Ingles Drives Sales Gains With Competitive Pricing

ELLIOT ZWIEBACH

ASHEVILLE, N.C. — Ingles Markets here said last week sales and earnings increased for the second quarter and first half that ended March 31, while gross margins were slightly lower as the company sought to protect its market shares and keep prices low.

Net income jumped 43.1% to $13.5 million for the quarter and 43.4% to $24.7 million for the half, while sales rose 12.3% to $681.2 million for the quarter and 11.1% to $1.4 billion for the half, compared with results from a year ago.

Comparable-store sales, excluding gasoline, were up 8.9% in the quarter and 8.1% in the half.

“The competitive environment was tougher during the second quarter, so we are pleased with our sales increases,” said Robert P. Ingle, chief executive officer. “We believe it is important to take care of our customers and keep prices as low as we can, even if it affects the bottom line.”

In a conference call with analysts, Ronald B. Freeman, Ingles' chief financial officer and vice president, finance, reinforced that comment, noting, “Consistent with our emphasis on sales growth and customer value, we chose to accept lower margins to protect market share and keep prices low for our customers.”

Gross margin as a percentage of sales (excluding gas) fell 102 basis points to 24.5% in the quarter and 30 basis points to 26.6% in the half.

COMPETITIVE CLOSURES

Bryan Hunt, a high-yield analyst with Wachovia Capital Markets, Charlotte, N.C., said he expects Ingles to benefit from store closures by Bi-Lo, Southern Family Markets and Food Lion — and in particular by the potential sale of Bi-Lo.

He said Ingles management plans to continue to focus on growing higher-margin departments. “Ingles' one-stop-shop philosophy, low-cost structure and savvy use of frequency-card data have allowed the company to generate comparable-store sales growth in excess of 6% for three years consecutively, and with the addition of more fuel islands and pharmacies, Ingles is on track to generate comps of 6.5% this fiscal year,” he said in a written note.

“The company's impressive results are probably worthy of an upgrade by the [ratings] agencies,” according to Hunt.

Ingles said capital expenditures for the half totaled $42.7 million, to open one new store, one remodeled store, three additional fuel centers and two pharmacies, plus the purchase of six future store sites.

For the year the company said it expects to spend approximately $100 million on cap-ex, with three replacement stores, two remodelings and three more fuel stations scheduled to open during the balance of the year.

Ingles operates 196 stores in six Southeastern states.