SpartanNash Co (SPTN) 2003 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Spartan Stores, Inc. fourth quarter and year-end earnings conference call. At this time, all participants have been placed in a listen-only mode and the floor will be open for questions and comments following the presentation.

I would now like to turn the floor over to your host Craig Sturken, President and CEO of Spartan Stores, Inc. Sir, the floor is yours.

Good morning everyone and thank you for calling into our fiscal '03, fourth quarter and year-end earnings conference call. If you don't already have a copy of the earnings release that was issued yesterday, you can call our offices and ask for Jean Kirkbride and she will be glad to fax you a copy.

With me this morning are members of our management team including Executive VP and CFO, Dave Staples; our Executive VP of marketing and merchandising, Dennis Eidson; and Executive VP of supply chain, John Sommavilla.

Before we begin discussing our quarterly financial and operational performance, I must remind you that our comments today will contain forward-looking statements. These forward-looking statements may contain plans, expectations, estimates and projections that involve significant risks and uncertainties. Actual results may differ materially from the results discussed in these forward-looking statements. Internal and external factors that might cause such a difference include, but are not limited to competitive pressures among food retail and distribution companies, general economic and marketing conditions and other factors described in our earnings announcement and annual report on Form 10-K and other filings with the SEC. Spartan Stores disclaims any intention or obligation to update or revise any forward-looking statements.

As Spartan's recently appointed President and CEO, this is my initial earnings conference call. During this call, I will provide you an overview of our fourth quarter initiatives and financial results, then turn the call over to Dave for a more detailed discussion of the results and conclude with a more in-depth review of what we have planned for fiscal '04.

As stated in our press announcement, the fourth quarter end financial results were disappointing. But it is important to understand that these results do not reflect the many fundamental changes that were implemented late in our fourth quarter. We began a number of significant and very important business initiatives during our fourth quarter that were just recently finalized or will be concluded shortly. I would like to go over these issues because they demonstrate the important progress we have made in a very short period.

Since joining our company on March 3, I quickly established very clear organizational priorities and objectives. I have also attached with it, time lines and accountability for implementing these objectives. These priorities are to focus our organization on distribution and retail sales growth, align our cost structure to industry standards, strengthen our financial position by rationalizing under performing assets and restore retail profitability by turning category management into a disciplined way of life throughout our organization. I am very pleased to report that many of the fundamental changes made to improve operations in these areas are taking hold and swiftly producing hard evidence of success.

As stated in the press announcement, our first quarter sales performance has significantly improved from our fiscal '03 third and fourth quarter results. Retail store sales excluding our discontinued Food Town operations are trending positive. In fact, for the last four-week period of our '04 first quarter, comparable store sales results from continuing operations are flat. These improving sales trends are a result of the changes we have made in our retail strategy and operations and because we are raising our category management practices to a more disciplined science.

These changes are being led by a newly hired and very talented team of marketing and merchandising managers. This marketing and merchandising team is led by our new Executive VP of marketing and merchandising, Dennis Eidson. Dennis brings a wealth of knowledge and insight of our markets, as he was formerly President and CEO of A&P's in Midwest region. Prior to that, Dennis was General Manager of Nash Finch's Michigan operations. A&P's Midwest region and Nash Finch's Midwest operations included many of the same market areas where we are currently operating.

Most importantly, he has an outstanding knowledge of our category management principles. Category management is an extremely critical component of grocery retailing and it is an area where we have been deficient. Dennis reports directly to me and he is a playing a major role in helping to improve our category management function. In this function, he has been instrumental in helping to raise our distribution and retail sales growth performance.

Also joining this team is Alan Hartline as the new VP of Retail Merchandising and Sally Lake is now our Vice President of Distribution Merchandising. These individuals have expansive expertise and true insight into effective merchandising practices and I have the utmost confidence in their collective ability to dramatically improve this critical retail operating functions.

Other important developments include entering into a definitive agreement to sell 20 of the remaining 26 Food Town stores and a corporate staff reduction. We are very pleased to have reached sales agreements on a majority of these stores and are working on options for the remaining six. Two issues important to this transaction are that we expect it to allow us to pay down up to $30m of long-term debt and we expect to realize significant improvements in our operating cash flow, as these stores consumed a material amount of our operating cash in fiscal '03.

