GRAND RAPIDS, Mich. -- Spartan Stores here said last week its expanding retail operations will be the engine of the distributor's growth, "though we also want to improve the quality and efficiency of our wholesale operations to serve existing customers."
Speaking during a conference call with securities analysts, Spartan executives said the company hopes to share what it learns from its retail operations with its wholesale customers.
"We're putting in best practices at our corporate stores, and we want to share our success with the independent retailers we supply," said Joel Barton, executive vice president, sales and marketing. "We want to use our size, and the synergies we're able to achieve, to assist them to be more competitive and have a more focused marketing approach to become more effective in reaching consumers.
"We are opening the doors of knowledge, execution and marketing so they can join with us."
James B. Meyer, president and chief executive officer, also said Spartan's efforts to expand its corporate retail operations do not mean it will downplay its wholesale business. "Some retail customers may find our approach at odds with their own philosophies, and some may wish to do business with a wholesaler that doesn't operate competing retail stores," he said.
"But we believe we have the ability to grow the wholesale business, and a very real part of our approach is to bring awareness to the entire organization."
The Spartan executives spoke following release of financial results for the third quarter and 40 weeks ended Dec. 30, which showed sales up 19.4% to $1.1 billion for the 16-week quarter and up 12.4% to $2.7 billion for the year to date, while same store sales for the company's retail division rose 6.2% for the quarter and 5.8% for the year to date.
Net income jumped 7.5% to $7.3 million for the quarter -- the fourth consecutive quarter of earnings improvement, the company noted -- and increased 19.8% to $20 million for the 40-week period.
The third quarter was the first full quarter to reflect retail operations of Food Town, which Spartan acquired last August, and the company said those stores played a significant role in the profitability improvement.
Spartan operates 116 corporate stores -- 93 supermarkets and 25 deep-discount food and drug stores in Michigan and Ohio -- which Meyer said account for close to 40% of the company's sales.
The Food Town stores are performing "above expectations," he said, with the integration of those stores proceeding as planned.
Dave Staples, executive vice president and chief financial officer, said Spartan has integrated the payroll systems and centralized the purchasing systems for those stores, "but we're not cutting back on our head count until we're sure all bugs have been worked out of the new systems, so some of the integration synergies we'll achieve this year will be offset by transition costs. But we expect to achieve full synergies of $6 million next year."
Spartan expects to complete its acquisition of Prevo's Family Markets, Traverse City, Mich. -- for an unspecified amount of cash, plus $11 million of debt -- by the end of March, Meyer said, with the acquisition becoming accretive to earnings in the second quarter of fiscal 2002. The Prevo's stores have volume of about $100 million a year, he said, but because they are an existing Spartan customer, the net impact on sales will be closer to $50 million.
Meyer said Spartan intends to spend $30 million to $40 million on capital projects in each of the next two years, with about $20 million devoted to refurbishing acquired stores and developing more consistent layouts and decor packages. The company also plans to install new point-of-sale equipment at all Food Town stores by the first half of fiscal 2002, he said.
In other comments during the conference call:
Meyer said Spartan expects to achieve sales of $7 billion by the end of fiscal 2005 through a combination of acquisitions and internal growth initiatives. Observers said Spartan sales for fiscal 2001, which ends March 31, are expected to be around $3.2 billion.
Meyer said he anticipates earnings per share of $1.25 to $1.30 this year and comp store sales of 5% next year.
Barton said Spartan plans to expand Food Town's deep-discount format, called The Pharm, to several new marketing areas, although the company has no specific plans for such expansions at this point.
Staples said the sale of an insurance subsidiary and some non-essential real estate holdings should yield $20 million to $30 million or more.