Ingles Markets, Incorporated (IMKTA) 2007 Q1 法說會逐字稿

Good day and welcome to the Ingles Markets, Incorporated first-quarter conference call. Today's call is being recorded.

At this time, for opening remarks and introductions, I would like to turn the call over to Chief Financial Officer Mr. Ron Freeman. Please go ahead, sir.

Good morning. Welcome to Ingles Markets' fiscal 2007 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 and Marketing.

Statements made on this call include forward-looking statements as defined by and subject to the Safe Harbors created by federal securities laws. Words such as 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. Ingles Markets, Incorporated does not undertake to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

For a description of factors that could cause actual results to differ materially from that anticipated by forward-looking statements, you are referred to the Company's public filings, including the Form 10-K for the fiscal year ended September 30, 2006.

This morning, I will provide you with a summary of our first-quarter results, followed by additional comments. After that, we will be pleased to take your questions.

Our press release issued this morning is available on our website at www.ingles-markets.com. We expect to file our 10-Q for the quarter either later today or Friday, February 2. It will be available via our website as well.

We are off to a strong start for fiscal 2007. Net income for our first fiscal quarter that ended December 30, 2006, totaled $11.2 million, an increase of $3.4 million or 44% over net income of $7.8 million for the first fiscal quarter of last year.

First-quarter sales increase 10% to $685.7 million compared to $623.4 million for the quarter that ended December 2005. During this quarter, which included Thanksgiving and Christmas, we kept our focus on increasing top-line sales through a combination of promotions, everyday low pricing and the convenience of one-stop shopping. As many of our labor, facility and distribution costs are somewhat fixed, the net income increase was greater than the increase in sales.

Included in the 10% net sales increase was a 10.4% increase in grocery segment comparable store sales and an increase in sales from our fluid dairy operations. Sales increased in every major grocery department, led by increases in the gasoline, pharmacy and deli departments. We also benefited from an increase in weekly customer visits, and the average purchased amount increased over the first quarter of last year.

As we reported last quarter, Ingles reported its 42nd consecutive yearly increase in sales. With our results for the first quarter, we believe we are on track for another good year at Ingles. Excluding gasoline sales, net sales increased 7.1% and comparable store sales increased 7.4%.

During the last 12 months, Ingles opened 11 fuel centers. Total gallons sold increased 70% and the per-gallon sales price decreased $0.18, comparing the December 2006 quarter to the December 2005 quarter. The increases in store customer visits and the average purchase amount mentioned earlier occurred both including and without gasoline sales.

Gross profit increased $10.4 million or 6.7% to $164.9 million for the first quarter of fiscal 2007. Gross profit as a percentage of sales, including the lower-margin gasoline sales, decreased to 24.0% for the December 2006 quarter compared to 24.7% for the December 2005 quarter.

Excluding lower-margin gasoline sales, gross profit as a percentage of sales was level at 26.3% and 26.4% for the December 2006 and 2005 quarters, respectively. We're pleased with this gross margin stability during holiday seasons that are increasingly competitive.

Operating expenses decreased as a percentage of sales to 19.9% for the December 2006 quarter compared to 21.0% for the December 2005 quarter.

As previously mentioned, many of our labor, facility and distribution costs are somewhat fixed, allowing us to leverage increased sales. In addition, energy costs have moderated recently, and we have achieved cost decreases in professional fees and insurance.

In total, our operating expenses were $136.5 million for the current quarter, an increase of $5.1 million or 3.8%, over operating expenses of $131.4 million for the first quarter of last year.

Total net rental and other income was a combined $1.6 million during the December quarter compared to a combined $2.0 million for the December 2005 quarter. Higher shopping center operating costs and the write-off of assets taken out of service was somewhat offset by increased sales of waste paper and packaging.

Interest expense totaled $12.0 million during the current quarter, lower than the $12.3 million for the first quarter of last year. Total debt was $556.1 million at December 30, 2006, compared to $564.3 million at the end of December 2005.

Total borrowing availability under the Company's $150 million line of credit facilities at the end of December 2006 was $126.2 million after deducting amounts outstanding and letters of credit.

The Company had unencumbered property with a book value of $487 million, of which $341 million is real estate, at December 30, 2006. Based on scheduled debt payoffs during fiscal 2007, additional property with a current book value of approximately $43 million would become unencumbered by the end of fiscal 2007.

Our $349.8 million of 8 7/8% senior subordinated notes are now callable at a call price of $104.438. We're currently evaluating financing options for the subordinated notes and for our future capital needs.

