $8.2 million, or 26 cents in 2005.
"Our second quarter results reflect the continuation of our strong store growth program, which as anticipated has increased operating costs, and also unexpectedly weak demand in the spring season among certain classes of business customers," said Etienne Snollaerts, president and c.e.o. "In the second quarter, the contribution from continued strong gross margin rates and improving trends in distribution costs partially offset the increase in costs resulting from our store development program."
Included in the operating results for the quarter was $500,000 in costs associated with the company's assessment of strategic alternatives. Comparable store sales growth for the second quarter was a negative 0.3 percent, unadjusted for cannibalization of comparable store sales by new stores opened in the past 12 months.
"By utilizing our extensive customer database we've identified target groups of customers and have developed strong incentive programs to re-build sales momentum with these key businesses as well as with targeted groups of household customers," Snollaerts added. "We're continuing to make progress during 2006 in controlling distribution costs to better leverage our sales growth. We're also pursuing store development and although we did not have any new store openings in the second quarter, we have stores in development for opening during the balance of 2006."
Operating and administrative expenses as a percentage of sales increased to 14.1 percent for the quarter, up from 13.3 percent in 2005, an increase attributed to increased store operating costs, increased information systems costs, and costs associated with the company's assessment of strategic alternatives.
Smart & Final said in April that it had engaged Goldman Sachs & Co. to act as financial advisor to the company in studying potential strategic alternatives, in light of an announcement by the company's majority shareholder, Casino Guichard-Perrachon S.A., that it is studying the potential sale of non-core portfolio assets.
The company's assessment of strategic alternatives is ongoing, and it said it has incurred $900,000 of associated costs through the end of its fiscal second quarter.
Smart & Final Inc. operates 250 non-membership warehouse stores for food and foodservice supplies in California, Oregon, Washington, Arizona, Nevada, Idaho, and northern Mexico.