In late March, we began making staff reductions and to date have announced the elimination of approximately 11% of our corporate staff positions, which are expected to reduce operating costs by about $8m annually. With this staff reduction and other expense control efforts, our cost structure is beginning to move closer to industry and historical standards and to be more in line with our current level of business.

One last important development before turning the call over to Dave is the recent sale of our convenience store distribution operation. Again, the significance of this transaction is that we have narrowed our focus to the core businesses and have used the approximately $29m of net proceeds to further deleverage of our balance sheet. Reducing our debt leverage has been a top organizational priority for over 12 months and I am very pleased to say that we have done an outstanding job on this key objective.

After using net proceeds from our convenience store distribution sale and select Food Town transactions to date to reduce debt, we have paid down our long-term borrowings to a balance of approximately $168m as of June 21 from the $321m that we had outstanding at the end of fiscal '02. That represents a 48% debt reduction in about 15 months. I congratulate our management team for their fine efforts.

Turning to our financial results, our reported fourth quarter consolidated net sales declined 4.4% to $476m. It should be no surprise that the retail grocery sales environment has been difficult. Since the second half of calendar '02, sales have been difficult for most industry participants. In fact, six of the top 10 publicly traded supermarket operators reported negative same store sales during the second half of calendar '02. Add to this a heavy promotional environment, deflationary pricing pressure, and a high unemployment rate and you can clearly understand the difficult and challenging industry climate.

Notwithstanding these challenges, we are very pleased with the improved first quarter sales trends. We reported a fourth quarter loss from continuing operations of $6.5m or $0.33 per diluted share compared with a $1.6m loss or $0.08 per share last year. I would like to remind everyone that the fourth quarter is typically our weakest with respect to profitability because of the seasonal influence in our Northern Michigan market.

During the quarter, we reclassified our convenience distribution segment to discontinued operations in conjunction with the previously announced asset sale to The H.T. Hackney Company. We also closed 13 Food Town stores, the Ohio distribution center, and reclassified the remaining 26 stores to discontinued operations.

Looking back at fiscal 2003, our primary achievements included a significant improvement in working capital management, a substantial deleveraging of our balance sheet laying a foundation for a reduction in our operating cost structure, and a narrowing of our business strategy to the core grocery distribution and retail operations. Our working capital finished the year-end down by more than 23% and we divested the majority of our non-core real estate holdings. We expect to complete the divestiture of the remaining non-strategic business units during the first and second quarters of fiscal 2004. Our entire managerial efforts are now focused on our strongest grocery distribution and retail growth opportunities and markets where we have the best competitive positions.

With that introduction, I will turn the call over to Dave for a detailed review of our financial performance.

Thank you, Craig. Good morning everyone. I will first discuss certain events that require specific accounting treatment and then move to our fourth quarter financial performance. I will also be discussing other developments that have helped to improve first quarter sales results.

During the fourth quarter, we reclassified our convenience stores segment, Food Town operations, and the Ohio distribution business to discontinued operations. We also recorded additional non-cash asset impairment and exit charges as well as combined our remaining cash-and-carry convenience store distribution business with our grocery distribution segment. Lastly, we adopted Emerging Issues Task Force EITF no. 2-16 on accounting per vendor allowances, which did not have any material effect on our reported earnings.

Consolidated net sales for the fourth quarter decreased 4.4% to $475.6m from $497.6m in last year's comparable quarter. The sales decline was primarily due to the difficult industry conditions Craig mentioned and promotional programs that did not meet expectations and the shift in timing of the Easter holiday. The consolidated sales number does not include sales for our Food Town stores or the sold convenience store distribution operations due to the reclassifications I just mentioned.

Gross margin for the fourth quarter declined 10 basis points to 17.2% from 17.3% in the fourth quarter of last year. The decline was primarily due to gross margin reinvestment to regain lost market share and an increase in the percentage of consolidated business from our lower margin wholesale operations. Well, down on a year-over-year basis, the gross margin rate for the quarter is a significant increase from our third quarter rate and demonstrates the company's objective to return to more normalized margins while significantly improving the effectiveness of its promotional programs. Preliminary signs from our first quarter indicate that the new merchandising strategies implemented by our team are working as evidenced by the improved first quarter trend.

