LOS ANGELES -- Smart & Final here was seeing significant improvements in its food-service operations in Florida and Northern California until Sept. 11, "but the problems resulting from that event probably set us back a year," Ross Roeder, chairman and chief executive officer, told shareholders at the company's annual meeting here last week.
He said financial performance at both units "improved dramatically" last year, "although food service is still a very difficult market, and we would have made great progress if not for the turn in the economy and the tourism that disappeared after Sept. 11."
Rick Phegley, senior vice president and chief financial officer, said sales in the company's Florida food-service segment rose 10% last year, mostly during the first half, while the second half was impacted by increasing economic weakness and the aftermath of Sept. 11. He said the company's Northern California food-service unit experienced a sales drop of 8% for the year because of ongoing restructuring activities, the economy and the aftermath of terrorist attacks.
Nevertheless, Smart & Final had strong financial results last year, Roeder said -- with restated earnings up 24%, sales up 4.5% and same-store sales up 3.9% -- and he said the company is on track for another strong performance this year.
"Although the general economy challenged business customers in our stores, it offered us the continuing opportunity to reinforce our strong value message to both business and household customers, and the stores had a very strong year," Roeder said.
He said the company's broadline food-service units are well-positioned to achieve growth and profitability "as the economy recovers and as consumers increase spending on dining out, travel and entertainment."
Regarding the earnings restatement, Phegley said it did not have any impact on the company's financial performance. The restatement followed the discovery in April of some accounting errors related to prior-year results in the company's Northern California food-service unit, he pointed out.
"The magnitude of the restatement -- $5.8 million after-tax, spread over several years -- wasn't terribly material to our earnings growth over the past few years," Phegley told shareholders. "Furthermore, because the restatement was non-cash, it had no impact on Smart & Final's cash position or on our financial performance."
The company had disclosed previously that accounting errors at its Stockton, Calif., food-service subsidiary involved the failure of the staff there to properly reconcile its accounting records to supporting detail and a failure to appropriately account for marketing and vendor rebate programs, inventory transactions and intercompany transactions. The cumulative effect of those errors reduced net income through fiscal 2001 by $4.4 million, the company said; in addition, adjustments for accounting of certain marketing programs resulted in a restatement of an additional $1.4 million.
In other highlights of the annual meeting:
Roeder said Smart & Final expects to accelerate new-store openings this year, with plans for 15-16 new locations, compared with 14 in 2001 and seven in 2000. "We're also taking a very aggressive approach to updating and upgrading existing stores," he added, with plans to complete four major remodelings and 35 smaller upgrade projects this year.
The national procurement program Smart & Final launched in 1999 accounts for 40% of its buying, Roeder said, "and we've met our five-year objectives in the first three years of the program."
Smart & Final began running its first-ever television spots in mid-May -- in Los Angeles, San Francisco and Miami -- using the tag line, "The smaller, faster warehouse store," Roeder noted.
He said Andre Delolmo, senior vice president of business development, will succeed Dennis Chiavelli as executive vice president, store operations, when Chiavelli retires later this year.
