SPARTAN STORES EXPECTS OPERATING PROFITS SOON

David Ghitelman

GRAND RAPIDS, Mich. -- Spartan Stores here said last week it expects a return to operating profitability by the end of the current fiscal year.

During a conference call to discuss results for the 12-week first quarter ended June 21, Craig Sturken, Spartan's president and chief executive officer, noted that the company had its first distribution sales increase in three years and, on the retail side, "made dramatic improvements in our sales performance."

In the quarter, distribution sales increased 1% to $289.8 million, and retail sales grew 4.1% to $212.3 million. Net sales rose 2.3% to $502 million, and comparable-store sales were up 0.7%, largely because of the shift in the timing of the Easter holiday. Excluding the Easter effect, the company said comps were down 1%.

"We believe we have significantly stabilized our business, and we are far better positioned today than we were 12 months ago," said Sturken, who succeeded James Meyer as Spartan president and CEO in March.

Dave Staples, Spartan's executive vice president and chief financial officer, said during the conference call, "We anticipate a return to operating profit in fiscal 2004."

Spartan had an operating loss of $348,000 in the quarter, compared with an operating profit of $8 million in last year's first quarter, but, as Sturken pointed out during the call, first-quarter 2004 was much better than fourth-quarter 2003, when Spartan reported a $5.2 million operating loss.

This year's first-quarter operating loss included a one-time charge of $1.4 million related to the retirement of Meyer, who remains Spartan's chairman on an interim basis until a successor is named. The loss also included $600,00 in severance expense related to the company's efforts to reduce overhead.

Overall, the company posted a net loss of $6.1 million or 31 cents per share in the quarter, vs. a net loss of $43.8 million or $2.21 per share in last year's first quarter.

"We still have significant work to do," Sturken said.

In the first quarter, Spartan completed the sale of its convenience-store distribution business and "substantially" completed its divestiture of its Food Town chain, according to Staples.

Staples said he does not expect the company to sell any more of its retail assets, although it does have approximately $20 million to $25 million in non-retail real estate that it plans to sell over the next two years.

Sturken noted that in purchasing the Food Town stores from Seaway-Food Town in 2000, "Spartan got involved in a group of stores that were really dated," both in their physical plants and in their "go-to-market approach."

However, that same deal also brought to the company The Pharm, Seaway's chain of deep-discount drug stores. "We are really delighted with the position that The Pharm stores are in at this point," Sturken said. He noted that when he joined Spartan, he determined that The Pharm was "a viable concept," and Spartan spent between $75,000 and $100,000 apiece to "paint up, clean up, fix up" each of The Pharm's 21 stores. He added that The Pharm, the leading pharmacy chain in Toledo, posts positive comps every week "and occasionally sees something that might approach double digits."