MINNEAPOLIS -- Nash Finch here said it lost its focus on its core businesses when it assigned its best people to work on the integration of the warehouses it acquired from Roundy's, contributing to a decline in net income for the third quarter that ended Oct. 8.
In a conference call discussing the company's third-quarter results last week, Ron Marshall, chief executive officer, said that because of the labor reallocation, Nash Finch missed out on some vendor promotional opportunities in its distribution business that led to a margin decline.
"We're not anticipating screwing up as bad in the fourth quarter as we did in the third quarter," he said, noting that it will take "a matter of months" to repair the damages.
In addition to the shortfalls on the wholesaling side, Nash Finch also said the margins in its retail business were squeezed because of failed pricing promotions and competitive pressures.
Nash Finch previously had warned Wall Street about the problems, lowering its earnings forecast for the year.
In March, Nash Finch completed the acquisition of two distribution warehouses in Lima, Ohio, and Westville, Ind., which at the time the company said generated about $1 billion in annual sales.
In response to an analyst's query about sales contributions appearing to fall short of that level, Marshall said the acquired distribution centers have lost some customers -- including one large customer for produce -- but it is working on recruiting new retailers to do business with the warehouses.
Nash Finch's primary problems in the quarter, however, stemmed from negotiating promotions from vendors in the core wholesaling business, Marshall said.
"We took the best and brightest folks in our organization and we sent them off to Westville and Lima to work on [the integration], and a lot of stuff fell through the cracks back here," he said. "I'm embarrassed and ashamed to say it, but that's effectively what happened."
The company said profits in its distribution business were up 29% in the 16-week third quarter, to $29.3 million, but declined to 3.3% of sales, vs. 3.7% of sales in the year-ago period. Distribution sales were up 45.1%, to $886.3 million, and 89% of that increase came from the acquired business.
Retail profits were down 35.2% in the third quarter, to $7 million, or 3.1% of sales, compared with 4.5% of sales in the third quarter of 2004. Retail sales were off 6.9%, to $225 million. Comparable-store sales fell by 4.9% in the third quarter and 4.5% year-to-date.
3rd-QUARTER RESULTS
Qtr Ended 10/08/05; 10/09/04
Sales $1.46 billion; $1.19 billion
Change +22.7%
Comp-store -4.9%
Net income $11 million; $14.6 million
Change -24.7%
Inc/Share 83 cents; $1.15
40 Weeks 2005; 2004*
Sales $3.43 billion; $2.98 billion
Change +15.1%
Comp-store -4.5%
Net Income $27.8 million; $3.7 million
Change +651%
Inc/share $2.12; 29 cents
*The year-to-date period from 2004 included pre-tax charges of about $36.5 million related to the closure of 18 stores.
