MILAN, Ill. -- A major investment in capital projects has already begun to pay off for Eagle Food Centers here, the company said last week.
The company spent heavily during the year, including the last quarter, on several projects, according to Bob Kelly, president and chief executive officer. In particular, he noted $3 million in new technology. Kelly said new systems have yielded positive results in "improvement in shrink" and pointed out "we're really starting to realize improvement in our merchandising system."
His remarks were made during a conference call with analysts and investors to discuss the company's third-quarter results.
He also said the company expects capital spending "to be in the $37 million to $38 million range" by the end of the fourth quarter and, in 1999, "we expect that to go up by a considerable amount."
Net income was reduced by $1.2 million for the third quarter and $3 million for the 39 weeks ended Oct. 31 due to capital expenditures. That involves $7.1 million in extraordinary charges during the third quarter and $22.4 million for the year-to-date. However, the company is looking at the big picture. Despite a 3.3% decline in sales, the third quarter was the strongest of the year for Eagle Food Centers, the company said.
Pat Plumley, Eagle's chief financial officer, called the period "our best performance of the year" and both he and Kelly said fourth-quarter earnings, including the crucial holiday period, were encouraging.
The two executives said the company was negatively affected by competitive store openings during the period and year to date: seven competitive openings during the third quarter affected nine Eagle stores, bringing the total to 23 competitive openings affecting 27 stores for the 39 weeks.
The company reported net sales of $226.5 million for the quarter and $692.6 million for the year-to-date while same-store sales declined 3.1% for the quarter and 3.3% for the 39 weeks.
"Sales have improved a little bit, yet remain difficult. Our core-stores' sales are showing improvement," Kelly said. He added that stores not affected by competitive openings showed a same-stores sales decline of 0.3% for the third quarter and 0.6% for the year-to-date.
Earnings for the quarter were reported at $387,000, compared with a loss a year ago, and $1.4 million for the 39 weeks, a 47.3% drop from 1997. According to Plumley, Eagle gained $1 million through the sale of a company-owned bakery in Rock Island, Ill. Also, the company received a net earnings boost of $600,000 for the quarter and $2.2 million for the year-to-date through an on-going credit related to overpayments into an employee health and welfare fund.
Also, Plumley told SN in an interview after the conference call that third-quarter earnings reflect $217,000 the company paid out in severance packages to "district management personnel," the cost of opening a new store in Freeport, Ill., and the expansion of another. Eagle also closed a store in Freeport, Plumley said.
During the year, Eagle Food Centers closed a total of three stores. Currently, four new store projects and two expansions are in progress, the company said.
Looking ahead, Kelly said "The most important thing is we continue to hold our own against the pounding of competitive openings."
Meanwhile, "Christmas sales were strong," Kelly said during the conference call. "When you look at the net margins, I'm happy to say we are seeing improvement, a nice steady improvement from 1997."
Kelly added that "Our core stores are positive 2.15% and I believe a lot of that has to do with our advertising program. We're focusing on things we have accomplished here. We're reflecting improvements we've made in the stores and quality of product."
In addition, "We continue to see improvement in the labor area and we're looking forward to rolling out a new labor-schedule program," Kelly said.
