EX-99 2 sptnex991_100604.htm Spartan Stores Exhibit 99.1 to Form 8-K - 10/06/04

EXHIBIT 99.1


For Immediate Release

 

 

 

Investor Contact: Dave Staples
Executive Vice President & CFO
(616) 878-8319

Media Contact: Jeanne Norcross
Vice President Corporate Affairs
(616) 878-2830

Spartan Stores Fiscal 2005 Second Quarter Net Earnings Triple
Operating Earnings Increase More Than 80 Percent

GRAND RAPIDS, MICHIGAN-October 6, 2004-Spartan Stores, Inc., (Nasdaq: SPTN) today reported financial results for its fiscal 2005 second quarter ended September 11, 2004.

"We are pleased to report a substantial increase in profitability during the second quarter," stated Craig C. Sturken, Spartan Stores' Chairman, President and Chief Executive Officer. "The second quarter operating and net earnings are at the highest levels in the past three years. Our business focus of maintaining an appropriate balance of sales growth, cost control and profit growth led to this dramatic improvement. "

Consolidated net sales for the 12-week second quarter were $486.7 million compared with $491.4 million in the corresponding 12-week period last year. Second-quarter retail comparable store sales increased 1.4 percent due to strong performance in the Company's supermarket division and the previously disclosed change in accounting for bottle deposits, which contributed 0.7 percent to the comparable store sales increase. The retail sales increase was offset by lower sales in the Company's distribution segment.

Operating earnings increased by more than 80 percent to $13.2 million from $7.3 million in last year's second quarter. The operating earnings improvement was due to a higher gross margin rate and lower operating expenses.

Second-quarter net earnings of $7.0 million, or $0.34 per diluted share, were more than three times higher than last year's second quarter net earnings of $1.8 million, or $0.09 per diluted share. The second-quarter net earnings included a loss from discontinued operations of $(0.1) million, or $(0.01) per diluted share, which compared with a net loss from discontinued operations of $(1.0) million, or $(0.05) per diluted share, in last year's second quarter.

Gross margin improved 60 basis points to 19.5 percent compared with 18.9 percent in last year's second quarter as a result of the change in timing of certain new product initiatives previously disclosed in the prior quarter.





Operating expenses declined 4.4 percent to $81.8 million from $85.6 million in last year's second quarter. As a percentage of sales, operating expenses declined 60 basis points to 16.8 percent compared with 17.4 percent in the corresponding quarter last year. The operating expense improvement was due to more efficient store labor, lower depreciation expense, and the effects of the Company's continuing cost containment policies, partially offset by higher employee benefit costs. Also contributing to the operating earnings improvement was a non-recurring $1.0 million contract termination and non-performance payment received from a former distribution customer, which was recorded as an offset to selling, general and administrative expense.

Year-to-date

Consolidated net sales for the 24-week year-to-date period increased 0.7 percent to $961.0 million from $953.9 million in the corresponding 24-week period last year. Gross margin for the 24-week period improved 20 basis points to 18.8 percent compared with 18.6 percent in the same period last year. Operating expenses for the year-to-date period declined 4.9 percent to $162.9 million from $171.3 million in the same period last year. As a percentage of sales, operating expenses declined 110 basis points to 16.9 percent compared with 18.0 percent in the corresponding period last year.

Year-to-date operating earnings more than doubled to $18.1 million from $6.4 million for the same period last year. The operating earnings improvement was due primarily to lower operating expenses. Net earnings for the 24-week period increased to $8.5 million, or $0.41 per diluted share, compared to a net loss of $(4.3) million, or $(0.22) per diluted share, in the corresponding period last year. Year-to-date net earnings include a $(0.3) million loss from discontinued operations, or $(0.01) per diluted share, compared with a $(4.0) million loss from discontinued operations, or $(0.20) per diluted share, for the corresponding period last year.

