Stater Holds Line on Prices, Sees Q2 Profits Fall

SAN BERNARDINO, Calif. — Stater Bros. Markets here said last week it plans to continue investing gross margin to retain and grow its customer base.

That approach is working, Jack Brown, chairman and chief executive officer, told investors in a conference call, noting that the chain's customer count increased by 3.1 million in 2008 and by 1.6 million and over the last 19 weeks, compared with year-ago levels.

Net income for the 13-week second quarter, which ended March 29, fell 24.5% to $11.1 million, while sales rose 0.6% to $931 million. Comparable-store sales, adjusted for the shift of Easter to this year's third quarter, were up 0.4%. For the half, net income dropped 39.5% to $14.7 million, while sales increased 1.2% to $1.9 billion and comps rose 0.9%.

Gross profit margin fell to 27.48% during the quarter, compared with 27.69% a year ago, and to 26.53% for the half, compared with 26.8% last year.

“We anticipate continued pressure on gross margin,” Phil Smith, executive vice president and chief financial officer, said during the call.

“Customers are looking for value, and our marketing plan is performing as directed,” Brown said. “We remain committed to assisting our customers during these very tough economic times by [resisting] price increases as long as we can.”

The company plans to open one new store this year — in Lake Elsinore, Calif., in late July.

Brown declined to say what Stater plans to do with the money it gets from the pending sale of Santee Dairies to Dean Foods, which is expected to be completed by the end of July. One industry analyst told SN the chain could use the funds to pay a dividend, meet its bond obligations or acquire some stores.

Q2 RESULTS