Ingles Markets, Incorporated (IMKTA) 2015 Q2 法說會逐字稿

Good day and welcome to the Ingles Markets second-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 Chief Financial Officer Mr. Ronald Freeman. Please go ahead, sir.

Thank you. Good morning, and welcome to the Ingles Markets fiscal 2015 second 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 Harbor as 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 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 the 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 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. Our 10-Q for the quarter that was filed a few days ago is available on a website, as well.

Net income rose 36.8% and totaled $14.3 million for the quarter ended March 28, 2015. For the six months ended March 28, 2015, net income rose 46.8%, in total $29.3 million. Second-quarter fiscal 2015 sales, excluding gasoline sales, increased 1.0% to $810.9 million.

Six-month fiscal 2015 sales, also excluding gasoline, increased 2% to $1.64 billion. Per gallon gasoline prices were significantly lower in fiscal 2015, resulting in lower comparative all-inclusive sales for the fiscal 2015 three- and six-month period. Total sales for the second quarter of fiscal 2015 and 2014 were $915.3 million and $947.8 million, respectively.

Total sales for the first half of fiscal 2015 and 2014 were $1.88 billion and $1.89 billion, respectively. Total gasoline gallons sold increased while the average price per gallon decreased 34.8% and 24.1% over the comparative three- and six-month periods.

First, a description of our second-quarter results. Second-quarter fiscal 2015 sales, excluding gasoline, increased 1.0% to $810.9 million, an increase of $8.1 million from last year's non-gas second-quarter sales. Comparable store sales, also excluding gasoline, increased 1.2%. Comparing the second quarters of fiscal years 2015 and 2014, and excluding gasoline, the number of customer transactions decreased 0.7%, and the average transaction size increased 3.2%.

Ingles operated 202 stores at March 28, 2015, and 203 stores at March 29, 2014. Retail square footage totaled 11.1 million at both March 28, 2015 and March 29, 2014.

Gross profit for the March 2015 quarter increased 6.1% to $218.7 million, compared with $206.1 million for the second quarter of last fiscal year. Gross profit as a percentage of sales was 23.9% for the March 2015 quarter compared with 21.7% for the March 2014 quarter. Excluding gasoline sales, grocery segment gross profit as a percentage of sales was increased 47 basis points comparing the second quarter of fiscal 2015 and the same fiscal 2014 period. Gasoline gross profit dollars were higher for the March 2015 quarter compared with the March 2014 quarter.

Operating and administrative expenses for the March 2015 quarter totaled $185.6 million, an increase of $7.2 million or 4.0% over the March 2014 quarter. Excluding gasoline sales and associated gasoline operating expenses, which are primarily payroll, operating expenses were 22.7% of sales for the second fiscal 2015 quarter and 22.1% for the second fiscal 2014 quarter. The dollar growth in operating expenses was primarily in payroll and self-insurance claims.

Interest expense totaled $11.6 million for the three-month period ended March 28, 2015, and $11.7 million for the three-month period ended March 29, 2014. Total debt at the end of March 2015 was $928.5 million compared with $911.1 million at the end of March 2014.

Our effective income tax rate was 36.8% and 37.9% for the second quarters of fiscal 2015 and 2014, respectively.

Net income rose $14.3 million (sic - see Press Release) for the three-month period ended March 28, 2015, compared with $10.5 million for the three-month period ended March 29, 2014. Net income as a percentage of sales increased to 1.6% for the quarter ended March 28, 2015, compared with 1.1% for the quarter ended March 29, 2014.

Basic and diluted earnings per share for our publicly traded Class A Common Stock were $0.72 and $0.71, respectively, for the quarter compared with $0.47 and $0.46, respectively, for the 2014 quarter.

Now we will talk about our first-half results. First-half 2015 sales, excluding gasoline, increased 2.0% to $1.64 billion, an increase of $32.3 million over last year's first-half non-gas sales. Six-month total fiscal 2015 sales, including gasoline, increased (sic - see Press Release) 0.7% from last year's first-half sales to $1.88 billion. Gross profit for the six months ended March 28, 2015, totaled $443.1 million compared with $409.6 million for the first six months of last fiscal year. Gross profit as a percentage of sales was 23.6% for the March 2015 six-month period compared with 21.6% for the March 2014 six-month period.

Excluding gasoline sales, grocery segment gross profit as a percentage of sales increased 52 basis points comparing the first half of fiscal 2015 and the same period of fiscal 2014. Gasoline gross profit dollars were higher for the six months ended March 28, 2015, compared with the six months ended March 29, 2014.

Operating and administrative expenses increased $16.7 million or 4.7% to $372.5 million for the six months ended March 28, 2015, from $355.8 million for the six months ended March 29, 2014. As with the second quarter's results, expense increases included in payroll, insurance and other store base expenses.

Interest expense totaled $23.6 million for the six-month period ended March 28, 2015, compared with $23.5 million for the six-month period ended March 29, 2014. Total debt was reduced by $8.7 million during the first six months of fiscal year 2015.

