Stater Bros. Drives Traffic at Cost to Profit Margins

ELLIOT ZWIEBACH

SAN BERNARDINO, Calif. — Stater Bros. Holdings here said last week it was disappointed with the earnings decline in its fiscal first quarter, but enthusiastic that low margins have helped boost customer counts.

“We'd like to see more on the bottom line, but customer count is our adrenaline,” Jack Brown, chairman and chief executive officer, said during a call with investors.

Net income for the quarter, which ended Dec. 28, fell 68% to $3.5 million, compared with $10.8 million a year ago. Sales rose 1.7% to $959.3 million, and same-store sales climbed 1.4%.

“Our plan is to assist customers during these very tough economic times, and the plan is working,” Brown said. “By holding back on price increases, which affected our profits, we gained more than 1 million customers in the first quarter this year than a year ago, and we believe we can put more on the bottom line in the next quarter.”

Gross profit margin for the quarter fell to 25.73% of sales, compared with 25.92% a year ago.

Unemployment in Stater's primary operating area is running at 9.3%, among the highest in the nation, Brown said. But as Stater did when unemployment was high in the mid-1980s and mid-1990s, “We've formulated a marketing plan to build and grow our customer counts, and we know that when the economy recovers, we will end up with greater sales, and we believe it's working that way now,” he added.

Stater's customer count rose 3.1 million last year, “and in the last 19 weeks, it's up 1.6 million and continuing to trend up,” Brown said, “though we need to take more to the bottom line.”

Asked about vendor support, Brown singled out Clorox “for taking the lead in suspending previous increases. It was the first to step out and say it was going to hold prices. But there are other vendors who send us price increases six quarters in advance, and they are difficult to deal with.”

Brown said private-label penetration exceeds 20%, “and it could go up another couple of points. We used to hold it to 15% for many years to maintain the image of being a national-brand chain, but now we look at it as a way to increase our value offering.”