EXHIBIT 99.1
For Immediate Release | |
| |
Investor Contact: Dave Staples
Executive Vice President & CFO
(616) 878-8319 | Media Contact: Jeanne Norcross
Vice President Corporate Affairs
(616) 878-2830 |
Spartan Stores Fiscal 2005 Second Quarter Net Earnings Triple
Operating Earnings Increase More Than 80 Percent
GRAND RAPIDS, MICHIGAN-October 6, 2004-Spartan Stores, Inc., (Nasdaq: SPTN) today reported financial results for its fiscal 2005 second quarter ended September 11, 2004.
"We are pleased to report a substantial increase in profitability during the second quarter," stated Craig C. Sturken, Spartan Stores' Chairman, President and Chief Executive Officer. "The second quarter operating and net earnings are at the highest levels in the past three years. Our business focus of maintaining an appropriate balance of sales growth, cost control and profit growth led to this dramatic improvement. "
Consolidated net sales for the 12-week second quarter were $486.7 million compared with $491.4 million in the corresponding 12-week period last year. Second-quarter retail comparable store sales increased 1.4 percent due to strong performance in the Company's supermarket division and the previously disclosed change in accounting for bottle deposits, which contributed 0.7 percent to the comparable store sales increase. The retail sales increase was offset by lower sales in the Company's distribution segment.
Operating earnings increased by more than 80 percent to $13.2 million from $7.3 million in last year's second quarter. The operating earnings improvement was due to a higher gross margin rate and lower operating expenses.
Second-quarter net earnings of $7.0 million, or $0.34 per diluted share, were more than three times higher than last year's second quarter net earnings of $1.8 million, or $0.09 per diluted share. The second-quarter net earnings included a loss from discontinued operations of $(0.1) million, or $(0.01) per diluted share, which compared with a net loss from discontinued operations of $(1.0) million, or $(0.05) per diluted share, in last year's second quarter.
Gross margin improved 60 basis points to 19.5 percent compared with 18.9 percent in last year's second quarter as a result of the change in timing of certain new product initiatives previously disclosed in the prior quarter.
Operating expenses declined 4.4 percent to $81.8 million from $85.6 million in last year's second quarter. As a percentage of sales, operating expenses declined 60 basis points to 16.8 percent compared with 17.4 percent in the corresponding quarter last year. The operating expense improvement was due to more efficient store labor, lower depreciation expense, and the effects of the Company's continuing cost containment policies, partially offset by higher employee benefit costs. Also contributing to the operating earnings improvement was a non-recurring $1.0 million contract termination and non-performance payment received from a former distribution customer, which was recorded as an offset to selling, general and administrative expense.
Year-to-date
Consolidated net sales for the 24-week year-to-date period increased 0.7 percent to $961.0 million from $953.9 million in the corresponding 24-week period last year. Gross margin for the 24-week period improved 20 basis points to 18.8 percent compared with 18.6 percent in the same period last year. Operating expenses for the year-to-date period declined 4.9 percent to $162.9 million from $171.3 million in the same period last year. As a percentage of sales, operating expenses declined 110 basis points to 16.9 percent compared with 18.0 percent in the corresponding period last year.
Year-to-date operating earnings more than doubled to $18.1 million from $6.4 million for the same period last year. The operating earnings improvement was due primarily to lower operating expenses. Net earnings for the 24-week period increased to $8.5 million, or $0.41 per diluted share, compared to a net loss of $(4.3) million, or $(0.22) per diluted share, in the corresponding period last year. Year-to-date net earnings include a $(0.3) million loss from discontinued operations, or $(0.01) per diluted share, compared with a $(4.0) million loss from discontinued operations, or $(0.20) per diluted share, for the corresponding period last year.
Operating Segments
Retail net sales increased 0.7 percent to $232.2 million from $230.5 million in last year's second quarter. Comparable store sales increased 1.4 percent for the quarter, representing the sixth consecutive quarter of comparable store sales growth. Retail supermarket sales showed strong increases during the second quarter, but were partially offset by lower prescription sales at in-store pharmacies and lower sales at the Pharm stores. The decline in pharmacy sales is primarily the result of the previously disclosed United Auto Worker's mandate that requires members to switch to mail order prescription refills for maintenance medications. Retail segment operating earnings improved 60.2 percent to $6.8 million from $4.2 million in the corresponding period last year. Higher retail sales volumes and improved store labor efficiency led to the improvement in operating earnings.
