GRAND RAPIDS, Mich. — Higher sales in the retail and distribution segments had a favorable impact on Spartan Stores’ consolidated net sales for the first quarter ended June 22, which increased 1.4% to $612.4 million compared to $603.9 million last.
First quarter sales were offset by the calendar shift of the Easter holiday selling week into the fourth quarter of fiscal 2013. First quarter comparable-store sales were also impacted by the cycling of the launch of the price-freeze campaign and unfavorable weather conditions as compared to the first quarter of fiscal 2013.
“We are pleased with our ability to generate improved first quarter financial results despite the negative effect of the Easter calendar shift and generally unfavorable weather conditions compared to the prior year,” said Dennis Eidson, Spartan’s president and CEO. “Our adjusted earnings from continuing operations exceeded our guidance and we generated increased cash flow from operations for the quarter driven by an operating margin improvement in our retail segment. We benefited from the acquisition of a retail store late in the prior year third quarter, new customer gains, the growing traction of our Yes Rewards loyalty program and increased fuel sales, as well as our continued disciplined expense management. We continue to refine our promotion and loyalty programs and to introduce new private brand products to provide even more value to our retail and distribution customers in today’s economy.”
Gross profit margin for the first quarter of fiscal 2014 was 20.5% compared to 20.2% in the first quarter of the prior year. The gross profit margin rate increase reflects an improved performance in the company’s retail segment driven primarily by the cycling of the launch of the price-freeze campaign in the prior year.
The quarter’s operating expenses would have been $112.5 million, or 18.4% of net sales, if the professional fees related to the previously announced merger agreement with Nash Finch and the asset impairment charge were excluded, compared to $109.9 million, or 18.2% of net sales, excluding $0.1 million in professional fees for tax planning in the first quarter of the prior year.
Net sales for the retail segment increased 2.4% to $353.8 million for the quarter compared to $345.6 million in the same period last year. The increase in sales was due to the previously disclosed acquisition of a grocery store in the third quarter of fiscal 2013, new Valu Land store openings and increased fuel sales, partially offset by negative comparable-store sales.
Comparable-store sales, excluding fuel, decreased 2.9% due to a 90 basis point negative impact from the Easter holiday calendar shift, which moved the strong selling week prior to the Easter holiday into the fourth quarter of fiscal 2013. Comparable-store sales in the first quarter were also impacted by the cycling of the launch of the price-freeze campaign, unfavorable weather conditions, the cycling of the grand opening of a new relocated store in the company’s Grand Rapids market and the continued shift in the pharmacy sales mix to generic medications.
During the first quarter of fiscal 2014, the company completed two minor remodels and store re-banners, ending the quarter with 101 corporate owned stores and 30 fuel centers.
Net sales for the distribution segment increased 0.1% to $258.6 million for the quarter from $258.3 million in the same period last year. The slight increase in sales was primarily due to new business gains, partially offset by the elimination of sales related to the acquisition of a customer’s store in the third quarter of fiscal 2013, the Easter holiday calendar shift, unfavorable weather conditions and lower pharmacy sales.
First quarter fiscal 2014 operating earnings for the distribution segment would have been $7.5 million, if $1.8 million in professional fees related to the merger transaction were excluded, compared to adjusted operating earnings of $7.9 million in the same period last year. As reported, operating earnings for the distribution segment were $5.7 million for the first quarter of fiscal 2014 compared to $7.8 million for the first quarter of fiscal 2013.
“We remain confident in the plans we have in place to deliver our sales and earnings outlook for fiscal 2014, including investing in the consumer experience, increasing our remodeling efforts, introducing new private brand products and improving productivity across our operations,” added Eidson. “During the second quarter, we plan to complete four minor remodels, one major remodel and to open one new Valu Land store in the Lansing market. Additionally, we continue to focus on our integration plan for our recently announced merger with Nash Finch. As you know, we are a very disciplined organization and the integration will be a critical priority for us. I am confident in the realization of the $50 million in anticipated cost synergies from this transaction, which were vetted by both organizations. These synergies, along with the strategic opportunities provided by the combined organization and the future flexible financial structure will allow the combined entity to execute our strategic vision and deliver continued value to associates, shareholders and other partners.”