Ingles Markets, Incorporated (IMKTA) 2002 Q2 法說會逐字稿

Good day and welcome to the Ingles Market conference call. Today's conference is being recorded. For opening remarks, I would like to turn the call over to Chief Financial Officer, Brenda Tudor. Go ahead.

Good morning and welcome to Ingles Market 2nd quarter conference call. With me are Robert Ingle, Founder and Chairman of the Board and Chief Executive Officer, and Tom Outlaw, the Vice President of Sales and Marketing. Statements made on this call include forward-looking statements based on current expectations, estimates, forecast and projections about the company's business based on management belief and assumptions. These are forward-looking statements within the meaning of section 27a of the Securities Act of 1933. Section 21e of the Securities Exchange Act of 1934 and the private securities litigation reform act of 1995 and are subject to the safe harbors created by such law. Words such as expects, anticipates and intends, plans and believes and variations of such word and similar expressions identify forward-looking statements. These statements are not guarantees of future performance and involve risk and assumptions that are difficult to predict. Actual out comes may differ from what is expressed on this call. We do not undertake to update publicly forward-looking statements, future events, or otherwise. For a description of factor, that is, can cause results to differ from those anticipated by forward looking statements, refer to the company's public filings including 10k for the fiscal year September 2001 and KQ for the quarter ended December 2001. Now I will give you a brief overview of 2002 and be happy to take your questions. Hopefully you have seen our press release. It is available at www.Ingles-market.Com. We are extremely pleased to report both net sales and comparable sales growth in the March 2002 quarter returned to the levels we experienced in the past. As you remember, during the 1st quarter, unseasonably warm weather and consumer spending pattern challenged sales. However in the March 2002 quarter net sales increased 3.8% and comparable, sales for the store grew 4.7%. Sales increased despite the closing of seven stores since March of 2001. We are operating 201 stores, a decrease of six stores from this time last year. Easter fell on the day following the quarter end and Easter was included in the 2nd quarter. In the prior year Easter fell in the 1st quarter. Comparable sales excluding effect of Easter grew 4%. Our gross profit for the March 2002 quarter increased 5.7% to 26.9% of sales compared to last year. We continued through increased sales through the perishable department through purchase and inventory management and loss control. During the March 2002 quarter, we slowed the growth of operate and administrative expenses to eight basis points compared to a 34 point increase for the six-month period. The largest is payroll and we made strides. Payroll cost is a percentage of sales by 36 base points over the March 2001 quarter and by 16 basis points for the 6-month period. We expect this to continue as we recently embarked on a new labor management initiative to schedule store labor more effectively. Insurance was again our largest increase in operate and administrative expenses the total was 29% or 25 basis points for the quarter primarily due to health care costs. Singling out health care, for the 6-month period it was $2.1 million or 43%. Effective in April, we made changes to the medical plan to curb the growth of this cost. Income from operations for the quarter increased 15%. As expected, interest expense increased $2 million for the March 2002 quarter due to the issuance of 250 million of 8 and 7/8 senior unsecured subordinated notes due December 2011. We retired $162.4 million of debt with proceeds and seek opportunities to retire debt early when it makes economic sense. The present interest rate environment there is a large spread on the earnings in the invested proceeds. Net income for the March 2002 quarter increased 4.6% to $3.3 million compared to $3.2 million for the March 2002 quarter. Our ebitda increased for the six-month period. The ebitda margin is 3.6% versus 5.9% for the March 2001 quarter. During the March 2 understand 26 month period, we completed two major remodel and five minor and closed two older stores. Capital expenditures for the 6 month period totaled $15.4 million. For the balance of the fiscal year, Ingles expects to open one new store and one replacement. Current plans for the fiscal year are $75 million including for stores to open in fiscal 2003. We will now take your questions.

Today's question and answer session will be conducted electronically. Please press star followed by 1 on your telephone. That's star 1 to ask a question and we will pause for a moment to assemble the question roster. Our first question is from Alan Seymour.

You have done stuff on the medical insurance side. What have you kind of curbs your cost as you go forward?

