Ingles to Boost Spending

ASHEVILLE, N.C. — Ingles Markets here said last week it plans to increase capital spending to $200 million this year, with a focus firmly on top-line growth.

Ingles' annual baseline capital spending range is between $150 million and $175 million, Ronald B. Freeman, chief financial officer and vice president, finance, said during a conference call. “This increased level of spending reflects our confidence in our store-development process, even during current economic uncertainties,” he added.

“We believe that to continue to increase sales, we need to continue to improve and develop our store base. We very strongly believe you have to keep your stores top-notch, up-to-date, modern and the best in the market, and we don't want to change that.”

Freeman said earlier in the year the company was planning to spend $175 million on capital projects this year.

He said the chain spent $114.1 million during the first six months of the year to open four replacement stores; add five fuel centers; complete one store remodeling; purchase nine land parcels; and purchase two shopping centers where it operates leased stores.

During the balance of the year, Freeman said, Ingles plans to open two new stores; remodel three locations; replace three existing stores; and add eight new fuel centers.

Some of the $200 million budget may cover expenditures for stores that will open in fiscal 2009, Freeman noted.

He made his remarks during a conference call with analysts to discuss financial results for the second quarter and first half, which ended March 29. Net income fell 3.8% to $13 million for the quarter and rose 4.1% to $25.7 million for the half, while sales rose 14.9% to $782.8 million for the quarter and 14.1% to $1.6 billion for the six-month period.

The company attributed the earnings decline in the quarter to the recognition in the prior year's quarter of a $3.2 million reduction in income tax expense stemming from settlement of certain state income tax issues.

Excluding the shift of Easter from last year's third quarter to this year's second quarter and excluding gasoline sales, comparable stores grew 8.4% in the quarter and the half, Freeman said. Grocery segment comps rose 15% in the quarter and 13.9% in the half.

The company said the number of customer transactions increased 9.7% for the quarter and 9.6% for the half, while the average transaction amount changed less than one-half of 1% in the quarter and the half.

Freeman said gross margins as a percentage of sales remained stable — 23.8% in the second quarter, compared with 24.5% in the prior year; and 27.4% in the half, compared with 27% a year ago. “We are pleased with this margin stability during a time when cost and purchasing behaviors can change quickly,” he noted.

In response to a question, Freeman declined to pinpoint the cost of developing a new store. “We have not disclosed our per-square-foot construction costs in the past, and you can have a pretty wide range, especially in mountainous terrain, so it would be misleading to give any number.”

He also declined to break out the amount spent on store development from the amount spent on land purchases. “Most of it is devoted to store development, whether it's new stores, remodels or replacement stores,” he said.

He acknowledged that Ingles is considering expanding its distribution center, though there are no specific plans to do so at this time. “We certainly have the land, and we certainly have plans that we are taking a look at, but it's way too early to speculate when that process might start and what the ultimate cost might be,” Freeman said.

“We're getting everything out to the stores on time, and we are keeping them full.”

In response to a question, Freeman said Ingles has purchased land adjacent to its existing dairy facility, though it has no immediate plans to expand the facility.

In other comments during the conference call, Freeman said Ingles is seeing some decreases in restaurant dining, “and that certainly helps out our deli and bakery department.”