Harris Teeter Reports Gains in 3Q Profits

Harris Teeter has seemingly been immune to the margin-squeezing suffered by Kroger, Safeway and Supervalu in recent months. The supermarket chain, a division of Ruddick Corp., also based here, posted sharp gains in profits in the third quarter, propelled by comparable-store sales gains of 5.33%. I think Harris Teeter's price points are where they need to be, whereas some chains

CHARLOTTE, N.C. — Harris Teeter here has seemingly been immune to the margin-squeezing suffered by Kroger, Safeway and Supervalu in recent months.

The supermarket chain, a division of Ruddick Corp., also based here, posted sharp gains in profits in the third quarter, propelled by comparable-store sales gains of 5.33%.

“I think Harris Teeter's price points are where they need to be, whereas some chains may have their pricing too high,” Karen Short, an analyst with FBR Research, told SN. “Across the store base, Harris Teeter's price points are where they need to be. Anything on the inflation side is somewhat of a direct pass-through.”

Andrew Wolf, an analyst with BB&T Capital Markets, Richmond, Va., who upgraded Ruddick's stock to a “buy” after the earnings report, also said he felt the chain was well-positioned to handle inflationary pressures.

“In our view, high-end grocers such as Ruddick's Harris Teeter chain are better positioned than mid-market conventional chains to maintain fundamental momentum during the current inflationary food-cost environment,” he wrote in a research report.

Operating profit at Harris Teeter rose 26.9% in the 13-week quarter, to $39.9 million, compared with results from the year-ago quarter. Harris Teeter's sales for the quarter, which ended July 1, rose 12.9%, to $836.4 million. Through three quarters, operating profit rose 16.5%, to $113.5 million, on a sales gain of 12.3%, to $2.17 billion. Comps rose 4.51% for the 39-week period.

Parent company Ruddick Corp., which also operates the American & Efird thread business, said cost controls and efficiencies helped offset part of the incremental costs associated with an accelerated store-opening plan. The company opened 17 new stores and closed seven in the past year, ending the third quarter with 159 Harris Teeter locations.

Short said she believes the chain's new stores in the Washington, D.C., market are performing well.

“I have heard those stores are ramping up very quickly, with strong comps already,” she said. “I would say the D.C. stores have very high sales per square foot. They have share to take there.”

The company began pushing aggressively into the northern Virginia suburbs of Washington in 2005, and said it is continuing to develop stores in the market.

It also has been building stores closer together in its core Charlotte market, making its same-store gains all the more impressive, Short pointed out, given the cannibalization that may be occurring.

Wolf also noted that the chain operates most of its stores in a region with a relatively strong economy.

3RD-QUARTER RESULTS*
Qtr Ended 7/1/07 7/2/06
Sales $923 million $830.2 million
Change +11.2%
Comp-store +5.33%
Net Income $21.21 million $17.77 million
Change +19.4%
Inc/Share 44 cents 37 cents
39 Weeks 2007 2006
Sales $2.7 billion $2.43 billion
Change +11%
Comp-store +4.51%
Net Income $59.5 million $54.4 million
Change +9.4%
Inc/Share $1.24 $1.14
*Includes results from both Harris Teeter and American & Efird, except comps, which only reflect Harris Teeter.