Distribution net sales decreased 2.4 percent to $254.5 million from $260.9 million in last year's second quarter. The decline in distribution sales was the result of a strategic shift in the Company's annual fall private label promotion to the third quarter and the loss of two distribution customers. Also contributing to the decrease was the cycling of incremental sales to existing customers in fiscal 2004 due to the power outage that affected the Detroit area. Sales to
2
the former distribution accounts were approximately $6.0 million out of total distribution sales of $515 million for the first two quarters of fiscal 2005 and approximately $13.0 million for the combined third and fourth quarters of fiscal 2004. Operating earnings improved to $6.4 million compared with $3.0 million in last year's second quarter. The improvement in operating earnings was due primarily to higher gross profit margins as a result of the shift in timing of new product initiatives from the first quarter and the previously mentioned non-recurring distribution contract payment.
Cash Flow & Balance Sheet
Strengthening business fundamentals have significantly improved the Company's cash flow. Year-to-date, cash from operations improved more than 350 percent to $32.8 million compared with $7.2 million in the corresponding year-to-date period last year. The improvement is a direct result of higher profitability and a continuing focus on better working capital management.
The improved cash flow led to a $22.3 million, or 17.3 percent, decline in total long-term debt (including current maturities) to $106.5 million as of September 11, 2004 from $128.8 million at the end of fiscal 2004.
Outlook
"During the next 12 months, we expect our comparable store sales growth to moderate further as we compare results against the strong sales growth reported in the previous year, cycle competitive store closings, and as new supercenters open in our markets," continued Mr. Sturken. "We are, however, improving the offering to our customers by continuing to implement more effective category management practices, adding more convenient services such as in-store pharmacies and improving physical facilities with our remodel and new store programs. We believe that these consumer-oriented offerings and programs will help sustain our positive momentum and strengthen our market position.
"To date, we completed store remodels and/or merchandise resets at eight stores, which places us on schedule to complete 10 to 13 stores by year's end. By the end of fiscal 2005, we will have completed remodels and/or resets at more than 30 of our retail supermarkets since undertaking the initiative.
"Late in the second quarter, we introduced our Spartan brand private label product in two major dairy categories; ice cream and yogurt. Preliminary sales results are very favorable. We expect sales growth in these two categories to improve as these and other products are made available to our independent retail operators during the remainder of the fiscal year," concluded Mr. Sturken.
The Company has revised its fiscal 2005 consolidated net sales outlook to range from flat to a one percent increase. Comparable store sales are still expected to range from flat to an increase of 1.5 percent. Consolidated gross margin as a percentage of sales is expected to be slightly higher than fiscal 2004's level by the end of fiscal 2005. Operating expenses in total and as a percentage of sales are expected to be lower than reported in fiscal 2004. Due to the seasonality of its northern Michigan retail operations and the impact of higher employee benefit costs,
3
operating expense run rates during the second half of the fiscal year will be less favorable than those reported during the first half of fiscal 2005. Fiscal 2005's depreciation expense is expected to approximate $22 million and capital expenditures are expected to be approximately $20 million to $25 million.
Conference Call
A telephone conference call to discuss the Company's second-quarter financial results is scheduled for 9:00 a.m. Eastern Time, Thursday, October 7, 2004. A live webcast of this conference call will be available on the Company's website,www.spartanstores.com. Simply click on "For Investors" and follow the links to the live webcast. The webcast will remain available for replay on the Company's website for approximately ten days.
About Spartan Stores
Grand Rapids, Michigan-based Spartan Stores, Inc., (Nasdaq:SPTN) is the nation's eighth largest grocery distributor with warehouse facilities in Grand Rapids and Plymouth, Michigan. The Company distributes more than 40,000 private-label and national brand products to over 300 independent grocery stores in Michigan. Spartan Stores also owns and operates 54 retail supermarkets and 21 deep-discount food and drug stores in Michigan and Ohio, including Family Fare Supermarkets, Glen's Markets, and The Pharm.
