Harris Teeter Supermarkets, Inc. Reports Results For The Second Quarter Of Fiscal 2012

Harris Teeter Supermarkets, Inc. (NYSE:HTSI) (the “Company”) today reported that sales for the second quarter of fiscal 2012 ended April 1, 2012 increased by 6.7% to $1.12 billion from $1.05 billion in the second quarter of fiscal 2011. For the 26 weeks ended April 1, 2012, sales increased by 7.6% to $2.24 billion from $2.08 billion for the comparable period of fiscal 2011. The increase in sales for the quarter and 26-week period was driven by an increase in comparable store sales and sales from new stores, partially offset by store closings. Comparable store sales increased by 3.91% for the quarter, and 4.62% for the 26-week period ended April 1, 2012, from the respective comparable periods of fiscal 2011. During the first half of fiscal 2012, the Company opened three new stores and closed one store. Since the end of the second quarter of fiscal 2011, the Company has opened six new stores and closed two stores, for a net addition of four stores. The Company operated 206 stores as of the end of the second quarter of fiscal 2012.

As previously disclosed, the Company sold all of its ownership interest in its wholly-owned industrial thread manufacturing company American & Efird, Inc. (“A&E”) on November 7, 2011. As such, A&E’s results of operations and financial position are reported as discontinued operations.

The Company reported net earnings of $30.3 million for the second quarter of fiscal 2012, compared to net earnings of $29.9 million for the second quarter of fiscal 2011. Net earnings for the second quarter of fiscal 2012 was comprised of earnings from continuing operations of $30.5 million, or $0.62 per diluted share, and a loss from discontinued operations of $0.2 million. Net earnings for the second quarter of fiscal 2011 was comprised of earnings from continuing operations of $26.2 million, or $0.54 per diluted share, and earnings from discontinued operations of $3.7 million.

Net earnings for the 26 weeks ended April 1, 2012 totaled $43.9 million and was comprised of earnings from continuing operations of $56.3 million, or $1.15 per diluted share and a loss from discontinued operations of $12.4 million. Net earnings for the 26 weeks ended April 3, 2011 totaled $68.0 million and was comprised of earnings from continuing operations of $60.6 million, or $1.24 per diluted share, and earnings from discontinued operations of $7.4 million. Earnings from continuing operations for fiscal 2012 was favorably impacted by a reversal of accrued interest amounting to $1.3 million that was associated with a reduction of the Company’s unrecognized tax liabilities. Fiscal 2011 earnings from continuing operations included a pre-tax gain of $19.5 million ($10.3 million after tax or $0.21 per diluted share) from the sale of the Company’s interest in a foreign investment.

Operating profit in the second quarter of fiscal 2012 increased by 10.1% to $52.5 million (4.68% of sales) from $47.7 million (4.54% of sales) in the first quarter of fiscal 2011. For the 26 weeks ended April 1, 2012, operating profit increased by 10.4% to $98.7 million (4.41% of sales) from $89.5 million (4.30% of sales) in the comparable period of fiscal 2011. The increase in operating profit was driven by increased gross profit that was offset, in part by increases in selling, general and administrative (“SG&A”) expenses.

Gross profit in the second quarter of fiscal 2012 increased by 8.4% to $343.6 million (30.66% of sales) from $317.1 million (30.19% of sales) in the second quarter of fiscal 2011. For the 26 weeks ended April 1, 2012, gross profit increased by 7.5% to $670.4 million (29.93% of sales) from $623.5 million (29.94% of sales) in the same period of fiscal 2011. The LIFO charge for the second quarter of fiscal 2012 was $2.3 million (0.20% of sales) as compared to $4.8 million (0.46% of sales) in the second quarter of fiscal 2011. The LIFO charge for the first half of fiscal 2012 was $5.9 million (0.26% of sales) as compared to $5.3 million (0.26% of sales) for the first half of fiscal 2011.