The first week in April, we increased the contribution that the employees make to the plan. As well as we increase deductibles, co-pays, out of pocket minimums and maximums. I'm sorry. All those things have taken effect the first of April. We are trying to negotiate with some of the larger health care providers to get increased discounts.

Thanks.

To ask a question please press star 1. Here is Clair with Merrill Lynch.

Two questions. The first would be I'm wondering about the trend in sales you are seeing in the areas that were maybe most problematic in the last quarter. Things like diapers and things that would be less for competitors. The other question is related to anything you might be able to say about the insider stock sales.

I will take the second question first. The insider stock sales, our president is exercising stock option. He has been selling stock. He is a major stockholder of the company. 23,000 share and much of his retirement in Ingles stock. On the second question about the sales and the trend and what's happening, I think what we saw in the March quarter is kind of a return to normal that we had been experiencing before the December quarter. One thing that happened of course is the weather returned to normal in January and we had snow scare that is drove sales which we normally have. It seems like consumer, and I guess as you look at other reports, consumers returned to previous buying patterns. Do you have anything to add to that?

Brenda, I think that's definitely a big part of it. People returning to their normal buying patterns. Also we did a survey of some of our customers. That got us back on track. We surveyed on things that they would like to see and re-emphasis on buy one, get one free. We listen to our customers and change our ad format a little bit and things like that that helped us. Also we have a new emphasis on hispanic marketing. We have been involved in a couple of fairs, one in Atlanta, Georgia towards a Hispanic market. We remerchandised the stores towards Hispanic trades and we are advertising in a couple of all-Spanish and Hispanic paper and radio stations in the marketing areas. This as proven to be helpful on sale and profit. We still didn't have any snow scares in this January, February, March quarter, but we did have increased sales.

That's all for me. Thank you.

The next question comes from Jack Solomon with Smith Barney.

Good morning. My question is about the labor management initiative. You can describe what you did there?

A couple of things. One, beginning at the first of the business year, we made changes to our production schedule based on things that happened overtime. Such as adding sales check out and some things being prepackaged like more prepackaged salads and things like that. Across-the-board changes. Then just two weeks ago now, we had a big store manager meeting and we are working on a new computer-based program for labor scheduling on the front end and we have been working on that. Actually the stores are receiving training over the next month. We revised all of our standards based on this. We hope to see what our goal is to see another 10 basis points decrease in payroll after people get accustomed to the new system.

The medical plan, the increase in the deductible, etc., will that start benefiting you in the 3rd and 4th quarter?

Of course we get the immediate benefit of increased employee contributions in April, but I think what you will see on the other end as far as reductions and cost, you will not start seeing those until about the first of June, and we may get some impact in this quarter, but the too and more in the 4th quarter.

What is [INAUDIBLE] cash?

$88.4 million.

Any more store closings planned this year?

We do not have any slated at this time, no.

Thank you.

Our next question is from Paul Ross. Please go ahead.

Thank you. Good morning. You can it will me something about your comps in the [INAUDIBLE] April and something about your competitor success in your general market region in the 1st quarter?

In April, I think Easter was in the second week in April.

Second week of April was Easter and so naturally that particular week we were down a good bit. We already made that up and we are about dead even already in April.

Right. We are three weeks worth of data and even.

Is there a way you can extract Easter out of the first half and estimate what comps would have been without Easter falling in March?

Yes.

I don't want to start changing my model.

That's okay. For the quarter we said the comps were 4.7% to include Easter. They are 4.

In your competitive environment, how did competitors do to your comped based on your surveys?

I haven't seen a lot of numbers come out yet from competitors. I did see numbers on winn-dixie, but --.

They were up..1.

They have their own problems.

Right. I have not seen a lot of other competitors put out the numbers yet. I'm sure.

Thank you very much.

Star 1 for questions please. There appear to be no further questions. I will turn the call back over to you.

We appreciate your time and interest and we will look forward to keeping you updated in the future. Thank you.

That concludes today's conference call. You may now disconnect.