Ingles Markets, Incorporated (IMKTA) 2006 Q1 法說會逐字稿

Good day and welcome to the Ingles Markets, Incorporated conference call. Today's call is being recorded. At this time for opening remarks and introductions I would like to turn the conference over Chief Financial Officer, Mr. Ron Freeman. Please go ahead, sir.

Thank you. Good morning. Welcome to the Ingles Markets 2006 first-quarter conference call. With me today are Robert Ingle, Founder of our Company and Chief Executive Officer, Robert Ingle II, Chairman of the Board; Jim Lanning, President; and Tom Outlaw, Vice President of Sales.

Statements made on this call include forward-looking statements as defined by and subject to the safe harbors created by Federal Securities Laws. The words expect, anticipate, intend, plan, believe and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Therefore actual outcomes and results may differ materially from what is expressed on this call. We do not undertake to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. For a description of the factors that could cause actual results to differ materially from that anticipated by forward-looking statements you will refer to the Company's public filings including the form 10-K for the fiscal year ended September 25, 2004, and the Form 10-Q for the quarter ended December 24, 2005.

Now I'll give you a brief overview of our first quarter ended December 24, 2005. Then we will be happy to take your questions. Our 10-Q that was filed on February 2 and our press release issued this morning are available on our website at www.ingles-markets.com.

We are very pleased with our start to fiscal 2006. Total sales, comparable store sales and net income were all well above last year's fiscal first quarter. Total sales growth was 11.5% and comparable store sales growth was 9.8% for the December 2005 quarter. During the quarter just ended, Ingles had two different weeks with Company record grocery sales. Sales grew in all major departments led by grocery and gasoline departments. The largest percentage sales increases were in pharmacy and gasoline. It's important to note that comparable store sales growth was strong even if gasoline and pharmacy are excluded.

Gasoline sales increased both in gallons sold and average price per gallon. Continuing our trend toward larger stores, total retail square footage increased to 9.5 million square feet at December 2005, compared to 9.3 million square feet last year. We operated 197 stores at the end of both periods.

Gross profit dollars increased primarily due to the increase in sales while gross margin declined quarter over quarter due primarily to the sales increases in lower margin areas and holiday promotional activity. Excluding the effect of gasoline and pharmacy sales, the retail grocery segment gross margin was relatively stable for the first quarter of fiscal 2006 compared to the same period of 2005.

Operating expenses increased in dollars due to sales growth but decreased as a percentage of sales by 100 basis points for the December 2005 quarter compared to the December 2004 quarter. Interest expense decreased $0.7 million for the three-month period ended December 2005, compared to the same periods ended December 2004 due to a reduction in total debt from $595.2 million at December 25, 2004, to $564.3 million at December 24, 2005.

Net income totaled $7.8 million for the December 2005 quarter, 53.4% higher than the $5.1 million earned for the opening quarter of last fiscal year. During the quarter just ended, capital expenditures totaled $30.2 million including the replacement of one new store and the purchase of three future store sites. Total capital expenditures for fiscal 2006 are estimated at approximately $75 million including four new or replacement stores and the addition of fuel stations at three existing stores.

We currently have committed lines of credit totaling $135 million all of which our unused. However, letters of credit totaling 16.1 million reduced the amount available to be drawn under the lines. The committed lines mature in October and November 2006. We had unencumbered property with a book value of $436 million of which $303 million is real estate at December 24, 2005.

To summarize, we're very pleased with our sales and profits to start fiscal 2006.

We will now take your questions.

(OPERATOR INSTRUCTIONS) Bryan Hunt with Wachovia Securities.

Very tight, Ron. Good job on your presentation. That is tightest I've heard anybody do it in a while.

Thank you.

With regards to the Ingles Advantage Card, you haven't spoken about that in a while. Could you talk about the traction you may be getting on new customer additions and growth there on a percentage basis relative to a year ago?

The card actually we see new customer base and a lost customer base of about an equal amount because of the summer time influx of customers in the Asheville area and in some of our other areas. Right now we're showing about a balance and a pick up of maybe 8 to 10% customer base.

So pretty much in line with what you're saying for sales growth is?

Exactly.

Do you have an idea now that we're several months past all the Winn-Dixie closures, how much market share the Company may have picked up on a permanent basis now that most of the store openings have settled out?

No, I really don't. Not right at this moment.

Is it possible you can adjust the same-store sales number or comparable store sales number for inflation for us?

Inflation has tended not to be an impact on our business recently. So we really don't calculate that.