SG&A expenses for the second quarter and first half of fiscal 2012 increased from the respective prior year periods as a result of incremental store growth and its impact on associated operational costs. On a percent of sales basis, SG&A expenses increased by 32 basis points during the quarter and decreased 13 basis points for the 26 weeks ended April 1, 2012, as compared to the comparable periods of the prior year. The Company’s emphasis on cost controls and improved labor management has been effective in offsetting a portion of the increases in health and welfare costs, pension expense and other fringe benefit costs, as well as increased costs associated with the Company’s store remodeling program.

SG&A expenses included new store pre-opening costs of $1.4 million (0.13% of sales) and $1.9 million (0.18% of sales) in the second quarter of fiscal 2012 and fiscal 2011, respectively. Pre-opening costs for the 26-week periods ended April 1, 2012 and April 3, 2011 were $2.8 million (0.13% of sales) and $3.9 million (0.18% of sales), respectively. New store pre-opening costs fluctuate between reporting periods depending on the new store opening schedule and market location.

The pre-tax loss from discontinued operations for the 26 weeks ended April 1, 2012 amounted to $18.3 million, $12.4 million after tax benefits or $0.25 per diluted share. As disclosed last year, the Company expected to incur additional non-cash charges for the settlement of pension liabilities and other employee benefits in connection with the sale of A&E. Accordingly, the Company recorded non-cash charges of $26.3 million ($12.9 million after tax) during the first half of fiscal 2012 that related to these anticipated costs. The majority of these losses resulted from adjustments for the recognition of a pro-rata share of the pension plan’s accumulated unrecognized net actuarial losses that was previously included in Accumulated Other Comprehensive Income and the impact from allocating existing plan assets under pension regulations and was based upon preliminary actuarial estimates. Actuarial valuations and the final purchase price allocation are not expected to be finalized until the Company’s third quarter of fiscal 2012 and could result in additional adjustments.

Thomas W. Dickson, Chairman of the Board and Chief Executive Officer stated, “We are very pleased with our results for the quarter. Our pricing and promotional strategies continue to be effective in driving unit sales, customer visits and increasing market share. Our operating profit margin improvement for the year was driven by the reduction in our selling, general and administrative expense margin realized through the leverage created from the additional sales and our emphasis on cost controls. We believe these positive results are a result of our continuing commitment to our customers to deliver outstanding values and excellent customer service.”

The Company’s operating performance and strong financial position provides the flexibility to continue with its store development program for new and replacement stores along with the remodeling and expansion of existing stores. Capital expenditures for fiscal 2012 are planned to total approximately $215 million. During the remainder of fiscal 2012, the Company plans to open four new stores and complete major remodels on ten stores, five of which will be expanded in size. The remaining store openings for fiscal 2012 are expected to include three in the third quarter (one of which is a replacement for a store closed in the first quarter) and one in the fourth quarter. The new store development program for fiscal 2012 is expected to result in a 3.9% increase in retail square footage, as compared to a 3.2% increase in fiscal 2011. The Company routinely evaluates its existing store operations in regards to its overall business strategy and from time to time will close or divest underperforming stores.

The Company’s capital expenditure plans entail the continued expansion of its existing markets, including the Washington, D.C. metro market area which incorporates northern Virginia, the District of Columbia, southern Maryland and coastal Delaware. Real estate development by its nature is both unpredictable and subject to external factors including weather, construction schedules and costs. Any change in the amount and timing of new store development would impact the expected capital expenditures, sales and operating results.

The Company’s management remains cautious in its expectations for the remainder of fiscal 2012 due to the current economic environment and its impact on the Company’s customers. The Company will continue to refine its merchandising strategies to respond to the changing shopping demands. The retail grocery market remains intensely competitive, and any operating improvement will be dependent on the Company’s ability to increase its market share and to effectively execute the Company’s strategic expansion plans.

