Ingles Markets, Incorporated (IMKTA) 2014 Q1 法說會逐字稿

Good day, and welcome to the Ingles Markets Incorporated first-quarter 2014 earnings release 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 the Chief Financial Officer, Mr. Ron Freeman. Please go ahead.

Thank you. Good morning, and welcome to the Ingles Markets fiscal 2014 first-quarter conference call. With me today are Robert Ingle II, Chief Executive Officer; 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 28, 2013.

In accordance with a long-standing Company policy, and in recognition of the extremely competitive nature of our industry, this call will not address individual competitors or Ingles' marketing strategies other than what is included in the public filings.

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 plan to file the 10-Q for the quarter later this week. It will be available via our website as well.

Net income totaled $9.5 million for the December 2013 quarter, compared with net income of $11.6 million for the quarter ended December. 2012. Non-gasoline grocery sales were relatively level, and the Company took a number of actions to keep prices low for its customers during a holiday season that had one less week from Thanksgiving to Christmas during the December 2013 quarter, compared with the December 2012 quarter.

Net sales totaled $945.1 million for the quarter ended December 28, 2013, compared with $935 million for the quarter ended December 29, 2012. This represents a 1.1% increase in total consolidated sales. For the comparable December 2013 and 2012 quarters -- and excluding gasoline sales -- grocery segment comparable store sales decreased 0.8%.

Weekly customer visits increased slightly, and the average transaction amount decreased slightly. Retail gasoline sales dollars and gallons sold both increased, comparing the December 2013 and 2012 quarters.

Gross profit for the first quarter of fiscal 2014 totaled $203.5 million, a decrease of $4.7 million, or 2.3%, compared with the first quarter of fiscal 2013. Gross profit as a percentage of sales was 21.5% for the first quarter of fiscal 2014 compared with 22.3% for the first quarter of fiscal 2013. This decrease reflects our efforts to keep prices low for our customers, and the effective promotional activities. It was a very competitive holiday quarter, with higher promotions and tighter margins in our market area.

Total operating expenses were $177.4 million for the first quarter of fiscal 2014, compared with $174.8 million for the comparable fiscal 2013 quarter. The dollar growth in operating expenses was comprised primarily of increases in payroll, partially offset by savings in our self-insurance programs.

Excluding gasoline sales and associated operating expenses, operating and administrative expenses as a percentage of sales were 21.9% and 21.6% for the three months ended December 28, 2013, and December 29, 2012, respectively.

Interest expense decreased $3.8 million for the three-month period ended December 28, 2013, to $11.8 million, from $15.6 million for the three-month period ended December 29, 2012. The decrease is attributable to lower interest rate on senior notes that were refinanced during the third quarter of fiscal year 2013.

The Company currently has lines of credit totaling $175 million, with $14.4 million borrowed and $10.3 million of unused letters of credit issued at December 28, 2013.

Income tax expense as a percentage of pre-tax income was substantially unchanged at 37.5% and 37.4% for the December 2013 and 2012 quarters, respectively. Net income for the December 2013 quarter totaled $9.5 million compared with net income of $11.6 million for the December 2012 quarter.

Basic and diluted earnings per share for the Company's publicly traded Class A common stock were $0.44 and $0.42 per share, respectively, for the December 2013 quarter; compared with $0.50 and $0.48 per share, respectively, for the December 2012 quarter.

Capital expenditures totaled $30.8 million for the first quarter of fiscal year 2014. Most of these capital expenditures were related to the remodeling projects in a number of the Company's stores, and new store construction.

The Company's capital expenditure plans for fiscal 2014 include investments of approximately $100 million to $140 million.

To summarize, we have grown for over 50 years by putting the customer first and keeping them front-of-mind over the long-term.

We will now take your questions.

(Operator Instructions) Bryan Hunt, Wells Fargo Securities.

If I look at my first question, it really has to do with the stepped-up promotional environment. Can you talk about whether the intensity was in a specific region when you looked throughout your store base, or within a specific product category?

No, no. It really was across the entire store base, and crossed a number of product categories.

Okay. And then, next, when you look at the negative same-store sales for the period, were there any categories that saw exceptional sales declines, relative to others, or relative increases?

Well, it was only a 0.8% comp sales decline, and that was spread throughout everything. There was not one particular part that jumped out.