Operating Segments

Retail net sales increased 0.7 percent to $232.2 million from $230.5 million in last year's second quarter. Comparable store sales increased 1.4 percent for the quarter, representing the sixth consecutive quarter of comparable store sales growth. Retail supermarket sales showed strong increases during the second quarter, but were partially offset by lower prescription sales at in-store pharmacies and lower sales at the Pharm stores. The decline in pharmacy sales is primarily the result of the previously disclosed United Auto Worker's mandate that requires members to switch to mail order prescription refills for maintenance medications. Retail segment operating earnings improved 60.2 percent to $6.8 million from $4.2 million in the corresponding period last year. Higher retail sales volumes and improved store labor efficiency led to the improvement in operating earnings.

Distribution net sales decreased 2.4 percent to $254.5 million from $260.9 million in last year's second quarter. The decline in distribution sales was the result of a strategic shift in the Company's annual fall private label promotion to the third quarter and the loss of two distribution customers. Also contributing to the decrease was the cycling of incremental sales to existing customers in fiscal 2004 due to the power outage that affected the Detroit area. Sales to


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the former distribution accounts were approximately $6.0 million out of total distribution sales of $515 million for the first two quarters of fiscal 2005 and approximately $13.0 million for the combined third and fourth quarters of fiscal 2004. Operating earnings improved to $6.4 million compared with $3.0 million in last year's second quarter. The improvement in operating earnings was due primarily to higher gross profit margins as a result of the shift in timing of new product initiatives from the first quarter and the previously mentioned non-recurring distribution contract payment.

Cash Flow & Balance Sheet

Strengthening business fundamentals have significantly improved the Company's cash flow. Year-to-date, cash from operations improved more than 350 percent to $32.8 million compared with $7.2 million in the corresponding year-to-date period last year. The improvement is a direct result of higher profitability and a continuing focus on better working capital management.

The improved cash flow led to a $22.3 million, or 17.3 percent, decline in total long-term debt (including current maturities) to $106.5 million as of September 11, 2004 from $128.8 million at the end of fiscal 2004.

Outlook

"During the next 12 months, we expect our comparable store sales growth to moderate further as we compare results against the strong sales growth reported in the previous year, cycle competitive store closings, and as new supercenters open in our markets," continued Mr. Sturken. "We are, however, improving the offering to our customers by continuing to implement more effective category management practices, adding more convenient services such as in-store pharmacies and improving physical facilities with our remodel and new store programs. We believe that these consumer-oriented offerings and programs will help sustain our positive momentum and strengthen our market position.

"To date, we completed store remodels and/or merchandise resets at eight stores, which places us on schedule to complete 10 to 13 stores by year's end. By the end of fiscal 2005, we will have completed remodels and/or resets at more than 30 of our retail supermarkets since undertaking the initiative.

"Late in the second quarter, we introduced our Spartan brand private label product in two major dairy categories; ice cream and yogurt. Preliminary sales results are very favorable. We expect sales growth in these two categories to improve as these and other products are made available to our independent retail operators during the remainder of the fiscal year," concluded Mr. Sturken.

The Company has revised its fiscal 2005 consolidated net sales outlook to range from flat to a one percent increase. Comparable store sales are still expected to range from flat to an increase of 1.5 percent. Consolidated gross margin as a percentage of sales is expected to be slightly higher than fiscal 2004's level by the end of fiscal 2005. Operating expenses in total and as a percentage of sales are expected to be lower than reported in fiscal 2004. Due to the seasonality of its northern Michigan retail operations and the impact of higher employee benefit costs,


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operating expense run rates during the second half of the fiscal year will be less favorable than those reported during the first half of fiscal 2005. Fiscal 2005's depreciation expense is expected to approximate $22 million and capital expenditures are expected to be approximately $20 million to $25 million.

Conference Call

A telephone conference call to discuss the Company's second-quarter financial results is scheduled for 9:00 a.m. Eastern Time, Thursday, October 7, 2004. A live webcast of this conference call will be available on the Company's website, www.spartanstores.com. Simply click on "For Investors" and follow the links to the live webcast. The webcast will remain available for replay on the Company's website for approximately ten days.

