SHEBOYGAN, Wis. -- Fresh Brands here said last week operating problems at three underperforming corporate stores prompted it to take a non-cash after-tax impairment charge that resulted in a net loss for the third quarter and 40 weeks ended Oct. 8.
All three stores "were challenged with expensive facilities and an initial pricing strategy that was uncompetitive," said John Dahly, chief financial officer, and two of the three will be closed during the first half of 2006. In a conference call with analysts, Louis Stinebaugh, president and chief operating officer, declined to pinpoint the store locations, though he acknowledged "maybe one or two" are among the company's handful of prototype stores.
Following the $8.9 million impairment charge, the loss was $8.2 million for the 12-week quarter and $7.8 million for the year to date, while sales rose 4.1% to $160.5 million for the quarter and 1.7% to $522.4 million for the 40-week period.
Fresh Brands said sales were driven by the value strategy it introduced in November 2004, improved weekly promotions and better in-store merchandising programs, which helped boost comparable sales at corporate and franchised stores by 5.4% in the quarter. Stinebaugh said higher sales resulted in significant increases to operating profits in most corporate and franchised Piggly Wiggly stores.
The increased sales also drove "significant sales gains" in Fresh Brands' wholesale segment, the company said, with third-quarter wholesale volume up 2.7% to $2.9 million; however, wholesale volume on a year-to-date basis fell 1.5% to $5.5 million, which the company said reflected the impact of closing nine stores during 2004 and selling one store last August.
Fresh Brands said it plans to close its leased general merchandise facility here by mid-April and seek alternate procurement and cross-docking arrangements.
Sales in Fresh Brands' corporate retail store segment fell 2.7% to $1.7 million during the quarter and 6.1% to $13.6 million during the 40-week period, which it attributed to the conversion of two corporate stores to franchise ownership in September 2004 and the closure of one corporate store here in March. Comps were up 5.3% for the quarter and 2.2% for the year to date, reflecting "substantial [sales] increases" from its value proposition strategy and improved weekly promotions, Stinebaugh said.
Sales at franchised stores rose 31.4% to $8.6 million for the quarter, due to the opening of six additional stores. Comps rose 4.3% for the quarter and 2.6% for the year to date.