This news release may contain forward-looking statements that involve uncertainties. A discussion of various important factors that could cause results to differ materially from those expressed in such forward-looking statements is shown in reports filed by the Company with the Securities and Exchange Commission and include: generally adverse economic and industry conditions; changes in the competitive environment; economic or political changes; changes in federal, state or local regulations affecting the Company; the passage of future tax legislation, or any negative regulatory or judicial position which prevails; management's ability to predict the adequacy of the Company's liquidity to meet future requirements; volatility of financial and credit markets which would affect access to capital for the Company; changes in the Company's expansion plans and their effect on store openings, closings and other investments; the ability to predict the required contributions to the Company's pension and other retirement plans; the Company’s requirement to impair recorded long-lived assets; the cost and availability of energy and raw materials; the continued solvency of third parties on leases that the Company guarantees; the Company’s ability to recruit, train and retain effective employees; changes in labor and employer benefits costs, such as increased health care and other insurance costs; the Company’s ability to successfully integrate the operations of acquired businesses; the extent and speed of successful execution of strategic initiatives; and, unexpected outcomes of any legal proceedings arising in the normal course of business. Other factors not identified above could cause actual results to differ materially from those included, contemplated or implied by the forward-looking statements made in this news release.

Harris Teeter Supermarkets, Inc. operates a leading regional supermarket chain in eight states primarily in the southeastern and mid-Atlantic United States, and the District of Columbia.

Selected information regarding Harris Teeter Supermarkets, Inc. and its subsidiaries follows. For more information on Harris Teeter Supermarkets, Inc., visit our web site at: www.harristeeter.com .
Harris Teeter Supermarkets, Inc.
Consolidated Condensed Statements of Earnings
(in thousands, except per share data)
(unaudited)
       
13 Weeks Ended 26 Weeks Ended
April 1, 2012 April 3, 2011 April 1, 2012 April 3, 2011
Sales $ 1,120,379 100.00 % $ 1,050,146 100.00 % $ 2,239,945 100.00 % $ 2,082,427 100.00 %
Cost of Sales   776,822   69.34 %   733,070   69.81 %   1,569,568   70.07 %   1,458,928   70.06 %
Gross Profit 343,557 30.66 % 317,076 30.19 % 670,377 29.93 % 623,499 29.94 %
 
Selling, General and Administrative
Expenses:
Harris Teeter 288,004 25.71 % 266,605 25.39 % 565,993 25.27 % 528,129 25.36 %
Corporate   3,067   0.27 %   2,815   0.27 %   5,636   0.25 %   5,915   0.28 %
Total   291,071   25.98 %   269,420   25.66 %   571,629   25.52 %   534,044   25.65 %
 
Operating Profit   52,486   4.68 %   47,656   4.54 %   98,748   4.41 %   89,455   4.30 %
 
Other Expense (Income):
Interest expense 3,334 0.30 % 5,069 0.48 % 8,072 0.36 % 9,529 0.46 %
Interest income (34 ) 0.00 % (33 ) 0.00 % (82 ) 0.00 % (56 ) 0.00 %
Net investment loss (gain)   -   0.00 %   114   0.01 %   -   0.00 %   (19,392 ) -0.93 %
Total   3,300   0.29 %   5,150   0.49 %   7,990   0.36 %   (9,919 ) -0.48 %
 
Earnings From Continuing Operations
Before Income Taxes 49,186 4.39 % 42,506 4.05 % 90,758 4.05 % 99,374 4.77 %
Income Tax Expense   18,730   1.67 %   16,333   1.56 %   34,486   1.54 %   38,795   1.86 %
Earnings from Continuing
Operations, Net of Income Taxes   30,456   2.72 %   26,173   2.49 %   56,272   2.51 %   60,579   2.91 %
 
Earnings (Loss) from Operations of
Discontinued Operations (344 ) 6,504 (18,344 ) 12,094
Income Tax (Benefit) Expense   (142 )   2,771     (5,985 )   4,634  
Earnings (Loss) from Discontinued
Operations, Net of Income Taxes   (202 )   3,733     (12,359 )   7,460  
 
