Harris Teeter Positioned to Grow

Harris Teeter should be able to maintain its strong financial momentum despite the inflationary cost environment, analysts said last week following release of the chain's financial results for the second quarter and first half, which ended March 30. Harris Teeter's upscale positioning affords it greater pricing power vis--vis its customer base than its mid-market conventional rivals,

MATTHEWS, N.C. — Harris Teeter here should be able to maintain its strong financial momentum despite the inflationary cost environment, analysts said last week following release of the chain's financial results for the second quarter and first half, which ended March 30.

“Harris Teeter's upscale positioning affords it greater pricing power vis-à-vis its customer base than its mid-market conventional rivals,” Andrew Wolf, an analyst with BB&T Capital Markets, Richmond, Va., indicated in a written report.

“The chain should be able to produce solid top- and bottom-line growth as long as food inflation does not materially worsen and the regional economies in which Harris Teeter operates remain relatively robust.”

One area of potential risk, Wolf pointed out, is the chain's growth plans in the greater Washington area, where the chain could run into problems “due to unanticipated execution and/or competitive challenges.”

Karen Short, an analyst with FBR Capital Markets, New York, also indicated that, despite the choppy environment, there is little evidence at Harris Teeter of customers trading down or trading away to lower-priced formats.

Given the chain's higher-income demographic, Short wrote, “Harris Teeter likely gains some share from a general shift to food at home from restaurants and, as a result, is well positioned to gain share in a weak economic environment.”

Harris Teeter is the 169-store retail division of Ruddick Corp., Charlotte, N.C., which said the chain benefited during the quarter from targeted promotions and pricing programs.

Sales rose 10.9% to $893.1 million for the 13-week quarter, and 11.7% to $1.8 billion for the half, while same-store sales increased 3.3% for the quarter and 3.8% for the year-to-date. Operating income jumped 21.3% to $46.4 million for the quarter and 23% to $90.6 million for the half.

According to Short, year-over-year comp-store sales comparisons were challenged by the 4.9% increase in last year's second quarter, and she also said that cannibalization from new store openings may have impacted results slightly.

Thomas W. Dickson, chairman, president and chief executive officer of Ruddick, said the gains at Harris Teeter were achieved while opening 18 new stores — representing 11.5% of the existing store base — during the last 12 months, including six new units and three major remodelings during the first half.

“Our commitment to providing our customers with a superior shopping experience, together with our focused promotional strategies, have enabled us to continue to grow our market share and our customer base,” he said.

Harris Teeter accounted for 92% of Ruddick's total sales of $976 million for the quarter (a 9.4% increase) and $1.95 billion for the half (a 10.1% jump); the balance came from American & Efird, a sewing-thread and technical-textiles subsidiary. Ruddick said that subsidiary's net income rose 20.4% to $24.1 million for the quarter and 23.8% to $47.4 million for the half.