PRESSURES IN OHIO MAKE SPARTAN SEE FLAT COMPS

GRAND RAPIDS, Mich. -- Spartan Stores here said ongoing competitive pressures in Ohio have prompted it to redirect more capital investment to stores in the Toledo area and to lower overall sales expectations for the year.James B. Meyer, chairman, president and chief executive officer, said Spartan anticipates same-store sales for the year will be "flattish" -- possibly rising or falling by 1%, he

GRAND RAPIDS, Mich. -- Spartan Stores here said ongoing competitive pressures in Ohio have prompted it to redirect more capital investment to stores in the Toledo area and to lower overall sales expectations for the year.

James B. Meyer, chairman, president and chief executive officer, said Spartan anticipates same-store sales for the year will be "flattish" -- possibly rising or falling by 1%, he noted -- rather than increasing by 1% to 3% as the company had been anticipating.

"In addition, we've modified our store remodeling targets to prioritize certain Ohio locations," he said, with plans to remodel up to 11 stores there during the next six months, rather than the five or six remodelings originally contemplated.

The more competitive environment in Ohio was sparked by the entry of A&P's Farmer Jack into the Toledo market, Meyer said, and it shows no signs of abating, he added.

Meyer made his remarks during a conference call with securities analysts following release of Spartan's financial results for the first quarter ended June 23, which showed sales and earnings increasing. "[The situation in Ohio] has had an unfavorable effect on our retail operations, and it hindered an even stronger quarterly performance," he said.

Sales for the 13-week quarter rose 15.3% to $722.1 million -- an increase the company said was due primarily to the acquisition of 70 supermarkets and drug units from Seaway Food Town, Maumee, Ohio, last August and10 units of Prevo's Family Markets, Traverse City, Mich., in March. Same-store sales increased 1.1% for the quarter.

Net earnings on continuing operations jumped 52.6% to $5.6 million; the company said its income statement for the quarter was adjusted to reflect the insurance segment classification as discontinued operations.

In other conference call highlights:

Spartan may be close to making an acquisition of a company with sales in the $50 million to $150 million range, Meyer said. "As we conclude the integration of Food Town and Prevo's, we will become more aggressive in seeking acquisitions, and our growth for the current fiscal year will be driven by the full-year integration efforts at those companies, plus expected new acquisitions," he said.

Spartan's grocery distribution marketing program -- in which it offers programs from its corporate stores to assist independent customers -- is exceeding its initial expectations since it was launched in June, Meyer said. "Although it is premature to predict its near-term financial benefits, the program will strengthen our customer relationships and take us a step closer to functioning as a self-distributing chain," he noted.

Meyer said trade reports on a possible merger between Spartan and Nash Finch Co., Minneapolis, "are totally unfounded. We all know there's a lot of speculation in the industry, and if you glance at someone, it's deemed the basis of secretive talks. But there's nothing going on and no substance to those reports whatsoever."

He said Spartan intends to remain independent, "though we have a fiduciary responsibility to shareholders to review strategic opportunities that present themselves. But we're not seeking that out."

Asked to clarify the situation in Ohio following the conference call, Dave Staples, executive vice president and chief financial officer, told SN the Toledo market heated up early in 2001 when Farmer Jack acquired three units of Churchill's Super Markets, Sylvania, Ohio, and began an aggressive promotional program. Kroger and Meijer responded aggressively, Staples added, as did Spartan, which operates 18 Food Town stores in the Toledo area.

Spartan thought the competitive pressures would ease up after about 12 weeks, Staples said, "but they got stronger after Farmer Jack opened two new stores a few weeks ago. The opening of two Wal-Mart Supercenters in outlying areas has also had some impact, and with Giant Eagle expected to enter the Toledo market with a single store shortly, the situation is unlikely to cool down for awhile," he added.

During the conference call, Meyer said Spartan responded rapidly to the unfolding conditions in Ohio, "and our focus now is to continue implementing our long-term business strategies while aggressively responding to competition in Ohio by adjusting our marketing and merchandising programs to respond to the competitive dynamics there."

Spartan is continuing to pursue a value concept at the Food Town stores in Ohio, "which we believe is what consumers are looking for as the economy strolls along a modest growth path," Meyer pointed out.