INDIANAPOLIS -- Marsh Supermarkets here said a weak performance at its Village Pantry convenience-store chain overshadowed a good fourth quarter for its supermarket operations.
"The supermarkets and LoBill did extremely well," said Don E. Marsh, chairman and chief executive officer, in a conference call last week. "The drag was in the Village Pantry."
He said he expected to see improvement in the 191-store Village Pantry chain during the second half of this year after recently hiring some new operations executives.
The company's supermarkets, which include 68 Marsh stores, 33 LoBill Foods, six O'Malia's and two Savin'$, came under increasing competitive pressure in the quarter, he said. During the quarter, which ended March 30, 24 competitors opened stores that compete with Marsh's outlets. They included 12 supercenters, most of which were Wal-Marts. In addition, Marsh said drug chains CVS and Walgreens also have been aggressively opening stores near Marsh outlets, siphoning off sales of some grocery items like bread and milk.
The company also is seeing increased pressure on its margins from operating costs, especially insurance, according to Marsh. Insurance costs were up 0.8% in the fourth quarter, compared with last year, and he said he expected that trend to continue.
Also, although the company is a nonunion employer, Marsh had to raise wages because of new union contracts at competing companies. Wages rose 2.6% at the supermarket division in the quarter, he said.
Selling, general and administrative expenses also were impacted in the quarter by last year's acquisition of the O'Malia's chain. Some of the administrative functions that had been duplicated at O'Malia's headquarters have since been reduced, however, starting in the first quarter of this year. SG&A expenses for the quarter totaled $103.4 million, or 27.7% of sales, vs. $91.9 million, or 26% of sales, in the year-ago period.
Other factors affecting fourth-quarter comparisons included some real-estate gains in last year's period and the early Easter holiday this year, which Marsh estimated added $3.9 million to this year's fourth quarter.
The company posted a 22% decline in fourth-quarter net income, to $1.94 million, or 22 cents per share, on a 5.6% increase in sales, to $373.28 million.
For the year, net income totaled $13.41 million, or $1.51 per share, up 12.3% over prior-year levels. Net income from continuing operations totaled $11.54 million, up 8.4% over last year's results. Sales for the year increased 6.3%, to $1.64 billion.