Ingles Markets, Incorporated (IMKTA) 2007 Q2 法說會逐字稿

Good day and welcome to the Ingles Markets Incorporated second-quarter conference call. Today's call is been recorded. At this time for the 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 second-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 Inc. 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 will refer to the Company's public filings, including the Form 10-K for the fiscal year ended September 30, 2006.

This morning I'll provide you with a summary of our second-quarter and six-month 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 filed our 10-Q for the quarter on Friday, May 4th; it is available via our website as well.

First, our second-quarter results. Net income for our second fiscal quarter ended March 31, 2007 totaled $13.5 million, an increase of $4.1 million or 43% over net income of $9.4 million for the second fiscal quarter of last year. Second-quarter sales increased 12.3% to $681.2 million compared to $606.7 million for the quarter that ended in March 2006.

Grocery segment comparable store sales increased 12.4%. These amounts represent the fourth consecutive quarter when compared to the same quarter of the previous year where we experienced double-digit growth in net sales and grocery segment comparable store sales. Our primary focus continues to be on increasing topline sales and providing enhanced value to our customers through a combination of promotions, everyday low pricing and the convenience of one-stop shopping.

Sales growth was broad based across the Company's departments, including increases in the number of customer visits and in average purchase amount. Excluding gasoline sales, second-quarter comparable store sales increased 8.9%. Total gasoline gallons sold increased approximately 62% while the average price per gallon was somewhat level compared to March fiscal 2007 quarter to the same period of fiscal 2006.

The increases in customer store visits and the average purchase amount mentioned earlier occurred both including and without gasoline sales. At March 31, 2007 Ingles operated 196 stores and 39 fuel centers compared to 197 stores and 31 fuel centers at March 25, 2006.

The competitive environment increased food costs and higher relative sales growth in lower margin departments such as gasoline resulted in lower gross profit as a percentage of sales for this quarter. Gross margin as a percentage of sales was 24.5% for the March 2007 quarter versus 25.7% for the same quarter last year. Excluding lower margin gasoline sales, grocery segment gross profit as a percentage of sales was 27.0% and 27.5% for the March 2007 and 2006 quarters respectively.

Consistent with our emphasis on sales growth and customer value we chose to accept lower margins to protect market share and keep prices low for our customers. Despite the margin decrease, total gross profit dollars increased $11 million or 7.1% to $166.6 million.

Operating expenses as a percentage of sales improved to 20.5% for the March 2007 quarter compared to 21.3% for the March 2006 quarter. In dollars, operating expenses were $10.4 million higher in March 2007 versus March 2006, but were lower than the sales and gross profit dollar increases.

Wherever possible we direct spending increases to build sales and capture market share. This quarter operating expense increases included labor, warehouse operations, store maintenance, bank charges and marketing. Total net rental and other income was a combined $1.5 million during the March 2007 quarter compared with a combined $1.4 million for the March 2006 quarter. Increased sales of waste paper and packaging offset decreased interest income.

Interest expense totaled $11 (technical difficulty) million during the current quarter, lower than the $12.2 million for the second fiscal quarter of last year. Total debt was $548.1 million at March 31, 2007 compared to $560.6 million at the end of March 2006.

Our income tax expense was lower this quarter due to the settlement of a tax position under an initiative offered by one of the states in which the Company conducts its operations. As a result of the settlement, the Company reduced a previously established tax contingency reserve by $3.2 million and reduced income tax expense by the same amount. Without this reduction our effective tax rate would have been similar to prior quarters.

To recap the quarter, net income for March 2007 quarter totaled $13.5 million, 43.1% higher than net income of $9.4 million for the March 2006 quarter. Basic and diluted earnings per share for the Company's publicly traded Class A common stock were $0.58 and $0.55 per share respectively for the March 2007 quarter compared to $0.41 and $0.38 per share respectively for the March 2006 quarter.

