COMPTON, Calif. -- Ralphs Grocery Co. here said earnings more than doubled in the first quarter ended April 24 to $8.4 million.
Ralphs attributed the earnings jump to an 8.4% increase in operating income, a 2.9% drop in interest expense as a result of the company's recapitalization plan and lower income tax expense following an adjustment in the valuation allowance for deferred tax assets.
According to the company, sales continue to be adversely affected by the southern California recession, ongoing new-store and remodeling activity by competitors, recent pricing and promotional changes by competitors and high local unemployment rates.
Sales were also negatively affected by the impact on consumers of property and income tax payments during the quarter, Ralphs said.
Howard Goldberg, a high-yield securities analyst with Goldman Sachs, New York, said the first quarter may be the only quarter in which Ralphs shows earnings increases this year. "With cash flow at 8.6%, it will be very difficult for Ralphs to improve on its current profit margins while sales are declining."
Goldberg said he expects Ralphs to continue to show negative sales comparisons through the balance of the year.
In an effort "to mitigate the impact of the weak retail environment," Ralphs said it launched a new marketing campaign in February -- called Ralphs Savings Plan -- that combines a series of promotional offers under a single banner to enhance customer value.
Lower warehousing and distribution costs helped Ralphs improve its gross margins by 50 basis points to 23% of sales in the quarter, the company said.
Selling, general and administrative expenses dropped 3.1% to $104.4 million, 16.5% of sales, during the quarter. Ralphs attributed the lower SGA expenses, in part, to a reduction in contributions to the union health care benefit plans, business interruption credits related to earthquake losses reserved for in fiscal 1993 and cost-cutting programs.
The lower expenses, however, were partially offset by increases in union wage rates and generally higher expenses in the service departments of new and remodeled stores, Ralphs said.