Forward-Looking Statements
This press release contains forward-looking statements. Forward-looking statements are identifiable by words or phrases indicating that Spartan Stores or its management "expects", "anticipates", "believes", "looks forward", "plans", "estimates", "intends", has "priorities", "objectives", or an "outlook" that a particular occurrence "will", "may", "could" or "should" occur; or that there is "progress", "momentum", "indications" or "on track" toward a particular result or occurrence; or similarly stated expectations. These forward-looking statements are subject to a number of factors that could cause actual results to differ materially. Our continuing ability to strengthen retail store performance, improve sales growth, increase gross margin, reduce operating cost structures, improve financial and operational performance, satisfy contractual requirements and conditions, sell assets that are held for sale on favorable terms, continue trends, meet the requirements of our debt covenants, and implement other pr ograms, plans, strategies, objectives, goals or expectations will be affected by many factors, including changes in economic conditions and competition, changes in the food and distribution industries; sales volume changes, loss of customers or suppliers, changes in the interest rate environment, and labor shortages, stoppages or unrest. Additional information about these and other factors that may adversely affect 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.
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SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
| Second Quarter Ended
| | Year-to-Date
| |
| (12 weeks)
Sept. 11,
2004
| | (12 weeks)
Sept. 13,
2003
| | (24 weeks)
Sept. 11,
2004
| | (24 weeks)
Sept. 13,
2003
| |
| | | | | | | | | | | | |
Net sales | $ | 486,701 | | $ | 491,371 | | $ | 961,026 | | $ | 953,940 | |
Cost of sales |
| 391,610
| |
| 398,504
| |
| 780,035
| |
| 776,310
| |
Gross margin | | 95,091 | | | 92,867 | | | 180,991 | | | 177,630 | |
| | | | | | | | | | | | |
Operating expenses | | | | | | | | | | | | |
Selling, general and administrative | | 77,134 | | | 79,481 | | | 152,935 | | | 159,055 | |
Depreciation and amortization |
| 4,711
| |
| 6,114
| |
| 9,933
| |
| 12,195
| |
Total operating expenses |
| 81,845
| |
| 85,595
| |
| 162,868
| |
| 171,250
| |
| | | | | | | | | | | | |
Operating earnings | | 13,246 | | | 7,272 | | | 18,123 | | | 6,380 | |
| | | | | | | | | | | | |
Non-operating expense (income) | | | | | | | | | | | | |
Interest expense | | 2,277 | | | 3,138 | | | 4,569 | | | 7,108 | |
Interest income | | (41 | ) | | (79 | ) | | (88 | ) | | (214 | ) |
Other, net |
| 99
| |
| (6
| ) |
| 117
| |
| 39
| |
Total non-operating expense, net |
| 2,335
| |
| 3,053
| |
| 4,598
| |
| 6,933
| |
| | | | | | | | | | | | |
Earnings (loss) before income taxes and
discontinued operations | |
10,911
| | |
4,219
| | |
13,525
| | |
(553
|
)
|
Income taxes |
| 3,817
| |
| 1,489
| |
| 4,732
| |
| (193
| ) |
| | | | | | | | | | | | |
Earnings (loss) from continuing operations | | 7,094 | | | 2,730 | | | 8,793 | | | (360 | ) |
| | | | | | | | | | | | |
Loss from discontinued operations, net of taxes |
| (143
| ) |
| (958
| ) |
| (289
| ) |
| (3,985
| ) |
| | | | | | | | | | | | |
Net earnings (loss) | $
| 6,951
| | $
| 1,772
| | $
| 8,504
| | $
| (4,345
| ) |
| | | | | | | | | | | | |
Basic earnings (loss) per share: | | | | | | | | | | | | |
Earnings (loss) from continuing operations | $ | 0.35 | | $ | 0.14 | | $ | 0.43 | | $ | (0.02 | ) |
Loss from discontinued operations |
| (0.01
| ) |
| (0.05
| ) |
| (0.01
| ) |
| (0.20
| ) |
Net earnings (loss) | $
| 0.34
| | $
| 0.09
| | $
| 0.42
| | $
| (0.22
| ) |
| | | | | | | | | | | | |
Diluted earnings (loss) per share: | | | | | | | | | | | | |
Earnings (loss) from continuing operations | $ | 0.35 | | $ | 0.14 | | $ | 0.42 | | $ | (0.02 | ) |
