SALT LAKE CITY (FNS) -- Increased profitability should characterize Smith's Food & Drug Centers' second half, Jeffrey P. Smith, chairman and chief executive officer, told shareholders at the chain's annual meeting here.
Smith told shareholders the 133-store chain has been faced with declining net income because of the continued unprofitability of its newest marketing area in southern California and the draining effects of its aggressive pricing program in Utah.
Smith's reported sales of $2.81 billion in 1993, a 5% increase compared with 1992. But same-store sales dropped 1% and net income fell to $45.8 million, down 14.8% compared with 1992's $53.7 million. (Smith's first-quarter results for 1994 appear on Page 9.)
Smith told last month's meeting that to ameliorate the profitability problem, cost-cutting is in Smith's future. "We feel strongly that the key to success in the future is to reduce our costs as low as possible so we can be as price-competitive as we can.
"We've made the fine-tuning changes that will turn us around," Smith said.
For instance, Robert D. Bolinder, executive vice president of corporate planning and development, told SN after the meeting that last year's opening of a distribution center in Riverside, Calif., will contribute to lower operating costs in that region, especially as store counts increase. Products were previously shipped from its more distant Tolleson, Ariz., warehouse.
"Our key to success is to build our California presence to 40 or 50 stores to get the economies of scale necessary to get our costs in line, support a strong advertising program and cover supervisory costs," Smith told shareholders. "There are 30 stores there now."
Additionally, Smith's cut costs by reducing the number of its operating divisions from three to two, thereby eliminating a number of supervisory positions.
Smith's also is updating store technology as a means of increasing productivity and further paring expenses, Bolinder said. Areas that are being upgraded include time and attendance, cash management, automated receiving, human resources and labor management.
However, "southern California has proven to be so challenging that we will continue to concentrate on that area for most of our California growth, at least through 1996," Bolinder said.
"The economic recession there, probably the worst in the nation, has delayed profitability by a year or two," said Smith.
In addition to the California situation, a significant source of earnings pressure has come from Smith's home-turf Utah market. Last summer the chain cut prices there an overall 6%, according to Bolinder.