Now I'll discuss our six-month results. Net income for the six months ended March 31, 2007 totaled $24.7 million, 43.4% higher than net income of $17.2 million for the first six months of fiscal 2006. Consistent with our quarterly results, six-month profit growth began with increased sales; net sales for the six months ended March 31, 2007 totaled $1.37 billion. For the first half of 2007 net sales, grocery segment comparable store sales and comparable store sales excluding gasoline grew by 11.1%, 11.4% and 8.1% respectively when compared to the first six months of fiscal 2006.

Gross profit for the six-month fiscal 2007 period totaled $331.4 million, an increase of $21.3 million or 6.9% over the comparable fiscal 2006 period. Gross profit as a percentage of sales was 24.2% and 25.2% for the six months ended March 2007 and 2006, respectively. Excluding higher growth lower margin gasoline sales, the gross margin comparison is 26.6% year-to-date fiscal 2007 versus 26.9% year-to-date fiscal 2006.

Operating expenses as a percentage of sales improved to 20.2% for the March 2007 six-month period compared to 21.2% for the March 2006 six-month period. Operating expenses totaled $276 million for the first half of fiscal 2007, $15.5 million higher than the first half of fiscal 2006. The cost increase factors discussed earlier for the quarter also contributed to the first-half increase, but were partially offset by lower equipment rent and professional fees.

Net rental and other income totaled $3.2 million for the March 2007 six-month period compared to $3.4 million for the March 2006 six-month period. Increased sales of waste paper and packaging offset losses on assets taken out of service and decreased interest income. Lower total debt drove a $700,000 decrease in interest expense for the six-month period ended March 31, 2007 to a total of $23.9 million.

As discussed earlier, for the quarter the state income tax settlement and associated $3.2 million reduction of income tax expense resulted in an effective tax rate of 28.9% for the six months ended March 31, 2007 compared to an effective tax rate of 39.5% for the six months ended March 25, 2006.

Summarizing our six-month results -- first half fiscal 2007 net income totaled $24.7 million, an increase of $7.5 million or 43.4% over net income of $17.2 million for the first six months of fiscal 2006. Net income as a percentage of sales was 1.8% for the March 2007 and 1.4% for the March 2006 six-month periods respectively. Basic and diluted earnings per share for publicly traded Class A common stock were $1.06 and $1.01 for the March 2007 six-month period compared to $0.74 and $0.70 respectively for the March 2006 six-month period.

Next, I'll update our investing and financing activities and then take your questions. Capital expenditures totaled $42.7 million for the first half of fiscal 2007 including the completion of one new store, one remodeled store, the addition of three field centers and two pharmacies at existing stores and the purchase of six future store sites. Two stores have been closed.

Ingle's 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 replacement stores, remodel two stores and add fuel stations at three existing stores. Total borrowing availability under the Company's $150 million line of credit facilities at the end of March 2007 was $132.7 million after deducting $1.6 million outstanding and $15.7 million of unused lines of credit.

The Company had unencumbered property with a book value of $497 million of which $353 million is real estate at March 30, 2007. Our $349.8 million of 8-7/8% senior subordinated notes are now callable at a call price of 104.438. The call price decreases to 102.903 on December 1, 2007. Over the next 12 months scheduled principal payments on long-term debt totaled $47.1 million compared to an average of approximately $30 million annually over the past three fiscal years. We are currently evaluating financing options for our subordinated notes and our future capital needs.

During the past 12 months the Ingles' investment and profit-sharing plan has sold approximately 185,000 shares of Company stock to meet retirement distributions and asset diversification requests of plan participants. These sales are not sales of shares owned directly by certain company executives who, as trustees of the plan, filed change of ownership forms with the SEC on behalf of the plan. We will now take your questions.

(OPERATOR INSTRUCTIONS). And Mr. Freeman, there are no questions at this time, sir.

Thank you very much. We appreciate you joining us this morning. We're looking for to the third quarter and we'll speak with you soon. We appreciate your interest, the hard work of our associates and the loyalty of our customers. Have a good day.

That does conclude today's presentation. Thank you for joining us. Have a great day.