Loss from discontinued operations |
| (0.01
| ) |
| (0.05
| ) |
| (0.01
| ) |
| (0.20
| ) |
Net earnings (loss) | $
| 0.34
| | $
| 0.09
| | $
| 0.41
| | $
| (0.22
| ) |
| | | | | | | | | | | | |
Weighted average number of shares outstanding: | | | | | | | | | | | | |
Basic | | 20,468 | | | 19,947 | | | 20,361 | | | 19,962 | |
Diluted | | 20,694 | | | 20,077 | | | 20,572 | | | 19,962 | |
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SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
| Sept. 11,
2004
| | March 27,
2004
| |
ASSETS | | | | | | |
Current assets | | | | | | |
Cash and cash equivalents | $ | 13,450 | | $ | 12,838 | |
Accounts receivable, net | | 41,956 | | | 39,732 | |
Inventories | | 92,265 | | | 97,771 | |
Other current assets | | 13,841 | | | 15,931 | |
Property and equipment held for sale |
| 3,972
| |
| 4,051
| |
Total current assets | | 165,484 | | | 170,323 | |
| | | | | | |
Other assets | | | | | | |
Goodwill, net | | 72,105 | | | 72,105 | |
Deferred taxes on income | | 21,999 | | | 25,147 | |
Other |
| 14,657
| |
| 16,438
| |
Total other assets | | 108,761 | | | 113,690 | |
Property and equipment, net |
| 105,156
| |
| 108,437
| |
Total assets | $
| 379,401
| | $
| 392,450
| |
| | | | | | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | |
| | | | | | |
Current liabilities | | | | | | |
Accounts payable | $ | 81,591 | | $ | 75,206 | |
Accrued payroll and benefits | | 21,892 | | | 24,374 | |
Insurance reserves | | 6,508 | | | 7,009 | |
Other accrued expenses | | 18,294 | | | 20,291 | |
Current maturities of long-term debt |
| 5,227
| |
| 4,177
| |
Total current liabilities |
| 133,512
| |
| 131,057
| |
| | | | | | |
Other long-term liabilities | | 29,850 | | | 31,110 | |
| | | | | | |
Long-term debt | | 101,230 | | | 124,616 | |
| | | | | | |
Shareholders' equity | | | | | | |
Common stock, voting, no par value; 50,000 shares
authorized; 20,477 and 20,092 shares outstanding | |
117,944
| | |
116,666
| |
Preferred stock, no par value, 10,000 shares authorized;
no shares outstanding | |
- -
| | |
- -
| |
Deferred stock-based compensation | | (819 | ) | | (179 | ) |
Accumulated other comprehensive loss | | (182 | ) | | (182 | ) |
Accumulated deficit |
| (2,134
| ) |
| (10,638
| ) |
Total shareholders' equity |
| 114,809
| |
| 105,667
| |
Total liabilities and shareholders' equity | $
| 379,401
| | $
| 392,450
| |
6
SPARTAN STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Year-to-Date
| |
| (24 weeks)
Sept. 11,
2004
| | (24 weeks)
Sept. 13,
2003
| |
| | | | | | |
Net cash provided by operating activities | $ | 32,778 | | $ | 7,177 | |
Net cash used in investing activities | | (7,833 | ) | | (3,761 | ) |
Net cash used in financing activities | | (21,778 | ) | | (8,809 | ) |
Net cash used in discontinued operations |
| (2,555
| ) |
| (1,455
| ) |
Net increase (decrease) in cash and cash equivalents | | 612 | | | (6,848 | ) |
Cash and cash equivalents at beginning of period |
| 12,838
| |
| 23,306
| |
Cash and cash equivalents at end of period | $
| 13,450
| | $
| 16,458
| |
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SPARTAN STORES, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
(in thousands)
(Unaudited)
| Second Quarter Ended
| | Year-to-Date
| |
| (12 weeks)
Sept. 11,
2004
| | (12 weeks)
Sept. 13,
2003
| | (24 weeks)
Sept. 11,
2004
| | (24 weeks)
Sept. 13,
2003
| |
Retail Segment: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Net sales | $ | 232,189 | | $ | 230,502 | | $ | 445,700 | | $ | 442,775 | |
Operating earnings | $ | 6,802 | | $ | 4,247 | | $ | 6,940 | | $ | 1,260 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Grocery Distribution Segment: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Net sales | $ | 254,512 | | $ | 260,869 | | $ | 515,326 | | $ | 511,165 | |
Operating earnings | $ | 6,444 | | $ | 3,025 | | $ | 11,183 | | $ | 5,120 | |
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