Harris Teeter Posts Gains, Cites Challenges 2008-11-10

MARK HAMSTRA

CHARLOTTE, N.C. — Harris Teeter, which has seen strong sales and profit growth for the past few years as it has expanded its upscale store base here and in the fast-growing suburbs of Washington, D.C., has begun to project a more cautious outlook.

“As consumer confidence has fallen in recent weeks and customers continue to change their shopping habits, the coming months will continue to present challenges in regards to the trend of our same-store sales,” said Thomas Dickson, chairman, president and chief executive officer of Harris Teeter's parent, Ruddick Corp., in the company's fourth-quarter earnings release. “We continue to refine our merchandising strategies to respond to the changing environment and remain focused on our new-store expansion and remodeling programs.”

Ruddick said operating profit at Harris Teeter was up 5.2% in the fiscal fourth quarter, driven by increased sales from new stores and comparable-store sales growth of 2.16%. The chain posted operating profit of $42.6 million for the 13-week period, which ended Sept. 28, on a sales gain of 10.2%, to $948.8 million. Operating income as a percentage of sales declined 22 basis points, however, to 4.49%.

For the year the chain posted $177.8 million in operating profit, up 15.4% from the preceding year, while sales grew 11.1%, to $3.66 billion.

The company's earnings per share of 51 cents in the fourth quarter came in at 2 cents below a consensus of analyst estimates, but some analysts remained optimistic.

“Although the outlook remains cloudy, we see several emerging tailwinds potentially offsetting the headwinds,” said Karen Short, a New York-based analyst with FBR Capital Markets, Arlington, Va., in a research report.

She said the challenges the company faces relate to declines in consumer confidence, and thus spending. However, decreases in inflation could lower the company's inventory charges, and the company also could benefit from lower diesel costs, increased leverage from new-store growth and its strong debt position, she said.

“We think highly of management, and we believe the format is defendable — even in a weak economic environment,” Short concluded.

She revised her projections for fiscal 2009 down slightly, however, with sales growth at Harris Teeter now expected to be 9.4%, including same-store sales gains of 2.4%, vs. previous expectations of sales growth of 11% and same-store sales increases of 2.9%.

Harris Teeter opened 15 new stores during fiscal 2008, ending with 176 locations. Ruddick said it planned to continue expanding the banner in the Washington area in 2009, and projected capital expenditures of about $241 million for the chain.

Ruddick, which also operates the American & Efird thread concern, posted net income of $24.8 million for the fourth quarter, an increase of 17.2%, on sales growth of 8.8%, to $1 billion. Net income totaled $96.8 million for fiscal 2008, an increase of 19.9%, on sales of $3.99 billion, up 9.7% over year-ago levels.