GRAND RAPIDS, Mich., Oct 17, 2002 (BUSINESS WIRE) -- Spartan Stores, Inc., (Nasdaq:SPTN) today reported financial results for its fiscal 2003 second quarter ending September 14, 2002.
Consolidated net sales for fiscal 2003's 12-week second quarter decreased 5.3 percent to $796.7 million from $841.1 million in last year's second quarter. The overall sales decline was due to difficult economic and competitive climates, the under performance of the company's existing marketing program, and the closing of 10 stores that took place during the second quarter. The sales decline was partially offset by an improvement in the company's convenience store distribution segment sales.
Second-quarter retail sales declined 7.1 percent, with comparable-store sales declining 5.2 percent for the quarter; a sequential improvement over the adjusted (excluding the effect of an early Easter) 6.7 percent decline reported in the first quarter.
"We reported an operating profit of $2.1 million in the second quarter and have made meaningful progress strengthening our balance sheet," said Spartan Stores' Chairman, President, and Chief Executive Officer, James B. Meyer. "Working capital reduction initiatives allowed us to generate $33.8 million in cash from operations this quarter, approximately $15.0 million more than last year's second quarter. This increase in operating cash flow along with proceeds from the sale of non-operating real estate allowed us to pay down approximately $23 million in bank debt during the quarter. Including the current portion, long-term debt at September 14, 2002, declined by $47 million, or approximately 15 percent, to $274.1 million from $321.1 million at March 30, 2002."
Gross margin for the second quarter declined by 160 basis points to 16.3 percent from 17.9 percent in last year's second quarter. The decline was primarily due to the competitive environment in the company's southern retail division, which began to significantly affect retail gross margins in the third quarter of last year, and a higher percentage of consolidated sales coming from the lower margin convenience store distribution segment. Selling, general, and administrative (SG&A) expense, including depreciation and amortization, declined $5.5 million compared to the prior year period as a result of the company's cost cutting initiatives, store closings, and the elimination of goodwill amortization. As a percentage of sales, SG&A expense rose to 16.0 percent compared with 15.8 percent for the corresponding period last year. The percentage increase was principally due to sales declining faster than costs, reducing fixed cost leverage. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), decreased to $15.1 million compared with $29.7 million in last year's second quarter. The decline in EBITDA was due principally to lower sales in the retail and grocery distribution segments, and significantly lower gross margin rates in the southern retail division. Net loss for the second quarter totaled $586,000, or $0.03 per diluted share, compared with net earnings of $9.2 million, or $0.47 per diluted share, in last year's second quarter. The quarter included $1.0 million of severance charges for the store closings and staff reductions, a $0.4 million charge for an additional write off of Kmart receivables, and a $0.4 million gain from the sale of pharmacy records at closed stores. Also included in the quarter was a $1.9 million pretax gain from the sale of non-core real estate.
"We continued to refine our organizational structure and business strategy during the second quarter," said Mr. Meyer. "Fundamental changes included segregating critical elements of our retail and distribution operations. Each operation now has distinct merchandising and marketing responsibilities and more focused performance accountability. We have appointed veteran retail and distribution industry executives with proven track records in these key positions. With this change, we now have better organizational alignment with our customer base for each business segment. This structure will also strengthen and support our retail neighborhood marketing strategy by dedicating resources to better understand and bring the right combination of products and pricing to each unique market with a consistent and high level of customer service. We have also modified our retail pricing strategy to make us more competitive and believe that consumers in our market areas will re-discover compelling values on products they desire most.
"Cost controls in our grocery distribution network helped push operating income for this segment up 2.5 percent in the second quarter on an 8.9 percent decline in sales. Our marketing program has also been fundamentally changed. Most importantly, we have eliminated the advertising component, allowing our owned stores and independent customers the desired flexibility to design market specific promotional and merchandising programs. This change significantly advances our goal of providing larger product discounts and continually reducing costs to our owned stores and independent customers, and we expect it to enhance our opportunities to expand sales with existing and new customers.
"We are also pleased to report an increase in convenience store distribution sales during the quarter," continued Mr. Meyer. "Our efforts to aggressively pursue new business is increasing our market penetration and growing our customer base, while price inflation in the cigarette category continues to benefit our sales. Our information technology and excellent execution of order accuracy, on-time delivery, and customer service is also contributing to this segment's success. Similar to the structure now in place for our retail and grocery distribution operations, this business unit operates with separate resources in critical areas necessary to service the distinct product and distribution requirements of convenience store operators. Operational integration with the grocery distribution segment occurs where it economically improves customer service and network efficiency.
