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Spartan Stores, Inc.’s consolidated net sales for the 12-week fourth quarter ended March 27, 2010 were $558.8 million, vs. $581.3 million last year. The company attributed the decline to lower retail and distribution sales because of the prevailing economic and competitive conditions, price deflation, and sold or closed stores.
Excluding a $4.8 million pretax charge for restructuring costs, fourth-quarter adjusted operating earnings came to $13.7 million, compared with last year’s fourth-quarter record of $17.3 million. Fourth-quarter operating earnings including the charge were $8.9 million. The decrease was due mainly to lower comparable-store sales volume, a $1.1 million decline in the LIFO inventory valuation credit, and a one-time payout connected a structural change in an employee benefit program, according to the company, adding that these items were partly mitigated by cost savings achieved through lower incentive compensation and benefit costs, in addition to other broad-based cost-saving initiatives.
“Although we continued to confront a challenging economic and market environment, this is the second consecutive year that we have achieved annual adjusted EBITDA of more than $100 million,” said Spartan president and CEO Dennis Eidson. “In addition, excluding the restructuring costs, fiscal 2010’s adjusted operating earnings were second only to the record level we reported last year. We continue to remain cautious in the near term, but are encouraged by the more positive trends in consumer confidence, discretionary spending and employment stability. Although price deflation continued in certain product categories during the quarter, it moderated on an overall basis. In addition, our fourth-quarter comparable-store sales trends, while still not at satisfactory levels, were better than we had been anticipating.”
Earnings from continuing operations for the quarter, excluding the aforementioned restructuring costs ($3.2 million after tax), were $6.5 million, or 29 cents per diluted share, compared with $8.2 million, or $0.37 per diluted share last year. Fourth-quarter earnings from continuing operations, including the charge, were $3.3 million, 15 cents per diluted share.
Fourth-quarter gross profit margin fell 70 basis points to 22.6 percent, from 23.3 percent in the year-ago period, primarily, the company said because of a higher mix of fuel and distribution segment sales in this year’s fourth quarter over last year, and the lower LIFO inventory valuation credit.
Distribution segment net sales in the fourth quarter were $244.3 million vs. $249.2 million in the year-ago period, which Spartan attributed primarily to the economy.
Retail-segment net sales in the fourth quarter were $314.4 million, compared with $332.0 million last year, due to such factors as lower comps and the loss of $6.2 million in sales at four stores that closed or were sold since the first quarter of fiscal 2010, Spartan said. Comps for the quarter, excluding gas, dropped 6.9 percent as a result of the economy, competitive market activity and retail price deflation.
Fourth-quarter adjusted retail operating earnings, excluding the segment’s portion of the previously mentioned pretax restructuring charge, were $1.5 million, vs. $2.7 million in the year-ago period. Retail-segment operating earnings including the charge were $0.9 million, which the company acknowledged were partly the result of lower comparable-store sales volumes.
Consolidated net sales for the fiscal year were $2.55 billion compared with $2.58 billion last year. The annual net sales decline was attributable to lower sales volumes due to the economic and competitive market environments, product price deflation and lower average retail fuel prices. Also contributing to the decline was lost sales of $9.3 million related to six retail stores that were closed or sold during fiscal 2010 and 2009. These factors were partially offset by $12.7 million in additional sales from five new fuel centers that were opened during the year.
Fiscal 2010’s adjusted operating earnings, excluding the fourth-quarter pretax restructuring charge, were $63.5 million compared with last year’s $72.7 million. Including the charge, fiscal 2010’s operating earnings were $58.7 million. Adjusted net earnings from continuing operations for fiscal 2010, excluding after-tax restructuring charges, were $29.1 million, or $1.29 per diluted share, vs. $35.0 million, or $1.57 per diluted share, last year. Including the charges, fiscal 2010’s net earnings were $25.6 million, or $1.14 per diluted share. Net earnings included a $0.4 million loss from discontinued operations, compared with earnings from discontinued operations of $1.8 million last year.
“During the year, we completed five major remodel projects, one store relocation, opened five new fuel centers and closed or sold four stores, two of which were transitioned to distribution customers,” observed Eidson. “We also completed the integration of our systems and many of our processes into the VG’s operation. Despite the challenging operating environment in southeast Michigan, we remain confident in the long-term development potential of our VG’s store base.”
Eidson additionally noted that, among other projects, Spartan introduced a loyalty card program at its Glen’s banner, introduced some private label fresh foods, refined its merchandising and marketing programs, implemented its first continuous customer satisfaction monitoring system, implemented a nutritional guide program covering 16,000 products, and debuted the Michigan’s Best initiative promoting 2,400 items made, grown and processed in the state.
“We expect to generate improved cash flow, to further strengthen our balance sheet and to execute additional elements of our consumer-centric business strategy during fiscal 2011,” added Eidson. “Consequently, we expect capital investments in fiscal 2011 to be significantly lower than the past several fiscal years, which will result in incremental cash flow that is available for strategic purposes or further debt reductions. We are also committed to taking aggressive actions to reduce structural costs and further improve our operating efficiency. These actions will allow us to improve our operating performance while delivering improved value to our customers.
Eidson added that the company believed that comps, excluding fuel, and net earnings for the first quarter of fiscal 2011 would be slightly higher than the fourth-quarter results.
Grand Rapids, Mich.-based Spartan is the nation’s 11th-largest grocery distributor with warehouse facilities in Grand Rapids and Plymouth, Mich. The company distributes over 40,000 private label and national brand products to about 375 independent grocery stores in Michigan, Indiana and Ohio. Spartan also owns and operates 96 retail supermarkets in Michigan, including Family Fare Supermarkets, Glen’s Markets, D&W Fresh Markets, Felpausch Food Centers and VG’s Food and Pharmacy.