MOBILE, Ala. -- Delchamps here said pressure on its gross margins contributed to lower earnings for the year and fourth quarter ended July 2.
Sales rose 3.2% to $1.07 billion in 52-week fiscal 1994. After adjusting results from fiscal 1993, a 53-week year, the company said the annual sales increase would have been 5.5%. Same-store sales rose 1.2% for the year.
Net income fell 23.8% to $11 million for the year and 44.4% to $2.3 million for the 13-week fourth quarter. The retailer's gross-margin rate declined 15 basis points to 25.38% of sales in the fiscal year.
Randy Delchamps, chairman, president and chief executive officer of the 120-store chain, attributed the sales gain for the year to continued promotional activity, as well as to the impact of increased selling space in expanded and remodeled stores and in newly opened stores. Stores that were remodeled in the past two years are showing "significant sales increases, within averages of 21%," he said.
Delchamps said earnings were adversely affected by the gross-margin pressure created by the continuing entry of new competition, traditional supermarkets as well as supercenters, which gave even more choices to value-conscious consumers. The company is attempting to better manage its margins through volume buying, added variety and more creative merchandising.
"Tight margins create the need for better buying and more volume in order to maintain or grow earnings, and we are steadfastly on that track," he said.
Delchamps said an upward trend in sales per customer is "a very encouraging sign." The chain will intensify its promotional and marketing activity to generate higher traffic counts and to expose more consumers to the Delchamps shopping experience, he added.
Steve Hofheinz, a securities analyst with Sterne Agee & Leach, Atlanta, said Delchamps' earnings during the year were affected by the company's attempts to beef up its advertising and promotional activities in response to the intensely competitive environment in the Southeast.
"As a result, while other companies' profits have suffered, Delchamps' aggressive program of merchandising, marketing and store renovations has enabled it to maintain fairly steady, if occasionally erratic, profit levels over the last several years," Hofheinz said.
Delchamps opened three new stores (including one replacement unit) and remodeled four in fiscal 1994. It plans to open four new stores and remodel and expand nine others in the current year.
The company said accounting changes related to income taxes increased net income for 1994 by $900,000, or 12 cents per share, while new accounting methods for postemployment benefits decreased earnings by $1.6 million, or 22 cents per share.