Okay. And when you think about the timing of the holiday season, with one fewer week, do you feel like if you adjust for that one fewer week before Thanksgiving and Christmas that same-store sales would have been positive? Or is there any way you can adjust the sales tempo for us?

We have not done that particular analysis. Just for us, the holidays were where they were, and we had to try to react accordingly.

And then my last question is if we've adjusted SNAP payments from the government. Do you feel like you saw the full impact of reduced SNAP payments during the period?

That hasn't had a significant impact on us, but that is something that we will certainly watch going forward.

Do you have an idea how many of your customers actually get government assistance?

We do, but that's not something that we have ever publicly disclosed.

Okay. I'll get back in the queue. Thanks.

Damian Witkowski, Gabelli & Company.

Just following up on SNAPs, any idea why -- in theory, it should have had an impact. You said it wasn't a big one. Are you seeing people just using -- not really changing their shopping patterns, just using cash instead?

Well, it's difficult to tell whether someone who may be buying reduced SNAP amounts is replacing those sales with cash sales. We have certainly seen that happening with other companies in their public releases, but we really can't quantify that because it's difficult for us to grab that.

And then on the consumer, I don't think you will give us guidance in terms of what is happening currently. But if you look at the first quarter, the Christmas quarter, the price investments that you saw from your competition across the board -- do you think these were planned investments on their part, or were they a response to a slower traffic than they had anticipated?

Well, we don't know about what the competitors are pricing. We consciously made decisions for our price investments to keep prices low for our customers.

Okay. And again, even though it was across the board, was there -- I assume you do respond to what the competition is doing as, well. And was there -- without naming names, was there someone who is acting more irrational than usual?

No. No one that we would care to name names on.

Okay. And any categories that -- obviously, it was a negative same-store sales. It wasn't a big number, less than 1%. But any categories that actually did a lot better than you maybe expected, whether it's smaller categories like maybe gift cards, or anything else that sets a positive tone?

We will have a table in our 10-Q that's filed later on this week that will break it down a little bit. Again, we actually had dollars sales growth in our non-foods, perishables, and gasoline; a little bit behind in some of the other categories.

Okay. And then people obviously keep coming in more often, because your traffic was slightly up. The basket being lower -- how much of it is, do you think, inflation not growing as fast, versus just them putting fewer things in the basket because they can't afford it?

We didn't see a big impact from inflation or deflation this quarter.

(Operator Instructions) Hale Holden, Barclays.

Thanks. I just had two quick ones. For the pricing investments that you made in the fourth quarter, is it your expectation that you will be able to get some of that back as we travel through this year, or is this going to sit as-is?

No, we expect to get some of that back. Things are always a little different during the holiday quarter, so we expect we'll regain some of that.

Great. And any general comments you want to give us, or color on the state of the consumer in your markets, and what you are seeing or what you are thinking on consumer health?

Other than what we have talked about in some of the questions, consumer still isn't out of the woods, we don't think, by any stretch. We have some consumers that are affected by SNAP payments. Again, they are certainly having to change their behavior a little bit. But there's not any one large factor that's jumping out from consumer behavior, either positively or negatively, for us.

Okay, great. Thank you very much.

(Operator Instructions) William Reuter, Bank of America.

I apologize that I missed this, but did you complete any share repurchases during the quarter?

No, we did not.

Okay. And then you were discussing that your CapEx issue will be broken down, largely between remodels and new store construction. Can you talk about which one of those is larger, and then how many new stores you are going to be completing this year?

A think we provided some guidance back in the K for new store construction. We've got a couple in process right now. When that will be completed -- whether that will completely happen this fiscal year, or whether some of it will bleed over into 2015 before the stores actually open -- is a little difficult to tell right now. But I think you'll see us spending a little more in new stores this year than we have for the past two or three.

Okay. And then a lot of retailers have taken the opportunity to secure real estate opportunistically. I'm curious whether you guys have either given some thought to that; or, alternatively, just recently done any sort of valuation work, or had outside sources do valuation work on the value of your real estate.

No, we haven't. We have adequate sources of liquidity set up right now. We've got a lot of room available on our line of credit. We own 75% of our real estate, so it's not something that we have felt compelled to review right now.

Okay. That's all for me. Thanks a lot.

(Operator Instructions) It appears we have no further questions in the queue at this time.

Well, great. Thank you, everyone, for joining us this morning. And we look forward to speaking with you again in about three months. Have a great day.

That does conclude today's conference. We appreciate your participation. You may now disconnect.