Upscale Tack Boosts Harris Teeter

JON SPRINGER

CHARLOTTE, N.C. — The economic environment may be getting more challenging for some, but Harris Teeter is continuing to thrive.

The retailer here said comparable-store sales gains of 4.4% drove a 27.6% increase in earnings for the fiscal first quarter that ended Dec. 30. Net income of $18.3 million, or 38 cents a share, exceeded analyst estimates by 3 cents and convinced some that Harris Teeter's upscale positioning and its focus on expansion to wealthier markets has placed it in better shape to weather rapid food cost inflation and the slower growth expected for the food retail industry overall.

“We believe Harris Teeter is better positioned than most conventional chains to thrive in this challenging environment due to its upscale positioning and the better relative economic performance of the markets in which it primarily operates,” Andrew Wolf, an analyst for BB&T Capital Markets, Richmond, Va., said in a research note following the release of quarterly results Jan. 31.

The focus on wealthier shoppers, Wolf said, is providing the chain with greater “pricing power” than chains going after the middle market, he said.

Harris Teeter in a statement cited new stores, a companywide focus on customer service, and effective targeted promotional spending and retail pricing programs for a 12.6% chainwide sales increase during the quarter. Harris Teeter reported $897 million in sales, and EBITDA margins of 7.4%.

“We do not believe the company is seeing any indication of trading down within the store, nor is the company detecting any changes in consumer behavior,” said Karen Short, an analyst for Friedman, Billings, Ramsey & Co., New York.

Short and Wolf raised their respective annual estimates for the company, reflecting the strong first quarter. Short raised her per-share earnings target by a penny, and Wolf increased his 12-month stock price forecast to $40 from $38.

Operating improvements have allowed Harris Teeter to continue a busy store opening and remodeling program, officials said. The chain plans to open 13 new stores and complete six major remodels during the remainder of the fiscal year, resulting in a 9% gain in total square footage. Overall, the chain plans $202 million in capital spending for the fiscal year.

Harris Teeter is a division of Ruddick Corp., which also operates the American & Efird sewing thread company. The combined companies produced earnings of $23.3 million, or 49 cents a share, on sales of $976.7 million. Sales and profits decreased slightly at American & Efird during the quarter.