Harris Teeter Sees Gains in Visits, Basket Size

MARK HAMSTRA

CHARLOTTE — Ruddick Corp., parent of the Harris Teeter chain based here, said customer counts and average ticket both increased during the fiscal third quarter, helping drive comparable-store sales gains of 4.37% for the period and 2.68% year-to-date.

“Despite an overall environment of slower economic growth, our customers have responded positively to our promotional activity, as evidenced by increases during the quarter in the number of units sold, number of customer visits and average basket size,” said Thomas W. Dickson, chairman, president and chief executive officer of Ruddick. “In addition, we continue to see a number of our customers increase their purchases of discretionary items such as premium meats and wines, specialty breads and cheese, and fresh produce, including organic items.”

He added that given the weak economy, the company “remains cautious” in its expectations for the rest of the year.

Karen Short, an analyst with BMO Capital Markets, said the regional chain's results appeared positive, despite some uncertainty about sales increases because of the shift of the Easter holiday this year relative to 2010.

The comp-store gain “reflects Harris Teeter's ability to pass on inflation and benefit from the company's higher-income customer base,” she said in a research note. “The comps also reflect an improvement in the two-year trends sequentially.

“Harris Teeter continues to gain share, as evidenced by positive basket, unit growth and customer visits.”

She also cited the “potential for a slight acceleration in unit growth in 2013 and beyond.”

Harris Teeter's operating profits for the 13-week third quarter, which ended July 3, were up 17.5%, to $50.7 million, on an 8.1% increase in sales, to $1.1 billion. Through three quarters, operating profits at the chain were up 10.2%, to $146 million, on a sales increase of 6.4%, to 3.18 billion.

Although the company said gross margins decreased as a percent of sales in the most recent quarter, it attributed the decline to an inventory accounting charge. The company said it was able to “pass along most of the cost inflation created by increased commodity prices.”

The company said sales in the most recent quarter benefited from a shift that resulted in Fourth of July holiday sales being included in the period, vs. the fourth quarter of a year ago. Comparable-store sales were calculated as though the holiday sales occurred in the third quarter of both years. The recent quarter also benefited by an estimated 79 basis points from the inclusion of Easter holiday sales.

During fiscal 2012, Harris Teeter said it plans to open seven new stores, including one replacement store, all in existing markets, and to complete major remodels on 13 stores. The company said it expects capital-expenditures at the chain to increase to $215 million next year, up from $165 million in 2011.

Ruddick said its other division, the American and Efird industrial thread operation, saw sales increase by 8.4% to $86.1 million in the third quarter. For the 39 weeks, A&E sales rose 10.7% to $241.9 million.

Q3 RESULTS

* Q3 comps at Harris Teeter rose 3.6% when adjusted for the later Easter this year.