Fuel, Pricing Boost Ingles in 1Q

ASHEVILLE, N.C. — The holiday season produced robust sales and profit increases for Ingles Markets here, the company said last week.

In a conference call discussing results for the fiscal first quarter that ended Dec. 29, officials said the chain's “one-stop-shopping” approach, including the addition of fuel centers to stores, as well as sharp pricing, continued to spark sales and traffic from a shopper base increasingly concerned about finances. While store visits increased 9.5% for the quarter, the average ticket remained flat.

Net income of $12.7 million, or 54 cents per share of Class A stock, was up 13.7% from the same period a year ago. Sales increased 13.3% to $777.1 million, while comparable-store sales climbed 12.8% including gasoline and 8.4% excluding gasoline, Ingles said.

Gross profit as a percentage of sales decreased to 26.2% from 26.3% in the same period a year ago, although the company noted it was pleased with the relative stability amid product and operating cost increases and increased competitive activity during the holiday season.

“We believe in keeping prices as low as possible for our customers, and favorable sales mix changes in non-fuel product categories helped maintain margin stability,” said Ronald Freeman, chief financial officer.

“We think consumers in general are becoming more cost-conscious,” he added. “From fuel cost increases [to] food cost increases, they're getting hit from a number of directions. And we think our one-stop-shopping offering, including our fuel centers, bigger stores with a wide variety of products, is helping us out, because the consumer really can combine trips and come to Ingles.”

Operating expenses decreased as a percentage of sales to 19.4%, but increased by $13.8 million, or 10.1%, compared with last year's first quarter. Freeman cited increases in distribution and packaging costs due to rising fuel prices for the higher expenses, as well as additional labor costs to support the sales increase.

Freeman said the chain was able to absorb some of its own product cost increases with a more favorable sales mix. The overall inflation was difficult to quantify, Freeman added. “I really couldn't give you a number for cost inflation,” he told analysts. “The best we can all do is just acknowledge that it's there.”

He said Ingles would continue to pursue an aggressive capital spending program to exploit growth opportunities in its store base. The retailer spent about $60 million in the quarter on projects that included three replacement stores, four new fuel centers, four sites for new store development and two shopping centers.

The company has plans to spend approximately $175 million in the fiscal year, and said it expects to maintain that spending level in years ahead primarily for new store development and store expansions. “We've gone through a process of looking at our store base and have found some great opportunities out there for the next four or five years,” Freeman said.