INGLES MARKETS PLANS MORE REAL-ESTATE INVESTMENT

MARK HAMSTRA

ASHEVILLE, N.C. -- Ingles Markets here plans to boost its acquisition of real estate in 2004 in preparation for building new and replacement stores in the following years, the company said during its year-end conference call for fiscal 2003.

The company expects to spend $70 million on capital expenditures next year, which will include one new store, three major remodels and two minor remodels. Ingles has slated much of that sum, however, toward investment in pre-construction costs for store openings in 2005 and real estate for future store development.

"We will see less store construction and more land purchases," said Brenda Tudor, chief financial officer, during a conference call with analysts.

The $70 million cap-ex figure represents a decline from $75.9 million invested in fiscal 2003, which ended Sept. 28. Original plans called for capital expenditures of $60 million in 2004, she said, but the company boosted that figure by $10 million after receiving an $11.7 million windfall from the sale of a shopping center in Georgia.

Bryan Hunt, vice president, high yield research, Wachovia Securities, Charlotte, N.C., said Ingles was seeking to reduce its taxes by reinvesting the proceeds from the real estate sale back into "like or kind assets," meaning other real estate.

"It's an investment in future growth in the company, in particular replacement stores, but it's also a tax management tool," he said.

The income from the shopping center helped boost the company's performance in the fourth quarter, as net income more than doubled, to $8.4 million, vs. $3.8 million in the year-ago fourth quarter. For the year, net income increased 15.6%, to $17 million.

The company said operating expenses increased 3.3% in the fourth quarter, although they declined slightly as a percentage of sales. The company attributed the increase in part to the addition of labor in the stores to sign customers up for the new frequent-shopper program, Ingles Advantage Savings and Reward Card, which debuted in October. The company said it would incur additional labor costs in the first quarter for the same reason.

Hunt of Wachovia said the company has benefited from the card's rollout. "Based on initial responses to the card, it has been accepted by customers," he said. "Within the first month, a majority of transactions are being made on the card." He also said he believed Ingles' comparable-store sales are accelerating based on the introduction of the new program.

Tudor said the company expects to reap ongoing value from the frequent-shopper card as a data-gathering tool "to target our best customers, and hang onto them."

Ingles reported improving sales trends as the year progressed, which the company attributed to a stronger economy and aggressive promotional activity. Despite the more aggressive marketing, however, the company said it revamped its ad program to reduce expenses by eliminating less-effective promotions.

Comparable-store sales increased 2.1% for the fourth quarter and 0.8% for the year, which was the company's 40th year in business. Sales totaled $502.96 million for the quarter, up 3.7% over year-ago results. Sales for the year were up 1.6%, to $1.99 billion.