"The fundamental and structural changes made during this transitional period are creating a more operationally sound organization that should bring each business segment closer to our customers, helping to provide even better service and is expected to drive operating and financial performance above the levels that we have been reporting during this challenging period. Examples of strong and successful regional grocery operators are evident in our industry and we firmly believe that these steps bring us closer to achieving our goal of being included in that group."
A telephone conference call to discuss the Company's second-quarter financial results is scheduled for 9:00 a.m. Eastern Time, Friday, October 18, 2002. A live webcast of this conference call will be available on the Company's website, www.spartanstores.com. Simply click on "Investor Information" and follow the links to the live webcast. The webcast will remain available for replay on the Company's website for approximately ten days.
Spartan Stores, Inc., (Nasdaq:SPTN) Grand Rapids, Michigan, owns and operates 94 supermarkets and 21 deep-discount drug stores in Michigan and Ohio, including Ashcraft's Markets, Family Fare Supermarkets, Food Town, Glen's Markets, Great Day Food Centers, Prevo's Family Markets and The Pharm. The Company also distributes more than 40,000 private-label and national brand products to more than 330 independent grocery stores and serves as a wholesale distributor to 6,600 convenience stores.
This press release contains forward-looking statements about Spartan Stores' plans, strategies, objectives, goals, or expectations. These forward-looking statements are identifiable by words or phrases indicating that Spartan Stores or management "expects," "anticipates," "projects," "plans," "believes," "intends," or is "optimistic" that a particular occurrence "may," "could" or "will likely" result or that a particular event "may" or "will likely" occur in the future or similarly stated expectations. These forward-looking statements are subject to a number of factors that could cause actual results to differ materially. Our ability to strengthen our retail-store performance, particularly in our southern retail division; improve sales growth; increase profit margin; reduce operating cost structures; and implement the other plans, strategies, objectives, goals or expectations described in this press release will be affected by, among other factors, competitive pressures among food retail and distribution companies; changes in economic conditions generally or in the markets and geographic areas that we serve; integration of our acquisitions and our retail and distribution operations; adverse effects of the changing food and distribution industries; sales declines; loss of customers or suppliers; changes in the interest rate environment; continued compliance with our credit facility; and labor shortages or stoppages. Additional information about these and other factors that may adversely effect these forward-looking statements are contained in Spartan Stores' reports and filings with the Securities and Exchange Commission. Spartan Stores undertakes no obligation to update or revise any forward-looking statements to reflect developments or information obtained after the date of this press release.
SPARTAN STORES, INC. AND SUBSIDIARIES
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
Second Quarter Ended Year-to-Date Ended
(Unaudited) (Unaudited)
-------------------- ---------------------
(12 weeks) (12 weeks) (24 weeks) (24 weeks)
Sept. 14, Sept. 15, Sept. 14, Sept. 15,
2002 2001 2002 2001
--------- --------- --------- ---------
Net sales $ 796,736 $ 841,124 $ 1,562,357 $ 1,673,632
Cost of sales 667,035 690,562 1,304,247 1,379,129
--------- --------- --------- ---------
Gross margin 129,701 150,562 258,110 294,503
--------- --------- --------- ---------
Operating expenses
Selling, general
and administrative 117,821 121,954 230,725 240,142
Provision for store
closings and asset
impairment 0 0 13,000 0
Depreciation and
amortization 9,748 11,084 19,666 21,723
--------- --------- --------- ---------
Total operating expenses 127,569 133,038 263,391 261,865
--------- --------- --------- ---------
Operating income (loss) 2,132 17,524 (5,281) 32,638
--------- --------- --------- ---------
Non-operating
expense (income)
Interest expense 5,737 5,881 11,307 12,593
Interest income (296) (740) (634) (1,152)
Other gains (2,464) (1,502) (2,472) (1,520)
--------- --------- --------- ---------
Total non-operating
expense, net 2,977 3,639 8,201 9,921