About Spartan Stores

Grand Rapids, Michigan-based Spartan Stores, Inc., (Nasdaq:SPTN) is the nation's eighth largest grocery distributor with warehouse facilities in Grand Rapids and Plymouth, Michigan. The Company distributes more than 40,000 private-label and national brand products to over 300 independent grocery stores in Michigan. Spartan Stores also owns and operates 54 retail supermarkets and 21 deep-discount food and drug stores in Michigan and Ohio, including Family Fare Supermarkets, Glen's Markets, and The Pharm.

Forward-Looking Statements

This press release contains forward-looking statements. Forward-looking statements are identifiable by words or phrases indicating that Spartan Stores or its management "expects", "anticipates", "believes", "looks forward", "plans", "estimates", "intends", has "priorities", "objectives", or an "outlook" that a particular occurrence "will", "may", "could" or "should" occur; or that there is "progress", "momentum", "indications" or "on track" toward a particular result or occurrence; or similarly stated expectations. These forward-looking statements are subject to a number of factors that could cause actual results to differ materially. Our continuing ability to strengthen retail store performance, improve sales growth, increase gross margin, reduce operating cost structures, improve financial and operational performance, satisfy contractual requirements and conditions, sell assets that are held for sale on favorable terms, continue trends, meet the requirements of our debt covenants, and implement other programs, plans, strategies, objectives, goals or expectations will be affected by many factors, including changes in economic conditions and competition, changes in the food and distribution industries; sales volume changes, loss of customers or suppliers, changes in the interest rate environment, and labor shortages, stoppages or unrest. Additional information about these and other factors that may adversely affect these forward-looking statements are contained in Spartan Stores' reports and filings with the Securities and Exchange Commission. Spartan Stores undertakes no obligation to update or revise any forward-looking statements to reflect developments or information obtained after the date of this press release.


- More -




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SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)

 

Second Quarter Ended


 

Year-to-Date


 

 

(12 weeks)
Sept. 11,
2004


 

(12 weeks)
Sept. 13,
2003


 

(24 weeks)
Sept. 11,
2004


 

(24 weeks)
Sept. 13,
2003


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

$

486,701

 

$

491,371

 

$

961,026

 

$

953,940

 

Cost of sales

 


391,610


 

 


398,504


 

 


780,035


 

 


776,310


 

Gross margin

 

95,091

 

 

92,867

 

 

180,991

 

 

177,630

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

    Selling, general and administrative

 

77,134

 

 

79,481

 

 

152,935

 

 

159,055

 

    Depreciation and amortization

 


4,711


 

 


6,114


 

 


9,933


 

 


12,195


 

Total operating expenses

 


81,845


 

 


85,595


 

 


162,868


 

 


171,250


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating earnings

 

13,246

 

 

7,272

 

 

18,123

 

 

6,380

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-operating expense (income)

 

 

 

 

 

 

 

 

 

 

 

 

    Interest expense

 

2,277

 

 

3,138

 

 

4,569

 

 

7,108

 

    Interest income

 

(41

)

 

(79

)

 

(88

)

 

(214

)

    Other, net

 


99


 

 


(6


)

 


117


 

 


39


 

Total non-operating expense, net

 


2,335


 

 


3,053


 

 


4,598


 

 


6,933


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) before income taxes and
  discontinued operations

 


10,911

 

 


4,219

 

 


13,525

 

 


(553


)

Income taxes

 


3,817


 

 


1,489


 

 


4,732


 

 


(193


)

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) from continuing operations

 

7,094

 

 

2,730

 

 

8,793

 

 

(360

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of taxes

 


(143


)

 


(958


)

 


(289


)

 


(3,985


)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

$


6,951


 

$


1,772


 

$


8,504


 

$


(4,345


)

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

    Earnings (loss) from continuing operations

$

0.35

 

$

0.14

 

$

0.43

 

$

(0.02

)

    Loss from discontinued operations

 


(0.01


)

 


(0.05


)

 


(0.01


)

 


(0.20


)

    Net earnings (loss)

$


0.34


 

$


0.09


 

$


0.42


 

$


(0.22


)

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

    Earnings (loss) from continuing operations

$

0.35

 