Net Earnings $ 30,254   $ 29,906   $ 43,913   $ 68,039  
 
Net Earnings (Loss) Per Share - Basic:
Continuing Operations $ 0.62 $ 0.54 $ 1.16 $ 1.25
Discontinued Operations   -     0.08     (0.25 )   0.15  
Total $ 0.62   $ 0.62   $ 0.90   $ 1.40  
 
Net Earnings (Loss) Per Share - Diluted:
Continuing Operations $ 0.62 $ 0.54 $ 1.15 $ 1.24
Discontinued Operations   -     0.08     (0.25 )   0.15  
Total $ 0.62   $ 0.61   $ 0.90   $ 1.39  
 
Weighted Average Number of Shares of
Common Stock Outstanding:
Basic 48,780 48,481 48,714 48,446
Diluted 49,034 48,818 49,016 48,806
 
Dividends Declared Per Common Share $ 0.14 $ 0.13 $ 0.27 $ 0.26
 
Effective Tax Rate on Continuing Operations 38.1 % 38.4 % 38.0 % 39.0 %
   
Harris Teeter Supermarkets, Inc.
Consolidated Condensed Balance Sheets
(in thousands)
(unaudited)
 
April 1, October 2, April 3,
2012   2011 2011

Assets
Current Assets:
Cash and Cash Equivalents $ 232,476 $ 164,479 $ 64,010
Accounts Receivable, Net 52,784 47,088 51,115
Refundable Income Taxes 10,042 15,055 -
Inventories 290,659 287,137 270,068
Deferred Income Taxes 5,023 1,321 828
Prepaid Expenses and Other Current Assets 26,772 24,576 24,675
Current Assets of Discontinued Operations   -     220,017     270,739  
Total Current Assets 617,756 759,673 681,435
 
Property, Net 1,040,048 1,019,468 1,009,195
Investments 104,735 112,556 113,478
Intangible Assets 13,073 13,609 13,602
Other Long-Term Assets 82,440 79,118 78,814
     
Total Assets $ 1,858,052   $ 1,984,424   $ 1,896,524  
 
 

Liabilities and Shareholders' Equity
Current Liabilities:
Current Portion of Long-Term Debt and Capital Lease Obligations $ 4,137 $ 3,902 $ 4,093
Accounts Payable 246,032 252,859 213,980
Income Taxes Payable - - 2,196
Accrued Compensation 57,072 63,236 51,568
Other Current Liabilities 79,410 87,805 72,413
Current Liabilities of Discontinued Operations   -     71,571     68,469  
Total Current Liabilities 386,651 479,373 412,719
 
Long-Term Debt and Capital Lease Obligations 210,702 283,428 285,880
Deferred Income Taxes 23,175 19,674 3,497
Pension Liabilities 104,459 113,617 126,553
Other Long-Term Liabilities 111,397 113,250 111,785
 
Shareholders' 'Equity:
Common Stock 107,940 104,211 99,644
Retained Earnings 1,015,140 984,535 974,106
Accumulated Other Comprehensive Loss (101,412 ) (100,423 ) (105,470 )
Accumulated Other Comprehensive Loss of Discontinued Operations   -     (19,048 )   (17,939 )
Total Shareholders' Equity of Harris Teeter Supermarkets, Inc. 1,021,668 969,275 950,341
Noncontrolling Interest of Discontinued Operations   -     5,807     5,749  
Total Shareholders' Equity 1,021,668 975,082 956,090
     
Total Liabilities and Shareholders' Equity $ 1,858,052   $ 1,984,424   $ 1,896,524  
 
