Store Openings Sink Ingles' Q2

A busy slate of store openings and remodels and their associated costs in a sputtering economy are draining profits for Ingles Markets here, the company acknowledged in an earnings report. The retailer said higher personnel, depreciation and occupancy costs from new and expanded stores were primary factors in a 40% decrease in net income for the second quarter, which ended March 28.

ASHEVILLE, N.C. — A busy slate of store openings and remodels — and their associated costs in a sputtering economy — are draining profits for Ingles Markets here, the company acknowledged in an earnings report.

The retailer said higher personnel, depreciation and occupancy costs from new and expanded stores were primary factors in a 40% decrease in net income for the second quarter, which ended March 28. In addition, Ingles said that unfavorable economic conditions are extending the time needed for new and remodeled stores to reach targeted levels of sales and profitability.

Ingles has been on a brisk pace of store development and redevelopment over the past two years, transforming from a company operating small rural grocery stores to larger “one-stop shopping” locations intended to drive higher volumes and profits. Officials defended the building spree as a sound, long-term strategy and added that they expected new store profits would improve as the economy improves.

“One thing that's very important to keep in mind here is that new stores are a long-term process,” Ron Freeman, chief financial officer, said. “Yes, we wish we were in a better economy and we were seeing those [stores] pick up a little, but we're pleased with those stores and the locations they are in, and they will be good performers over the long term.”

He added that Ingles has lowered its planned capital spending during the year to $150 million from earlier estimates of $200 million. Its plans for the balance of the fiscal year include debuting four new, replacement or remodeled stores and four new fuel stations.

Ingles reported net income of $7.8 million on sales of $789.2 million for the period. Sales improved by 8.3% and included increases in all categories except for gasoline and fluid dairy, each of which experienced deflation during the quarter.

Comparable-store sales increased by 4.9% excluding gasoline and the effect of the Easter holiday, which fell in the second quarter in 2008 but in the third quarter this year.

Q2
RESULTS

Qtr Ended 3/28/09 3/29/08
Sales $789.2M $782.8M
Change +8.3%
Comp-store +4.9%
Net Income $7.8M $13.0M
Change -40%
Inc. /Share 33 cents 56 cents
6 Months 2009 2008
Sales $1.59B $1.56B
Change +2.2%
Net Income $18.9M $25.7M
Change -26.4%
Inc. /Share 80 cents $1.10