Spartan to Convert Felpausch to D&W, Family Fare

JON SPRINGER

GRAND RAPIDS, Mich. — Spartan Stores intends to hang new banners on the Felpausch stores it recently acquired but said the changes will come only after the stores have been renovated — a process that's only now beginning and is expected to continue for more than a year.

Felpausch stores will likely be converted to Spartan's Family Fare or D&W banners when renovations, remerchandising and employee training are complete, said Craig Sturken, chief executive officer, in a conference call last week. Spartan completed the $38.5 million purchase of the 20-store retailer in June.

Store renovation costs will range between $500,000 and $2 million per location, said Sturken.

“We will convert to the banner we feel is appropriate, and Family Fare and D&W will come into play,” he said. “But we don't think it makes good sense to put a new banner on a store that hasn't been fixed from a physical standpoint.”

D&W is becoming Spartan's upscale, perishables-oriented brand. Family Fare is its flagship conventional store format. Sturken told analysts that D&W stores which have undergone renovation since their acquisition a year ago are seeing double-digit sales increases.

Spartan completed one D&W renovation during the fiscal first quarter that ended June 23 and is working on two others, Sturken said. The company is still “fine-tuning” the perishable presentation at D&W as it works toward a prototype format.

“We put emphasis on the perishable operation and the consumer response has been fantastic. It's been a very good deal for us,” Sturken said, adding that the D&W stores are providing the experience that upscale shoppers are demanding but that more competitive prices since taking over the stores are drawing more overall traffic.

Momentum at D&W highlighted a strong quarter for Spartan Stores, which according to Sturken overcame a soft Michigan economy, aggressive promotions from Wal-Mart, disappointing sales at its Pharm division and key item inflation to post same-store sales gains, of 3.6% excluding fuel, and overall revenue gains of 5.4%.

“We're very pleased with our sales performance, especially considering the economic climate in our trade areas remains challenging and the performance of our Pharm stores were below our expectations,” Sturken said.

Quarterly earnings of $12.8 million improved by 87.4% from the same period a year ago, or 28% excluding one-time items. Earnings per share of 33 cents exceeded analysts' expectations of 29 cents. “The beat was largely attributable to stronger top-line revenue growth in both retail and distribution, as well as stronger-than-expected earnings at retail,” Karen Short, an analyst at Friedman Billings Ramsey, said in a research note.

Retail sales increased 8.8% overall, reflecting comparable-store sales growth and increases coming as the result of acquisitions and additions of fuel centers at three stores. Sales in the distribution segment increased by 2.4% to $282.4 million as the result of new customers and higher sales to existing customers.