ATLANTA -- Harry's Farmers Market here reported losses on increased sales for the year and fourth quarter ended Feb. 2.
o $116.7 million and 53% for the quarter to $38.7 million.
The loss was due to operational problems associated with the startup of three expanded distribution facilities, including the relocation and quadrupling in size of Harry's bakery facility, the tripling in size of its prepared foods operation and the opening of a new produce receiving and inspection facility.
Same-store sales rose 1.7% for the year but fell 9.1% for the quarter because of cannibalization by two new stores. However, with only two supermarkets in operation from the prior year, the same-store comparison includes only two stores.
Lee Wilder, a securities analyst with Robinson Humphrey here, noted that poor production scheduling in the prepared foods and bakery operations resulted in a waste factor of 30% to 35% for the first six to eight weeks of operation.
The sales increase resulted primarily from the opening of two new units -- a megastore in Cobb and a Harry's In a Hurry convenience store here. (A second convenience store opened in March.)
"We are obviously disappointed at our operating performance in the quarter," said Harry Blazer, president and chief executive officer.
"During the past year we invested approximately $14 million in our bakery and prepared foods manufacturing facilities and in our produce distribution facility, [but] we underestimated the complexity of operating these facilities efficiently and integrating them into our overall operations.
"Our primary focus is to return to positive cash flow and then to profitability. We have made great strides in correcting the problems, and we will spend the year improving operations and implementing the efficiencies and controls necessary to return to profitability."
Harry's has obtained a waiver from its bank group on any defaults under its bank loan agreement, Blazer said. The company has also restructured the covenants contained in that agreement going forward, he added.
Further, Harry's credit facility has been reduced from $35 million to $25 million, consisting of a term loan of approximately $20.15 million due in October 1995 and a working capital line-of-credit of $4.85 million that expires July 15.
The term loan has been fully funded, and the availability under the working capital line-of-credit is adequate for current operations, Blazer said.
According to Wilder, the banks want to continue to work with Harry's so the financial deadlines are flexible.
While the company expects to be profitable by the third quarter, Wilder said she anticipate a fourth-quarter recovery. "It's certainly plausible and achievable for them to get the ship righted. The company says it's cash-flow neutral now, and if that's so and it keeps improving, then the crisis point should have been passed."