Easter, Economy Hit Gelson's Sales, Profits in Q2

LOS ANGELES — Arden Group here, parent of the 18-unit Gelson's chain, said second-quarter sales were negatively impacted by the earlier Easter and Passover holidays this year, as well as economic conditions and competition.

Net income for the 13-week second quarter, which ended July 3, was down 16.6%, to $4 million, as sales slid 5.5%, to $102 million, compared with year-ago levels. Same-store sales also slid 5.5%. Operating income was down 14.5% for the period, to $6.7 million.

The company said its operating income has been negatively impacted since March by increased contributions to employee health care. The company said that beginning in March, it increased its contribution rate for the majority of its union employees to the maximum allowable rate under the current collective bargaining agreement, resulting in additional expense of approximately $75,000 per week. That was partially offset by a reduction in expenses related to stock-based compensation.

Through the first half of the fiscal year, net income fell 13.6%, to $9.1 million, while sales were down 4.6%, to $206.7 million. Same-store sales fell by the same amount.

The quarterly report follows two years of declining sales at the chain, which positions itself as an upscale destination offering high-quality grocery and specialty items.

In fiscal 2007, which closely approximated the calendar year, sales were $486 million. Last year, sales totaled $431.2 million, a decline of 11.2%. Net income in that time period fell about 26%, to $21.6 million.

Bernard Briskin, the company's 85-year-old chairman, president and chief executive officer, owns 57% of the company's stock.

A positive note on the investment website Motley Fool last week touted Arden Group's high rate of insider ownership (a total of 61% of shares are held by insiders) and its high (15%) returns on invested capital.

The company's share price has fallen more than 50% since it reached nearly $200 per share in September 2008, and is down more than 8% this year, to about $87 per share as of late last week.

Q2 RESULTS