Our effective tax rate was 39.7% and 37.7% for the first half of fiscal 2015 and 2014, respectively. This year's effective rate is higher due to discrete items not expected to recur in the future.

Net income totaled $29.3 million for the six-month period ended March 28, 2015, compared with $20 million for the six-month period ended March 29, 2014. Net income as a percentage of sales was 1.6% for the six months ended March 28, 2015, compared with 1.1% for the six months ended March 29, 2014.

Basic and diluted earnings per share for publicly traded Class A Common Stock were $1.49 and $1.45, respectively, for the six months ended March 28, 2015, compared with $0.91 and $0.88, respectively, for the six months ended March 29, 2014.

Capital expenditures for the March 2015 six-month period totaled $44.3 million compared with $51.8 million for the March 2014 six-month period. Capital expenditures for the entire fiscal year are expected to be approximately $100 million to $140 million.

The Company currently has lines of credit totaling $175 million, of which $135 million is currently available. The Company believes its financial resources, including these lines of credit and other internal and anticipated sources of funds, will be sufficient to meet planned capital expenditures, debt service, and working capital requirements for the foreseeable future.

To summarize, second-quarter and six-month net income has increased nicely and we will continue our efforts to keep the momentum going for the remainder of the year.

And we will now take your questions.

(Operator Instructions). Damian Witkowski.

The negative traffic we have seen now for two quarters in a row -- what do you think -- I mean, obviously, same-store sales, people are buying more when they come in, but they are coming in less often. Why do you think that is?

It's not a significant change in the transaction account. So we are just glad they are coming in, spending more, and the sales are up.

And then if you look at the grocery sales, they declined. Anything in particular there? In that category that -- and then in the second quarter, that drove that? This is, I think, the first time I have seen that actually be down in a while.

Grocery sales, excluding gasoline?

If I look at the four buckets that you have, which is grocery, non-foods, perishables, and gasoline, the grocery bucket -- it was down about $7 million.

I think that is just the way we have been doing some of our remodels. There's a little more emphasis on the perishable areas. There's been a little bit more inflation in those areas, as well, compared to grocery. So it is not anything that we are (technical difficulty).

You are at 85 gas stations now. It sounds like that's a business you like and want to be in. And it kind of ties in nicely with your grocery business. What is the -- how many gas stations can you have eventually? Do you have a target in mind?

We look at locations individually and market conditions individually, so there's not a real target number in mind. And as conditions change, we may re-look at some sites that we had passed on before.

Okay. So in theory, you could have it in all of them? Or are there some that as you simply -- there is no room to put a gas station in?

I'm sorry. Could you repeat that?

In theory, could you actually have a gas station in front of every one of your stores? Or --?

No. In some locations, that is not possible.

Okay. Okay. And then on the gross margin side, the improvement, is it -- I think it was 47 basis points. What is driving that? Is it just positive comps let you leverage some of your fixed expenses? Or is it a combination of that? I'm just trying to get a sense of where it is coming from. Is the pricing pretty rational, or is this mostly coming from your new distribution center ramping up and getting more and more efficient?

We certainly continue to gain efficiencies out of the distribution center, and since those costs are included in the gross profit calculation, there is some benefit there. We are seeing less cost pressure in a lot of the meat areas, and produce to some extent. So that has helped out some as well.

Okay. And then, lastly, and this might be hard to comment on, but I think I have followed the Company for over five years now, and this has been the most interesting quarter from a trading perspective. Just how the stock has gone up or down, and it's hard to know why. Are there any -- do you have any -- have you looked at it, and have you heard as to why it is sort of done what it has done?

The market dictates that. We file our reports with our numbers. And when we have stock transactions we need to file, we file those. Other than that, it is market forces.

Okay. So you have -- okay. Just want to make sure. Thanks, Ron.

(Operator Instructions). Bryan Hunt, Wells Fargo.

It is actually Dave Cooke on for Bryan. A couple of questions. Can you talk about which product categories are contributing to the same-store sales growth?

Well, again, as we have talked about earlier, we are pleased with our growth in our perishable areas, our deli, produce, meat -- those are performing better all the time. And as Damian pointed out, they had a little bit more growth there than in traditional grocery, so we got some benefit from that.

Okay. And how many dark stores do you all have now and -- that are for sale? And could you maybe estimate the proceeds you are looking for for those?

We don't comment to that level of detail about our store base and our real estate operations. Sorry.

Okay. And then in the press release you talked about adding products and further amenities. Any of those substantial? And along the same lines could you provide -- could you kind of bucket your 2015 CapEx by new stores, remodels, et cetera?

Not in too much detail. We do have a couple of new stores and process, one that we think will get open before the end of the year. We have added some fuel stations. We have added some pharmacies. And as we have always done, you need to keep your store base, as a whole, fresh and current and with new products, just to stay competitive. And we are always going to do that.

Okay. Thank you.

(Operator Instructions). Mr. Freeman, there appear to be no further questions at this time.

Great. Well, thank you very much, and we appreciate everyone joining the call today. And we look forward to speaking with you again soon. Have a good day.

Ladies and gentlemen, this does conclude today's conference. We appreciate your participation.