--------- --------- --------- ---------
(Loss) earnings before
income taxes,
discontinued operations
and cumulative effect
of a change in
accounting principle (845) 13,885 (13,482) 22,717
Income taxes (328) 4,408 (4,585) 7,638
--------- --------- --------- ---------
(Loss) earnings from
continuing operations (517) 9,477 (8,897) 15,079
Loss from discontinued
insurance segment (69) (261) (65) (260)
--------- --------- --------- ---------
Net (loss) earnings
before cumulative effect
of a change in
accounting principle (586) 9,216 (8,962) 14,819
Cumulative effect of a
change in accounting
principle (less provision
for taxes of $6,223) 0 0 (35,377) 0
--------- --------- --------- ---------
Net (loss) earnings $ (586) $ 9,216 $ (44,339) $ 14,819
========= ========= ========= =========
Basic (loss) earnings
per share:
(Loss) earnings from
continuing operations $ (0.03) $ 0.49 $ (0.46) $ 0.78
Loss from discontinued
operations 0.00 (0.01) 0.00 (0.01)
Cumulative effect of
change in accounting
principle 0.00 0.00 (1.78) 0.00
--------- --------- --------- ---------
Net (loss) earnings $ (0.03) $ 0.48 $ (2.24) $ 0.77
========= ========= ========= =========
Diluted (loss) earnings
per share:
(Loss) earnings from
continuing operations $ (0.03) $ 0.48 $ (0.46) $ 0.77
Loss from discontinued
operations 0.00 (0.01) 0.00 (0.01)
Cumulative effect of
change in accounting
principle 0.00 0.00 (1.78) 0.00
--------- --------- --------- ---------
Net (loss) earnings $ (0.03) $ 0.47 $ (2.24) $ 0.76
========= ========= ========= =========
Weighted average number
of shares outstanding:
Basic 19,857 19,317 19,832 19,300
Diluted 19,857 19,602 19,832 19,549
(a)EBITDA $ 15,088 $ 29,693 $ 31,941 $ 56,816
(a) Earnings from continuing operations before interest, income taxes,
depreciation and amortization, excluding restructuring charges, other
non-real estate gains, non-real estate interest income, and adding
back Michigan single business tax booked as SG&A
SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
Sept. 14, March 30,
2002 2002
(Unaudited)
----------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 17,673 $ 13,903
Marketable securities 1,704 10,370
Accounts receivable, net 83,513 84,533
Inventories 184,608 179,319
Other current assets 12,313 9,119
----------- -----------
Total current assets 299,811 297,244
----------- -----------
Other assets
Goodwill, net 113,643 155,243
Other 27,455 25,738
----------- -----------
Total other assets 141,098 180,981
----------- -----------
Property and equipment, net 246,445 268,315
----------- -----------
Total assets $ 687,354 $ 746,540
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 108,010 $ 90,327
Accrued payroll and benefits 25,347 26,624
Insurance reserves 16,788 17,263
Other accrued expenses 39,958 23,343
Current maturities of long-term debt 31,924 25,948
----------- -----------
Total current liabilities 222,027 183,505
----------- -----------
Deferred taxes on income 2,848 14,490
Other long-term liabilities 33,265 21,840
Long-term debt 242,248 295,213
Shareholders' equity
Common stock, voting, no par value,
50,000 shares authorized;
outstanding 19,865 and 19,766 shares 116,156 115,722
Preferred stock, no par value,
10,000 authorized; no shares outstanding -- --
Accumulated other comprehensive loss (3,243) (2,622)
Retained earnings 74,053 118,392
----------- -----------
Total shareholders' equity 186,966 231,492
----------- -----------
Total liabilities and shareholders' equity $ 687,354 $ 746,540
=========== ===========
SPARTAN STORES, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
(in thousands, except per share data)
Second Quarter Ended Year-to-Date Ended
(Unaudited) (Unaudited)
-------------------- ---------------------
(12 weeks) (12 weeks) (24 weeks) (24 weeks)
Sept. 14, Sept. 15, Sept. 14, Sept. 15,
2002 2001 2002 2001
--------- --------- --------- ---------
Retail Segment:
Net sales $ 321,521 $ 346,022 $ 630,398 $ 682,333
Operating (loss) income $ (3,576) $ 11,965 $ (18,908) $ 18,373
Closed stores:
Net sales $ 11,529 $ 20,082 $ 28,586 $ 42,623
Store operating loss $ (2,471) $ (759) $ (4,363) $ (1,067)
Grocery Distribution
Segment:
Net sales $ 251,154 $ 275,790 $ 498,278 $ 560,928
Operating income $ 2,817 $ 2,750 $ 7,190 $ 8,169
Convenience Store
Distribution Segment:
Net sales $ 222,554 $ 217,666 $ 430,545 $ 426,955
Operating income $ 1,813 $ 2,113 $ 4,146 $ 4,599
Real Estate Segment:
Net sales $ 1,507 $ 1,646 $ 3,136 $ 3,416
Operating income $ 1,078 $ 696 $ 2,291 $ 1,497
CONTACT: Spartan Stores, Inc.
Investor: Dave Staples, 616/878-8319
Media: Jeanne Norcross, 616/878-2830