Ingles Markets, Incorporated (IMKTA) 2015 Q1 法說會逐字稿

Good day, everyone and welcome to the Ingles Markets first-quarter 2015 earnings release conference call. Today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Chief Financial Officer, Ron Freeman. Please go ahead, sir.

Thank you. Good morning, everyone and welcome to the Ingles Markets fiscal 2015 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 27, 2014.

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 Company's 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 filed our 10-Q for the quarter yesterday after the market close, and it is available via our website as well.

Net income totaled $15.0 million for the December 2014 quarter compared with net income of $9.5 million for the quarter ended in December 2013. Non-gasoline grocery sales increased and gross margin improved. We believe Ingles also benefited from a boost to customer spending driven by lower gasoline prices. Net sales totaled $964.5 million for the quarter ended December 27, 2014 compared with $945.1 million for the quarter ended December 28, 2013. That represents a 2.1% increase in total consolidated sales. For the comparable December 2014 and 2013 quarters, and excluding gasoline sales, grocery segment comparable store sales increased 2.3%. Excluding gasoline, the average transaction amount increased 3.1% and the number of customer transactions decreased slightly.

Retail gasoline gallons sold increased, but dollar sales decreased due to significantly lower per gallon gas prices. Gross profit for the December 2014 quarter totaled $224.4 million, an increase of $20.9 million, or 10.3% compared with the December 2013 quarter. Gross profit as a percentage of sales was 23.3% for the current quarter compared with 21.5% for the same quarter of last fiscal year. The gross profit increase is attributable to higher gasoline gross profits and other grocery segment margin improvements during the current fiscal quarter. Excluding gasoline sales, grocery segment gross profit as a percentage of sales increased 58 basis points in the December 2014 quarter compared with the same December 2013 quarter.

Total operating expenses were $187.0 million for the current quarter compared with $177.4 million for the comparable quarter last year. The dollar growth in operating expenses was comprised primarily of increases in payroll, insurance and depreciation. Excluding gasoline sales and associated operating expenses, our operating and administrative expenses as a percentage of sales were 22.8% and 21.9% for the three months ended December 27, 2014 and December 28, 2013 respectively.

Interest expense increased only $0.2 million for the three-month period ended December 27, 2014 to $11.8 million. The increase is attributable to higher debt levels, which totaled $970.4 million at the end of December 2014 and $925.1 million at the end of December 2013. The Company currently has lines of credit totaling $175 million with $65 million borrowed and $11.5 million of unused letters of credit issued at December 27, 2014.

Income tax expense as a percentage of pretax income was 42.3% and 37.5% for the December 2014 and 2013 quarters respectively. The higher effective tax rate for the December 2014 quarter is attributable to certain discreet items, which are not expected to recur in future periods.

Net income for the December 2014 quarter totaled $15.0 million compared with net income of $9.5 million for the December 2013 quarter. Basic and diluted earnings per share for the Company's publicly traded Class A common stock were $0.77 and $0.74 per share respectively for the December 2014 quarter compared with $0.44 and $0.42 per share respectively for the December 2013 quarter.

Capital expenditures totaled $27.6 million for the first quarter of fiscal year 2015. Most of these capital expenditures were related to remodeling projects in a number of the Company's stores and new store construction. The Company's capital expenditure plans for fiscal 2015 include investments of approximately $100 million to $140 million.

To summarize, we are off to a great start in the current fiscal year by putting the customer first and keeping them front of mind over the long term. We will now take your questions.

(Operator Instructions). Damian Witkowski, Gabelli & Co.

Congratulations on a nice quarter. Just looking at the same store sales, which were strong, up 2.3%, but driven by transaction -- by the basket size, not transactions. Is there anything we should read into it? Why would traffic go down do you think? Is it people just coming in less often and buying more?

It wasn't much of a change in the transaction count at all. I think the biggest impact is again was lower gas prices. The consumer just has a lot more money in his pocket. He is coming in, he is buying more and he is buying better.

Okay. Are you -- which categories inside the story actually benefit with the lower gas prices, do you think? Are people spending more on certain items?

It's across our productline. We are very happy with that.

Okay. And there was no weather comparisons -- the last year, the first quarter was about the same weather as it was this year in your area? The weather impact --?

I'm sorry, a little less weather for the December quarter this year and unlike the Northeast, we wouldn't mind a little bit of weather right now for the current quarter.

And then gross margins, which were very strong and it's good to hear that you are obviously earning a lot more on the gallons you sell and I guess the industry is having a record quarter on that as well. But if I look at just groceries, the 58 basis point improvement, what is driving that mostly? Is it just people are buying more perishable items, which have a higher gross margin, or is it something else?

There is a lot of nice change in product mix going on for some of those higher-margin products and that has certainly had a benefit.

Okay.

Private label has helped out as well.

Okay. And then I know I've asked this before, but I forget the answer. You do reuse some of your real estate for some of the debt that you have outstanding as collateral, but I forget if you need to -- A, can you remind me how that really works and B, do you need to have your real estate appraised for the banks that lend you money?

We still do have a couple of pieces of debt out there that are secured by real estate, by specific properties. And appraisals of those properties would have been done when those loans were originated, but we haven't had any real estate originations in probably two or three years now. Outside of that, there is no need for us to have all of our other real estate appraised on a current basis, so we don't have it.

All right. Thanks, Ron.

Brian Hunt, Wells Fargo

Hi, it's actually Dave Cooke on for Brian. A couple quick questions. Do you have your same site gallons performance for the quarter?

We typically don't talk about that for same sites, but needless to say, our gallons were up. We did have a couple of more stations this quarter than we had at the same quarter last year.

Okay. And on the grocery side of things, do you think you saw any sort of benefit from the lapping of the reduction in SNAP benefits from late 2013 in this quarter.

That didn't have very much effect on us last year or this year.

Okay. Thanks. That's all I had.

(Operator Instructions). Ken Goldman, JPMorgan.

I am just curious, any color you can give either qualitatively or quantitatively on the impact of cheaper crude on your margins. Obviously retail prices are stickier than wholesale. Can you just give us a sense of how much that benefited you in the quarter, it would be helpful.

We can't precisely quantify it, but as we have said before, lower gas prices have just put a lot more money in the consumers' pocket for spending on whatever they want to spend on, and fortunately some of that has come our way. Decreasing gas prices, I think as Damian noted earlier, have benefited anyone who sells gasoline, and we are not unique in that regard.

And is it something you would expect to continue into next quarter as well?

Who knows.

All right, thank you.

(Operator Instructions). And gentlemen, it appears we have no further questions at this time. I will turn the call back over to you.

Great. Well, thank you, Dana. Thank you everyone who has called in today and who has listened to this call; and we look forward to speaking with you again in the near future. Have a great day.

Thank you and that does conclude today's conference. Thank you for your participation.