LOS ANGELES -- Smart & Final here said last week energy costs continue to increase, though problems resulting from energy shortages have not been as devastating as anticipated because of conservation measures by the company and state of California, combined with milder weather patterns.
Ross Roeder, chairman and chief executive officer, said the company's energy costs rose $500,000 during the second quarter and are likely to increase by a total of $2 million for the year. "But we expect to offset those increases through cost reductions and conservation measures," he noted, "though it might be necessary to look at some prices as well. Right now we're monitoring what other retailers are doing."
He also said Smart & Final pared back the number of new stores for the year by three -- with plans for 12 new stores rather than 15 -- because of energy concerns.
Roeder made his remarks during a conference call with securities analysts last week following release of the company's financial results for the second quarter and first half ended June 17.
Sales rose 4.7% to $463.6 million for the 12-week quarter and 5.4% to $887.8 million for the half, while net income rose 39.8% to $4.5 million for the quarter and 39.3% to $5.3 million for the half.
Sales at the company's 226 stores rose 5.1% to $365.9 million for the quarter and 6% to $690.5 million for the half, while same-store sales rose 4% for the quarter and 5.1% for the half.
Roeder said the comps were achieved against difficult comparisons -- a 7.2% increase in same-store sales in last year's second quarter. He said he attributed the solid results to expanded assortments, better merchandising and additional labor at the stores.
In response to a question, Roeder said he could not attribute the increase in store comps to any perceived sales declines at traditional retail chains, whose comps have shown slippage in some instances.
"We don't feel we compete directly with those chains," he said. "However, there has been some trading down in northern California, with some people spending less money, but that reduction affects all of us, and it's possible comps might have been higher if not for the slowdown in the economy."
The number of customer transactions was up 3.9% in the quarter, and the average transaction size rose 1.2% to $38.67, the company indicated.
Sales in Smart & Final's food-service distribution segment increased 2.9% to $97.7 million for the quarter and 3.4% to $197.3 million for the half. The company said sales in its Florida food-service unit rose 15.7% for the quarter, reflecting the restructuring activities that have been completed there, while sales in the northern California food-service unit fell 10.3%, reflecting ongoing restructuring activities there.
According to Roeder, "We are encouraged by the progress that has been made in our Florida operating unit, which is achieving strong sales growth. The restructuring activities in our northern California operations have impacted current year sales but are designed to produce greater operational efficiency to help build profitable growth in future periods."
Food-service losses fell to $600,000 in the quarter on a pretax basis, compared with losses of $2.3 million pretax in the first quarter, he noted.
In other comments during the conference call:
Roeder said he does not anticipate supply problems in Oregon if a labor dispute there results in a strike. The company operates 45 Cash & Carry stores there that are supplied by a third party -- Unified Western Grocers, based here -- "and if there is a labor action, we have set up alternate sources of supply," he said.
Roeder said Smart & Final will open its eighth store in Mexico this year or next. "That's a market we like," he noted, "and we're in the process of developing a strategic plan for Mexico going forward. We want to expand our presence there."
Gross margins rose 70 basis points during the quarter to 14.3% of sales, Rick Phegley, the company's chief financial officer said, with the company's national purchasing program accounting for 45 basis points; operating efficiencies at the distribution centers accounting for 15 basis points, and net margins in the Florida food-service operations accounting for 10 basis points; the impact of restructuring activities in northern California offset those gains by 15 basis points, he added.
