Harris Teeter Posts Q4 Gains

"Sales at [Harris Teeter] stores impacted by competitive openings have continued to increase.” — Karen Short, analyst, BMO Capital Markets

MATTHEWS, N.C. — Harris Teeter Supermarkets [3] here last week reported sales growth that continued to outpace much of the industry, although profitability came in below some analysts’ expectations.

The company posted comparable-store sales gains of 3.01% for the fourth quarter and 3.97% for the full fiscal year.

“Traffic and unit volume trends remain positive, indicating the company continues to gain share while the food retail industry as a whole loses share,” said Karen Short, a New York-based analyst with BMO Capital Markets, in a report.

Harris Teeter said net income in the 13-week fourth quarter, which ended Oct. 12, totaled $22.8 million, vs. a loss of $8.9 million in the year-ago period, which included losses from discontinued operations (the American & Efird thread division, which was sold last November) totaling $33.5 million.

Operating profit for the fourth quarter was $39.7 million, comprised of Harris Teeter operating profit of $42.1 million (or $49.6 million — 4.34% of sales — without incremental costs from the acquisition of 10 Lowes Foods locations earlier this year) and corporate operating losses of $2.4 million. That compares with operating profit of $43 million for the fourth quarter of a year ago, comprised of Harris Teeter operating profit of $45 million (4.09% of sales) and corporate operating losses of $2 million.

Read more: Harris Teeter Puts Conversion on Hold Says Report [4]

Total sales for the quarter were up 3.7%, to $1.14 billion. During the quarter, Harris Teeter reopened six of the 10 locations it acquired from Lowes.

Short said Harris Teeter appears to be faring well against new competitors in the market.

“Although competitive openings are always a threat, recent competitive openings by formidable competitors such as Publix and Whole Foods have not had a negative impact on the business,” she said. “In fact, sales at stores impacted by competitive openings have continued to increase.”

Andrew Wolf, a Richmond, Va.-based analyst with BB&T Capital Markets, said Harris Teeter is one of the few chains that appears to be making gains in tonnage.

'Running Positive'

“Real ID sales at Harris Teeter are similar to those at Kroger, the only other conventional chain in our coverage that is running positive,” he said in a report.

He said, however, that he was reducing his outlook for some metrics based on lower-than-typical volumes at the acquired Lowes Foods locations. He said he is projecting 7.1% sales growth for fiscal 2013 — down from previous projections of 9.7% — and reducing his earnings-per-share forecast to $2.60, from $2.70. He maintained his same-store-sales forecast at 4%.

Net earnings for the year totaled $82.5 million at Harris Teeter, vs. $91.2 million for fiscal 2011. Net earnings for fiscal 2012 included earnings from continuing operations of $99.9 million, and losses from discontinued operations of $17.4 million. Net earnings for fiscal 2011 were comprised of earnings from continuing operations of $111.4 million, and losses from discontinued operations of $20.2 million.

Sales for the 52-week year were up 5.8%, to $4.54 billion. The company opened a total of 13 stores during the year, including the six converted Lowes locations.

“We are pleased with our results for fiscal 2012 and the completion of our purchase and sale transaction with Lowes Foods,” said Thomas W. Dickson, chairman and chief executive officer, in a statement. “Our pricing and promotional strategies continue to be effective in driving unit sales and customer visits. On a comparable-store basis, we continue to experience increased unit sales compared to the prior year and our store-brand penetration continues to improve.”

Capital expenditures for fiscal 2012 totaled $200 million and are expected to total approximately $235 million for fiscal 2013 as Harris Teeter continues to accelerate new-store growth. Plans call for 12 new stores in 2013, including two replacement stores and the two store locations acquired from Lowes Foods that were converted last month to the new 201Central format. Expansion will focus on existing markets, the company said, including the greater Washington, D.C., area.

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