SAN BERNARDINO, Calif. — Stater Bros. Markets here is holding its own and surviving despite the economic downturn and a price war by its three big-chain competitors, Jack Brown, chairman and chief executive officer, told bondholders during a conference call.
“Surviving is a victory too,” he said, “and we didn't have to write down anything” — an apparent reference to a $1.05 billion write-down Kroger Co. took on its Ralphs operation in Southern California — although Stater Bros. did report a sharp decline in net income for the most recent quarter.
As the region's low-price leader, Stater was the target of aggressive price reductions by Ralphs, Vons and Albertsons in the San Bernardino and Riverside County areas where Stater operates 100 of its 167 stores, Brown said.
For the fourth quarter, which ended Sept. 27, net income fell 30.6% to $5 million, and sales climbed 0.7% to $947.2 million, while comps were flat. For the year, net income fell 14.3% to $34.8 million, while sales rose 0.7% to $3.8 billion and same-store sales were flat.
A major factor that affected results, besides competition, Brown said, was the high unemployment in the region, which has been running at 14% or 15% the past two years. “And we lead the nation in home-loan foreclosures,” he added.
Brown said he expects 2010 to be similar to 2009, “and we will continue to drive every cost we can out of our system without affecting levels of service, quality or variety, or cleanliness at the stores.”
Aggressive pricing by competitors affected Stater's gross margins by 2 basis points, “which is substantial,” Brown noted.
But by maintaining low prices while also delivering value, Stater was able to boost its customer count by 70,000 a week during the fiscal year, with the total rising to 1.29 million last year from 1.25 million in 2008. “So our [low-pricing] plan worked, because customers want price, and we expect price to continue to be the No. 1 issue going forward, and far and away the No. 1 reason they pick a store to shop at.”
In other remarks during the call:
Brown said the performance at the chain's new distribution center is very high, with service levels exceeding the 96% metric that the industry considers to be good — hitting between 98.5% and 99% consistently. “That's merchandise that's going out, getting onto the shelves and being purchased by customers, and the levels are so high that it's like having an extra store,” he noted.
He said Stater has been holding onto more cash than usual, “and we are considering a buyback on some of our bonds, though we haven't made a final decision.”
Brown said Thanksgiving sales were flat, though customer counts were up. Stater featured turkeys at 33 cents a pound, compared with 37 cents at Wal-Mart, he added. “We were satisfied with the volume we did, and we think that trend will continue through Christmas.”