LOS ANGELES -- Smart & Final here said last week it plans to open smaller stores with a faster break-even point in some non-core markets.
The company also said it will concentrate most of its short-term expansion in California, where it operates most of its stores.
In a discussion with industry analysts to review financial results for the third quarter and 40 weeks ended Oct. 3, Etienne Snollaerts, president and chief executive officer, said Smart & Final has looked at the criteria it uses for selecting store sites "and we're moving the store size downward in certain areas so new stores will produce quicker returns."
As a result, Smart & Final will continue to open stores in core markets in the 20,000- to 22,000-square-foot range, Snollaerts said, "but we can get the cost structure lower by opening smaller stores -- in the range of 16,000 to 17,000 square feet -- in areas that are geographically remote or where we don't have a lot of density because that can have a huge impact on the [profit and loss statement] in the first year."
The company opened only two new stores this year but expects to boost that number to between 10 and 15 in 2005, Snollaerts said.
"The potential sites are there, but it's a matter of affordability," he explained. "Next year we can have a reasonable increase in the number of new stores, and that will be a great test to see how well we can manage future growth."
Although Snollaerts said the company sees major opportunities for growth in the West, most new-store growth in places like Phoenix and Las Vegas will be fill-ins. "The idea is to grow from Southern California to Northern California with new Smart & Final stores because we see more profitability in those existing markets," he explained.
"We also want to try to bring some Cash & Carry stores into the Los Angeles area to see how the two concepts work together and to measure the additional potential for us."
Smart & Final operates 47 Cash & Carry stores in the Pacific Northwest and Northern California.
In reporting third-quarter numbers, Smart & Final said results for the prior year have been restated to exclude the company's former food-service business in Northern California.
Sales on continuing operations rose 12% to $603.2 million for the 16-week quarter and 15.5% to $1.5 billion for the 40-week period, with comparable-store sales up 12% during the quarter. Net income rose 44.2% to $12 million for the quarter and 506% to $26.9 million for the year to date.
Smart & Final said it recorded a loss of $300,000 in the quarter from the effect of discontinued operations, primarily representing the winding down of its broadline food-service distribution operations in Northern California and Florida and the divestiture of its retail stores in Florida.
Including the effect of discontinued operations, net income for the quarter was $11.7 million, compared with $916,000 a year ago. For the year to date, net income was $26 million, compared with a loss of $68 million a year ago.
