SAN BERNARDINO, Calif. — Although the economy will remain weak, earlier notifications by suppliers of upcoming price increases will make it easier for retailers to manage margins, Jack Brown, chairman and chief executive officer of Stater Bros. Markets here, told analysts last week.
Stater got stuck early in the year when it had an item in its ad whose price was raised before the ad ran, but when it was too late to remove it from the ad, he pointed out. That's less likely to happen going forward, he explained.
“With more pre-notification, we have a better handle on margins than we did six months ago,” he said.
Brown made his remarks during a conference call to discuss financial results for the third quarter and the 39 weeks that ended June 29. Net income fell 41% to $9.2 million for the 13-week quarter and 14.1% to $33.5 million for the year to date. Sales rose 2.5% to a record $932.7 million for the quarter — despite Easter falling in this year's second quarter compared with last year's third quarter — and climbed 4.5% to $2.8 billion for the 39-week period. Comparable-store sales rose 1.8% for the quarter, adjusted for the shift in Easter, and 2.9% for the year to date.
According to Brown, earnings were negatively impacted by the downturn in the economy “and the negative effect that had on family budgets. We held the line on some price increases to assist our customers in coping with outrageous fuel costs and general price increases, which negatively affected our earnings.
“However, our plan to hold our customer counts was accomplished, with an increase of 324,000 customers during the last 10 weeks. That means that when our customers have more to spend, we'll get our share, and unlike some retailers, we won't have to go looking for our customers.”
Brown said Stater pursued a similar strategy to retain customers during a period in the mid-1990s when unemployment in the chain's operating area was among the highest in the U.S. because of a halt in home construction. “We added family packs and larger sizes and did whatever we could to help families cope, and it worked then and it's working for us now,” he pointed out.
Stater held back on passing through some price increases during the quarter, Brown noted, “but that was a one-time action. We passed through most of them — we just dragged on some, possibly to a greater degree than some competitors. And we know those competitors are not holding onto customers to the same degree as we are.”
Although Stater has always been extremely brand-oriented in its merchandising, it has made adjustments with the economic downturn, Brown said. “Given the facts of life, our game plan has changed,” he acknowledged, noting that private label has moved from 15% of the sales mix to more than 20% in the last few months, “and it still has several more points to go before it gets to where it needs to be,” he added.
Brown said economic considerations have prompted Stater to cut back the number of new stores it will open next year to three, rather than the eight it had originally anticipated.
“With the economy as shaky as it's been, we took another look at the eight store sites we were considering and cut back to the three best locations.”
|*Adjusted for shift in Easter to Q2 this year from Q3 last year.|
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