COLTON, Calif. -- Stater Bros. Markets here expects to hold onto 5% of the volume it's picked up during the 11-week-old Southern California labor dispute on a permanent basis, Jack Brown, chairman, president and chief executive officer, told bondholders in a conference call earlier this month.
Although Stater's employees are covered by the same master agreement as stores operated by Safeway, which is the strike target, and Albertsons and Kroger Co., which have locked out employees, "we felt we have little in common with those chains because of their size and geographic scope.
"Each has about 12% of its stores in Southern California, and each has the ability to sustain this situation for a long period, so we decided to extend the contract we had until a new master contract is negotiated," Brown explained.
He said the strike-lockout has had little impact on 50 of Stater's 157 stores because those locations don't compete with any of the three chains involved; 50 stores have seen sales increases of $25,000 to $40,000 per week, and the other 57 stores have seen "significant increases," though he was not specific.
Stater said sales for the year ended Sept. 28 rose 3.3% to $2.8 billion, same-store sales jumped 2.8%, and net income declined 14.1% to $10.1 million. For the 13-week fourth quarter, sales increased 4.5% to $707 million, same-store sales were up 3.7%, and net income rose to $2.6 million, compared with $652,000 a year ago.
Phil Smith, senior vice president and chief financial officer, said earnings for the year declined because of a $20 million increase in the costs of health and welfare and pension benefits. However, better margin performance and expense controls enabled the chain to make up most of the increase during the fourth quarter, he added.
Smith also said gross margins rose 82 basis points during the year to 27.4% of sales due to several factors, including the installation of upright frozen food cases at 51 stores, which enabled Stater to add 400 additional frozen items while reducing utility expenses; installation of refrigerated produce tables at some stores, which contributed to lower shrink; and a move to backdoor receiving, which also helped reduce shrink.
In response to a question, Brown said Stater has been "very pleased" with the performance of Topco's controlled-label line, which was added last year. He said the chain will be expanding the line to include Topco's health and beauty care products.
He also said he expects Stater to improve its private-label penetration "because we'll be consolidating two or three lesser-known labels into one Topco line so consumers will see a stronger, less segmented image for private label."
Brown said Stater plans to open five new stores next year, compared with one this year.
Wal-Mart is scheduled to open its first California supercenter in February in La Quinta, near Palm Springs, Brown pointed out, "and we've studied their operations for two years and believe we're well-positioned to defend our marketing area against all comers, including Wal-Mart.
"We know they're the largest corporation in the world and have a lot of financial clout, but we dug the water holes out here and we know where the water is."
