WASHINGTON -- Supermarket companies have trimmed operating and debt costs plus boosted capital expenditures, lifting industrywide earnings, according to a report by the Food Marketing Institute here.
micromarketing to customers and honing operational efficiency.
"Unrelenting competition has pushed companies to increase capital spending, updating their stores and other assets to remain competitive. The improvements have paid off for both the companies and their consumers, who are benefiting from product assortments, services and values more targeted to their needs," explained Tim Hammonds, FMI president and chief executive officer.
Three trends have bolstered the industry's bottom line, he noted. "The industry has increased efficiency through consolidation, the use of technology and management initiatives to cut costs and streamline operations throughout the supply chain. As a result, the financial health and investment potential of this industry are excellent."
FMI's Annual Financial Review, the result of a mail survey and public financial reports, covered 123 companies that operated 13,055 supermarkets with combined sales of $200 billion, or about two-thirds of total U.S. supermarket volume. Financial data were collected for company fiscal years ended between April 1, 1995, and March 31, 1996.
The industry's total cost of sales and basic operating expenses as a percentage of sales shrunk during the year, triggering a rise in operating income from 2.68% of sales in 1994-95 to 3.05% in 1995-96 -- the highest mark since FMI began tracking that figure in 1972, the report said. Earnings before interest, depreciation and amortization (EBITDA) were 4.75% of sales up from 4.7% in 1994-95 and 4.14% in 1993-94.
Interest expense was less than 1% for the second straight year. That continued a decline from 1990-91 as the industry rebounds from the high debt-financing spree of the 1980s, FMI said.
In 1995-96, capital expenditures rose to 2.71% of sales from 2.54% a year earlier, the study said. During the period, the industry increased its total asset base at a greater rate than it lifted sales. Net profit increased, yet the return on assets dipped to 3.63% from 4.24% the year before. Also, asset turnover slipped to 3.03% from 3.72%.
For the 5th consecutive year, the industry shifted a greater percentage of assets into property and equipment, enhancing its long-term position, according to FMI. Building and leasehold improvements as a percentage of sales also reached record levels.
Other highlights of FMI's Annual Financial Review include the following:
Shareholder equity grew for the second straight year, as retained earnings increased and long-term debt decreased, though at a slower rate than in previous years. The debt-to-equity ratio fell from 3% in 1994-95 to 2.93% in 1995-96, the lowest in several years. The rise in equity, combined with the overall asset base hike, caused the return on equity to slide to 13.58% in 1995-96 from 16.24% in 1994-95.
Earnings before taxes rose to 1.99% of sales, another high. Higher pretax income caused a rise in total income taxes, to 0.76% of sales from 0.71% in the prior year. The effective tax rate (income taxes as a percentage of income) dipped to 38% from 39% a year ago.
At the end of 1995-96, cash on hand was 10% less than at the close of 1994-95. Cash produced by operating activities was slightly less than the amount invested in plant, property, equipment and other financing activities.