ASHEVILLE, N.C. — Officials of Ingles Markets here aren't regretting their building spree of recent years; they're just having to wait a little longer for the payoff.
Higher expenses for new store development — along with charges associated with debt retirement — sent net income at Ingles down by 50.4% during the fiscal fourth quarter, which ended Sept. 26, the retailer here said last week.
Net income of $28.8 million for the fiscal year fell by 44.7%, mainly as a result of higher expenses as a percentage of revenue for Ingles, which said it was affected by a slower ramp-up of some of the 22 new stores it has opened or remodeled since 2008.
“In a recession it's just taking a little bit longer for the sales volume [of new stores] to catch up to the level we want it to bring the operating expense leverage number down a little bit,” Ronald Freeman, chief financial officer of Ingles, said in a conference call.
Ingles in recent years has been focused on building top-line results by expanding existing stores and building new ones. Freeman last week said the strategy, which is shifting Ingles to a “one-stop” offering including expanded product selection and gasoline, would pay off over the long term, but that economic conditions have put a drag on how quickly those new stores are reaching their goals.
Ingles said it would moderate the scope of its planned projects in 2010 to focus mainly on remodels. Ingles said it would plan on capital expenditures of $120 million to $150 million. It spent $141.8 million in fiscal 2009.
Freeman said the slow ramp-up of new stores was “overwhelmingly due to the economy. And it's important to keep in mind that most of these '08 and '09 store openings were in process when the economy turned bad, so it would not have been cost efficient to pull the plug and stop.
“The good news is that when the economy turns and some other folks say, ‘Great, I can start building stores again,’ we've already got them there,” he added. “We suffered through a few years while we wait for them to catch up, but I think we will come out ahead on this.”
Ingles said increases in store traffic helped bring same-store sales up by 2.4% in the quarter, excluding gasoline sales. Overall quarterly sales of $830.1 million fell by 1.5% due mainly to a sharp decrease in gasoline prices. Quarterly net income totaled $5.2 million. In addition to higher expenses, Ingles noted its quarterly and full-year income results were affected by an income reduction of $10.2 million associated with pre-payment penalties and loan cost write-offs associated with a new financing package.