Okay. Is it possible you could adjust it for fuel and pharmacy to kind of give us an idea what grocery -- core grocery is up?

We do, but we don't disclose that.

Okay. Looking at this has been mentioned several times, non-strategic asset sales. Are you all expecting to generate some type of non-strategic sale on this year considering the amount of investment the Company is making?

At the present time we don't have any contracts for sales.

And then lastly, how many undeveloped store sites does the Company own where you just have parcels of land? And do you have an idea what the acreage might be there?

I don't know the acreage. I know we put the site number in the 10-K at the end of last year. And we did as we put in this press release, we did purchase three store sites this quarter. So I'm just going to have to refer you back to the K to add the numbers up.

I'll get back in the queue and let someone else ask some questions. Thank you.

(OPERATOR INSTRUCTIONS) [Glenn Cutler] with ING Clarion.

Good morning guys. Great quarter. I was hoping you would be able to shed some more light on the SEC investigation. I know that's a big worry for I guess all the securities holders in your company. Thanks.

First of all I want to make sure that everyone understands that none of the issues raised in this Wells notice are new ones. And we've taken steps to correct those issues. And the Wells notice gives us the opportunity to respond to the SEC and we're having discussions with them and we're optimistic. But that said, we don't know what actions they'll take or what the outcome will be. What we can say that it has no affect on our day-to-day operations.

And you all are optimistic about the final outcome that it will not be terribly damaging to the Company?

Again, we're not incompletely in control of that but we're optimistic.

Great to hear. Thank you.

It appears we have no further questions at this time but I would like to give the audience one final reminder (OPERATOR INSTRUCTIONS) Bryan Hunt with Wachovia.

I was wondering if you could talk about competitive openings and closings and what you saw in the first quarter?

It looks like the competitive openings is about the same as the first-quarter and the upcoming next 12 months. It seems to be really a little bit lighter than normal as far as new competitors. We only see one new Wal-Mart Supercenter on the radar screen, for example coming up.

And that's for the year?

That's in the next 12 months.

Wow. That's fantastic. And then how about the promotional environment in light of the lack of competitive openings. Are you seeing your competitors triple coupon and double coupons still -- are there a number of items in their weekly circulars gone up or down?

We really don't see any unusual change as far as the marketing from our competitors.

How about the dairy business? Could you talk about the gallon growth there and maybe what's going on with regards to class 1 milk prices?

Gallon growth right now in traditional milk is relatively flat. We are seeing a whole lot of growth with the organic milk. But as far as the overall gallon growth, it is relatively flat right now.

Are you getting access to organics? I've heard there's market shortages.

We haven't experienced any problems with our organics as far as availability. Some of our other brands that we bring in we have had shortages in though.

Lastly, on the packaging side, PET prices have climbed pretty significantly. Are you all able to pass that along and are you passing that along to your customers?

We aren't passing that on right now. And we have changed some of our packaging as far is in like our bakery from entirely plastic to some corrugated packaging to help out on that.

Lastly, it was mentioned in your press release that you all are providing everything your customer needs whether it's organics or other types of food services and products. Can you explain maybe some of the changes you've made in the last six months in terms of chasing some of that business? And maybe additions to your product mix and how successful you've been in that process?

It's really been ongoing further, longer than six months but we're putting a heavy emphasis on organic products. And what we've done is made it easier for the customers, our shoppers to find organics in our stores. There are 4-foot, 8-foot, 12-foot organic sections integrated throughout our store. What I mean by that when you go down the juice aisle, you'll find a large sign hanging over the organic juice section so the customer if they choose to buy organic juices she can easily find it.

I'd like to add one thing. I just think in the last 12 months we've been running a better operation altogether. Our store conditions have definitely improved tremendously.

Thank you very much.

Glenn Cutler with ING Clarion.

Hey guys, I couldn't let you get away with doing just a 15-minute conference call. I've got one more. The way I calculate it, you're trading at about six times underpriced value to EBITDA. Obviously you have a rather large real estate portfolio. It seems to me that it would make sense for Blackstone to maybe try to take you guys private. I wonder if you would care to comment on whether you have received any -- whether you've been approached by any private equity shops or whether you would even be open to such an idea? Thank you.

We're focusing on selling groceries.

Okay, that is a simple way to put it. Thank you.

There are no further questions at this time. Mr. Freeman, I'll turn the conference back to you for closing remarks.

Again, thank you all for joining us this morning and I appreciate your time and interest. And we will keep you updated and speak to you next quarter.

That does conclude today's conference call. We thank you all for your participation. Have a great day.