$

0.14

 

$

0.42

 

$

(0.02

)

    Loss from discontinued operations

 


(0.01


)

 


(0.05


)

 


(0.01


)

 


(0.20


)

    Net earnings (loss)

$


0.34


 

$


0.09


 

$


0.41


 

$


(0.22


)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

    Basic

 

20,468

 

 

19,947

 

 

20,361

 

 

19,962

 

    Diluted

 

20,694

 

 

20,077

 

 

20,572

 

 

19,962

 




5


SPARTAN STORES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)

 

Sept. 11,
2004


 

March 27,
2004


 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

   Cash and cash equivalents

$

13,450

 

$

12,838

 

   Accounts receivable, net

 

41,956

 

 

39,732

 

   Inventories

 

92,265

 

 

97,771

 

   Other current assets

 

13,841

 

 

15,931

 

   Property and equipment held for sale

 


3,972


 

 


4,051


 

      Total current assets

 

165,484

 

 

170,323

 

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

 

   Goodwill, net

 

72,105

 

 

72,105

 

   Deferred taxes on income

 

21,999

 

 

25,147

 

   Other

 


14,657


 

 


16,438


 

      Total other assets

 

108,761

 

 

113,690

 

Property and equipment, net

 


105,156


 

 


108,437


 

Total assets

$


379,401


 

$


392,450


 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

   Accounts payable

$

81,591

 

$

75,206

 

   Accrued payroll and benefits

 

21,892

 

 

24,374

 

   Insurance reserves

 

6,508

 

 

7,009

 

   Other accrued expenses

 

18,294

 

 

20,291

 

   Current maturities of long-term debt

 


5,227


 

 


4,177


 

      Total current liabilities

 


133,512


 

 


131,057


 

 

 

 

 

 

 

 

Other long-term liabilities

 

29,850

 

 

31,110

 

 

 

 

 

 

 

 

Long-term debt

 

101,230

 

 

124,616

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

   Common stock, voting, no par value; 50,000 shares
      authorized; 20,477 and 20,092 shares outstanding

 


117,944

 

 


116,666

 

   Preferred stock, no par value, 10,000 shares authorized;
      no shares outstanding

 


-

 

 


-

 

   Deferred stock-based compensation

 

(819

)

 

(179

)

   Accumulated other comprehensive loss

 

(182

)

 

(182

)

   Accumulated deficit

 


(2,134


)

 


(10,638


)

      Total shareholders' equity

 


114,809


 

 


105,667


 

Total liabilities and shareholders' equity

$


379,401


 

$


392,450


 




6


SPARTAN STORES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

 

Year-to-Date


 

 

(24 weeks)
Sept. 11,
2004


 

(24 weeks)
Sept. 13,
2003


 

 

 

 

 

 

 

 

Net cash provided by operating activities

$

32,778

 

$

7,177

 

Net cash used in investing activities

 

(7,833

)

 

(3,761

)

Net cash used in financing activities

 

(21,778

)

 

(8,809

)

Net cash used in discontinued operations

 


(2,555


)

 


(1,455


)

Net increase (decrease) in cash and cash equivalents

 

612

 

 

(6,848

)

Cash and cash equivalents at beginning of period

 


12,838


 

 


23,306


 

Cash and cash equivalents at end of period

$


13,450


 

$


16,458


 






7


SPARTAN STORES, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
(in thousands)
(Unaudited)

 

Second Quarter Ended


 

Year-to-Date


 

 

(12 weeks)
Sept. 11,
2004


 

(12 weeks)
Sept. 13,
2003


 

(24 weeks)
Sept. 11,
2004


 

(24 weeks)
Sept. 13,
2003


 

Retail Segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

$

232,189

 

$

230,502

 

$

445,700

 

$

442,775

 

Operating earnings

$

6,802

 

$

4,247

 

$

6,940

 

$

1,260

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grocery Distribution Segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

$

254,512

 

$

260,869

 

$

515,326

 

$

511,165

 

Operating earnings

$

6,444

 

$

3,025

 

$

11,183

 

$

5,120

 






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