Harris Teeter Slows New-Store Growth Pace for 2011

MATTHEWS, N.C. Harris Teeter said it planned to open eight new stores in fiscal 2011, vs. 13 new stores in fiscal 2010, reflecting the difficult economic environment. The decrease in planned new store openings from fiscal 2010 to fiscal 2011 reflects the company's efforts, as previously disclosed, to delay new store openings during these challenging economic times, the chain's parent company, Ruddick

MATTHEWS, N.C. — Harris Teeter said it planned to open eight new stores in fiscal 2011, vs. 13 new stores in fiscal 2010, reflecting the difficult economic environment.

“The decrease in planned new store openings from fiscal 2010 to fiscal 2011 reflects the company's efforts, as previously disclosed, to delay new store openings during these challenging economic times,” the chain's parent company, Ruddick Corp., said in a prepared release announcing year-end financial results.

Comparable-store sales at Harris Teeter were down 0.14% in the fiscal fourth quarter, but overall sales and operating profits at the chain improved, the company said. The company also reported improvements at its American & Efird thread subsidiary.

Karen Short, a New York-based analyst for BMO Capital Markets, said she lowered her rating on the company's stock, in part because new-store growth plans for the current fiscal year were lower than expected.

In addition, she said, planned capital expenditures — $165 million for Harris Teeter and $9 million for A&E — were higher than she expected, “so free cash flow yield is less compelling.”

“While Harris Teeter's performance has been extremely respectable, results have been slightly weaker than we had been forecasting,” she said, noting that most of the company's earnings surprise came from the A&E thread subsidiary.

The slight decline in Harris Teeter's comps for the 14-week period, which ended Oct. 3, was an improvement over 0.7% declines in the third quarter. The company attributed the negative comps to retail price deflation driven by promotional activity, as well as “changes in customer purchasing habits.”

Noting that Harris Teeter's operating profit of $181.6 million for the full fiscal year was up 3.4%, Thomas Dickson, chairman, president and chief executive officer, Ruddick Corp., cited gains in total transactions and number of items sold, amid a reduction in corporate expenses.

“During fiscal 2010, we drove customer shopping visits and loyalty through investments in our lower everyday prices and promotional activity,” he said.

He added that a portion of the company's investment in pricing has been offset by increased vendor support, improved operational efficiencies and various cost-saving initiatives.

These cost-saving initiatives trimmed 46 basis points off of selling, general and administrative expenses as a percent of sales in fiscal 2010, vs. the preceding fiscal year. During the fourth quarter, the SG&A margin declined nine basis points to 25.26%, from 25.35% in the fourth quarter of a year ago.

Fourth-quarter operating profit at Harris Teeter was up 12.9%, to $49.1 million, on a sales gain of 12.5%, to $1.11 billion, compared with year-ago results. About 7.8% of the sales gain was attributable to an extra week in the most recent quarter.

For the full fiscal year, Harris Teeter sales were up 7.1%, to $4.1 billion, with comp-store sales declining 1.1%. About 2% of the full-year sales gain was attributed to the extra week.

Consolidated net income at Ruddick — including results from A&E — increased 30.3% to $112 million for the year, on a 7.9% increase in sales, to $4.4 billion.