GRAND RAPIDS, Mich. — Spartan Stores here last week said net income nearly doubled for its fiscal third quarter, which ended Jan. 5, as sales increased in both its retail and distribution businesses.
Last year's acquisition of most of the assets of Felpausch Food Centers shaved $34.4 million off the company's distribution volume, but is expected to add $85 million in retail sales in the current fiscal year.
“The ongoing integration of our Felpausch retail store acquisition is progressing as planned,” said Craig Sturken, chairman and chief executive officer, Spartan Stores, in a conference call discussing earnings results.
Net income of $10.6 million for the 16-week third quarter, which included a tax gain, compares with net income of $5.9 million a year ago. Excluding the gain, net income rose 33.3%, while revenues for the quarter were up 15.6%, to $826.1 million.
Third-quarter retail sales were up 26.9%, to $415.4 million, driven by the Felpausch acquisition and comparable-store sales gains of 3.4%, excluding fuel. Retail operating earnings, however, were down 28.6%, to $4 million, which the company attributed in part to $1.3 million in expenses for reopenings of remodeled stores.
“These investments are already producing favorable business trends, and … we expect to begin realizing the benefits of these remodels during our fourth quarter,” Sturken said.
In the distribution segment, operating earnings were up 48.9%, to $11.6 million, on a 6.1% increase in sales, to $410.7 million.
Spartan said it plans to increase capital spending this year and next “to create certain market consolidation and other growth opportunities sooner than originally anticipated.” It projected cap-ex of $47 million to $52 million for the year.
Spartan's gross margin for the third quarter increased 70 basis points to 19.7%.
“The improvement was due mainly to an increase in the sales mix of higher-margin retail sales and an improvement in distribution gross profit margin rates,” said Dave Staples, executive vice president and chief financial officer.
Margins were partially offset by sales growth in lower-margin fuel and pharmacy sales, along with the added promotional activity around the reopenings, he said.
Through 40 weeks, net income was up 46.3%, to $26.2 million, on consolidated sales of $2 billion, up 12% over year-ago levels.
Spartan projected comparable retail store sales to increase in the low single digits in the fourth quarter.