CHARLOTTE — Continued promotional price investments contributed to a slight decline in operating profits, while deflation negatively impacted comparable-store sales during the fiscal first quarter at Harris Teeter, the retailer said.
However, analysts and investors applauded the results for Harris Teeter and its parent company, Ruddick Corp., which outperformed a grim forecast for the period, which ended Dec. 27. Its stock climbed by more than 10% on the news, and at least one analyst, Andrew Wolf of BB&T Capital Markets, upgraded his investment rating on Ruddick to a “buy,” citing operating profitability that was better than forecasts and a macro environment that he expects to provide margin expansion in the months ahead.
“Despite the difficult market conditions, particularly for high-end grocers, we consider Harris Teeter to be executing at a high level,” Wolf said in a research note.
Harris Teeter reported operating profits of $42.3 million, or 3.5% of sales of $972.3 million for the quarter. Overall sales were up by 4.7% but operating profits fell by 4.5% as compared with the same period last year, when they comprised 4.8% of sales.
The company attributed the sales increase to new stores, greater tonnage and more shopping visits, but said product price deflation and changing consumer habits contributed to a 2.4% quarterly comparable-store sales decline. The company in a statement said that a “significant portion” of its promotional budget was funded by corporate cost-saving initiatives.
“While aggressive promotions were beneficial to customer counts and items per basket, this was dwarfed by the negative drag from deflation and trading down,” Wolf added. Ruddick overall reported a 3.7% increase in net income, to $23.7 million, on sales of $972.3 million, with American & Efird, Ruddick's textile division, more than making up for the decline in Harris Teeter's operating earnings.