Harris Teeter Supermarkets, Inc.
Consolidated Condensed Statements of Cash Flows
(in thousands)
(unaudited)
26 Weeks Ended
April 1, April 3,
2012 2011
Cash Flow From Operating Activities:
Net Earnings $ 43,913 $ 68,039
Loss (Earnings) from Discontinued Operations 12,359 (7,460 )
Non-Cash Items Included in Net Income
Depreciation and Amortization 66,885 63,652
Deferred Income Taxes 2,153 146
Net Gain on Sale of Property and Investments (162 ) (19,343 )
Share-Based Compensation 3,808 3,999
Other, Net (2,020 ) (1,350 )
Changes in Operating Accounts Providing (Utilizing) Cash
Accounts Receivable (5,696 ) (3,242 )
Inventories (3,522 ) 1,957
Prepaid Expenses and Other Current Assets (1,304 ) 4,268
Accounts Payable (10,055 ) 3,105
Other Current Liabilities (8,439 ) 1,043
Other Long-Term Operating Accounts (30,191 ) (32,571 )
Net Cash Used by Operating Activities of Discontinued Operations   -     (576 )
Net Cash Provided by Operating Activities   67,729     81,667  
 
Investing Activities:
Capital Expenditures (70,393 ) (71,553 )
Purchase of Other Investments (591 ) (14,402 )
Proceeds from Sale of Property and Investments 170,418 50,297
Investments in Company-Owned Life Insurance (611 ) (1,073 )
Other, Net (28 ) (127 )
Net Cash Used by Investing Activities of Discontinued Operations   -     (1,285 )
Net Cash Provided (Used) by Investing Activities   98,795     (38,143 )
 
Financing Activities:
Payments on Long-Term Debt and Capital Lease Obligations (81,357 ) (28,267 )
Dividends Paid (13,308 ) (12,776 )
Proceeds from Stock Issued 314 360
Share-Based Compensation Tax Benefits 1,838 762
Shares Effectively Purchased and Retired for Withholding Taxes (5,129 ) (2,485 )
Other, Net (885 ) 70

Net Cash Used by Financing Activities of Discontinued Operations
  -     (570 )
Net Cash Used by Financing Activities   (98,527 )   (42,906 )
 
Increase in Cash and Cash Equivalents 67,997 618
Effect of Foreign Currency Fluctuations on Cash of Discontinued Operations - 81
Cash and Cash Equivalents at Beginning of Period 164,479 73,612
   
Cash and Cash Equivalents at End of Period $ 232,476   $ 74,311  
 
Cash and Cash Equivalents of Continuing Operations $ 232,476 $ 64,010
Cash and Cash Equivalents of Discontinued Operations - $ 10,301
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Year for:
Interest, Net of Amounts Capitalized $ 9,357 $ 9,701
Income Taxes 21,716 20,767
Non-Cash Activity:
Assets Acquired Under Capital Leases 8,866 12,144
Note Received in Connection with Sale of Investments - 2,855
       
Harris Teeter Supermarkets, Inc.
Other Statistics
 
13 Weeks Ended 26 Weeks Ended
April 1, April 3, April 1, April 3,
2012 2011 2012 2011
 
Comparable Store Sales Increase 3.91 % 1.42 % 4.62 % 1.81 %
 
Store Brand Penetration Based on Units 24.15 % 24.48 % 24.25 % 24.08 %
 
Store Brand Penetration Based on Sales 24.98 % 24.38 % 25.24 % 24.40 %
 
Store Count
Beginning number of stores 206 201 204 199
Opened during the period - 2 3 4
Closed during the period -   (1 ) (1 ) (1 )
Stores in operation at end of period 206   202   206   202  

 

Definition of Comparable Store Sales:
Comparable store sales are computed using corresponding calendar weeks to account for the occasional
extra week included in a fiscal year. A new store must be in operation for 14 months before it enters into
the calculation of comparable store sales. A closed store is removed from the calculation in the month
in which its closure is announced. A new store opening within an approximate two-mile radius of an
existing store that is to be closed upon the new store opening is included as a replacement store in
the comparable store sales measure as if it were the same store. Sales increases resulting from existing
comparable stores that are expanded in size are included in the calculations of comparable store sales, if
the store remains open during the construction period.

Copyright Business Wire 2010

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