Capital expenditures totaled $19.2 million for the first quarter of fiscal year 2007. During the first quarter, Ingles opened one new store, closed one store, completed one major remodel, added one fuel center and convenience store and two fuel centers at existing store locations.

Ingles' capital expenditure plans for fiscal 2007 include investments of approximately $100 million. For the balance of this fiscal year, the Company plans to open three new or replacement stores, remodel three stores and add fuel stations at 13 existing stores.

To recap the quarter, net income for the December 2006 quarter totaled $11.2 million, 43.7% higher than net income of $7.8 million for the December 2005 quarter. Basic and diluted earnings per share for the Company's publicly traded Class A common stock were $0.48 and $0.46 per share, respectively, for the December 2006 quarter compared to $0.33 and $0.32 per share, respectively, for the December 2005 quarter.

During the first quarter of fiscal 2007, closing prices for Ingles' publicly traded Class A common stock ranged from $25.64 to $30.22 per share. Earlier this week, the Class A common stock reached an all-time high closing price of $36.81 per share.

According to Supermarket News, Ingles' Class A common stock increased 90.4% during calendar year 2006, an increase that ranked second out of 27 supermarket stocks tracked by the publication. The Class A common stock pays dividends of $0.66 per share annually. On behalf of our shareholders, we appreciate the market's recognition of our strong results.

We will now take your questions.

(OPERATOR INSTRUCTIONS). Bryan Hunt, Wachovia.

I was wondering if you could speak to, Ron, competitive pressures and competitive openings in the quarter.

We don't comment on any specific marketing concepts or individual competitors or any specific trends for our overall competitive reasons.

Was there an increased promotional environment, or was it -- did it decrease relative to last quarter or a year ago?

We really can't speak about that for competitive reasons.

Could you talk about higher protein costs? Have you started to see higher chicken prices? And what's your plans with regards to passing those higher prices along?

Well, I guess we have been more concerned about produce and citrus, with --

That's my next question.

I am not really aware of any marked difference in what we're having to do with protein.

So there's no real changes in your protein business today in terms of pricing. If you would address produce and citrus, are you seeing shortages or feeling pricing pressures, and how are your customers responding?

We are seeing pricing pressures. By some estimates, about 75% of the California citrus crop was affected. And that in turn affects the Florida market prices. So we are seeing pressures on citrus and produce just about across the board. We will probably have to increase some prices, but so far we have absorbed some of the increases and taken lower margins.

Are you experiencing any shortages at all, or is it just a price issue at this time?

No shortages right now.

I was wondering, your CapEx plans last year ended up being a little higher than originally forecast, and this year you're going to spend $100 million. Could you talk about your hurdle rate and how you are distributing your CapEx amongst different projects and what the process is behind those decisions?

We really can't talk about any individual projects that we've got on the board. Again, we have some areas we want to be in and there's a lot we want to do over the next four or five years. And really just those projects that we have got out on the horizon are the reason for the bump-up in the annual CapEx guidance.

Could I assume, since the Company is building so many fuel centers this year relative to any other single project, that the fuel centers are your highest ROI project?

I don't think you can assume that one way or the other.

And with regards to our hurdle rate, could you provide us what our hurdle rate is for the Company as a whole?

No, we can't talk about that for competitive reasons.

With regards to your new store openings, are any of your new store openings in new geographies, or are they all within your current geographies?

They are all within the current geographies. Most of them are going to be in the Carolinas, but we do have some additional activity in Georgia and Tennessee coming up.

Has the Company spoken to the ratings agency recently? Given your phenomenal results over the last year and I would say credit metrics that are approaching investment grade, that you deserve some type of ratings upgrade -- have you spoken to the agencies about the Company's current situation recently?

We stay in fairly regular contact. But they have not said, we want to come down and take a look at you.

And then lastly, you somewhat addressed it, but you didn't. It seems like the step down in your notes to 102.09 -- the call in December -- that's not a big premium compared to what potentially your cost savings on a refi could be. Is that a logical refinancing time for the Company?

Again, we've got a number of options on a possible refinancing and we are evaluating it. And until we're ready to do something, I don't think it would be appropriate for us to comment on it.

(OPERATOR INSTRUCTIONS). And it does appear at this time we have no further questions. I will turn the call back over to you, Mr. Freeman.

Thank you very much. Okay, everyone, on to the second quarter. We will speak with you again in about three months, and we appreciate your time and interest and your patronage of our stores. Have a good day.

And that does conclude today's conference. We thank you for your participation, and have a wonderful day.