MINNEAPOLIS -- Nash Finch Co. here expects pressures on gross margins in the Midwest to ease once Wal-Mart begins opening supercenters in California, Ron Marshall, chief executive officer, told industry analysts.
"The national players have been exceptionally competitive in the Midwest, which they've funded with higher gross margins in Northern and Southern California," he pointed out. "But what happens out there as Wal-Mart enters the state will have a major impact on the rest of the U.S. because those chains won't be able to subsidize below-average margins in the Midwest with above-average margins on the West Coast."
Marshall said Nash Finch intends to focus on service and cost-containment over the next few months, "which will allow us to be more aggressive promotionally. And over the next three to four years, we expect to see a positive impact on results."
Sales for the 16-week third quarter ended Oct. 4 rose 2% to $1.2 billion, with sales in the food-distribution segment climbing 8.8% to $604.5 million. The increases were due "primarily to new business with former Fleming accounts," Marshall said, adding that he expects additional positive impact from the demise of Fleming over the next few years. Marshall said he expects many smaller distributors to go out of business over the next three to four years, "providing a lot of opportunities for the big players.
"There's a tremendous amount of dislocation right now, with Fleming customers shifting to other distribution centers that may or may not be able to absorb that volume. We think we're well positioned for any new customers to join us. We believe that will be the primary driver for us for several years."
Besides the sales increase of 2% for the quarter, net income for the period was up 74.4% to $11.6 million; however, excluding one-time items, earnings were up 39% to $8.6 million, which the company attributed to distribution gains, combined with improved retail expense control.
For the 40-week period, sales declined 1.1% to $2.96 billion, while net income rose 38.6% to $22.1 million; excluding the impact of one-time items, net income for the year to date declined 4.4% to $21.5 million.
Sales in the company's corporate retail segment fell 9.5% to $291.3 million for the quarter, and same-store sales dropped 11.3%, reflecting the lingering impact of difficult economic conditions and competitive supercenter openings, the company said.