SALT LAKE CITY -- Smith's Food & Drug Centers here said sales rose 9.5% to $753.8 million in the first quarter ended April 2.
uing pressure from opening new stores in the recession-plagued California market, a very aggressive pricing program in the Utah market and the effect of new-store openings by competitors.
"In the near term, these pressures will continue to affect earnings," Smith's said.
Same-store sales declined 0.5% in the quarter. After adjusting for the timing of the Easter holiday, which fell during this year's first quarter but in last year's second quarter, Smith's estimated same-store sales fell 1.4%.
Smith's, which operates 30 combination stores in California and 133 units overall, said the California market has the potential of increasing the company's earnings in the long run. This will be possible as the chain attains greater mass in California, which will allow it to benefit from lower operating costs, Smith's said.
As a result, much of the chain's 1994 and 1995 expansion will be in California. Smith's expects to open between 10 and 12 new stores in each of the next two years. Eight of this year's store openings will be in California.
Debra Levin, a securities analyst with Morgan Stanley, New York, said Smith's earnings were affected by a drop in the gross-margin rate, which slipped 162 basis points to 21.79% of sales. This was due to Smith's aggressive pricing program in Utah and a limited coupon war in Arizona, she said.
The margin drop follows gross-margin declines of 227 basis points in last year's third and fourth quarters.