Fourth quarter selling, general and administrative expenses increased $2.5m to $86.6m. The increase was primarily due to the additional operating cost of three new stores opened in the third quarter, severance cost associated with the first phase of staff reduction and higher promotional costs. The cost increase was partially offset by the absence of goodwill amortization, which was approximately $800,000 in the fourth quarter of fiscal 2002.

As a percentage of sales, SG&A rose to 18.2% compared with 16.9% a year earlier. The higher SG&A percentage is primarily due to lower fixed cost leverage from the decline in net sales and the additional increases just mentioned. We have seen a trend of stabilizing gross margins in our Michigan retail operations and decreasing SG&A cost as a percentage of sales in the first eight weeks of our first quarter compared to the fiscal 2003 fourth quarter. The improving cost trend is due to the corporate overhead reduction and increased focus on productivity in our distribution and retail operations, more effective advertising campaigns, and better leveraging of fixed costs due to the sales improvement.

We reported a fourth quarter loss from continuing operations of $6.5m or $0.33 per diluted share compared with a loss of $1.6m or $0.08 per diluted share in the corresponding period last year. The total net loss for the fourth quarter was $20.9m or $1.05 per diluted share compared with a $5m loss or $0.25 per diluted share of last year. The consolidated results for the quarter included a $14.4m loss or $0.72 per diluted share from discontinued operations compared with a $3.4m loss or $0.17 per diluted share from discontinued operations last year.

The loss from discontinued operations includes an after-tax non-cash charge of $8.1m related to asset impairments and exit costs for the 13 closed Food Town stores in the Ohio distribution center. These charges are in line with the expectations previously disclosed by the company, as you may be aware. Also, as you may be aware, these costs were not allowed to be preserved for until the actual store closings occurred. The discontinued operations include the results of 54 Food Town and other previously closed stores, the sold convenience store distribution subsidiary and results from previously discontinued real estate and insurance business segments.

Turning to our business segments, fourth quarter grocery distribution sales declined to $286.9m from $295.6m last year representing a 2.9% decline for the quarter as a result of the Easter shift and the general competitive and economic environment. While overall sales declined, we are encouraged by the improving sales trend on a quarterly year-over-year basis. The improvement is due to more focused promotional strategies aimed at generating incremental sales. The programs replaced our combined distribution and retail marketing program that ended early in the third quarter.

Fourth quarter operating income for the grocery distribution segment declined to $2.1m from $3m last year. The decline was primarily due to lower sales volumes. Sales in our retail segment declined 6.6% to $188.7m from last year's $202m and comparable store sales declined 9.5%. The sales decline related to the issues Craig and I already discussed, the timing of Easter and the carry over of merchandising programs that did not produce the desired sales results.

Also contributing to the decline was a decrease in sales at Pharm stores that were located near-by closing Food Town stores. We had a very strong response to our inventory liquidation discounts at these Food Town stores, which drew customers from our near-by Pharms. As expected, the Pharm stores are now benefiting from these closures.

Our retail segment reported a quarterly operating loss of $7.3m compared to an operating loss of $2m in the corresponding period last year. The loss was principally due to lower sales volume and the higher costs associated with promotional programs, which did not produce the desired sales improvement. As Craig mentioned, we made significant progress in the fourth and first quarter reducing outstanding borrowing.

Our revolver balance as of June 21, 2003, at the end of our first quarter, was $5.2m and as previously mentioned, our total outstanding long-term debt was down 48% to $16.8m for the 15-month period. We also received a 90-day debt covenant waiver agreement from our bank group. This waiver provides us with the necessary time to formalize a long-term financing structure that is for the company's current operations.

Working capital reduction initiatives produced an improvement in our operating cash flow but were partially offset by the additional working capital necessary for our new stores. The primary component of this improvement relates to our inventory reduction efforts. Our inventory balance declined to $138.1m as of March 29, 2003 compared with $179.3m at fiscal 2002. The inventory reduction was brought about by more prudent and disciplined buying strategy and store closings. We continue to expect additional reductions in our inventory balance over the next 12 months.

Looking ahead to our fiscal 2004 operating costs, we expect to book additional severance related to the corporate staff reduction and we will incur costs related to a payment under the retirement plan for our former CEO. We will also record expenses related to our debt covenant waiver in the first quarter. Excluding these one-time costs, we expect our operating costs as a percentage of sales to stabilize in 2004 at levels significantly below our fiscal 2003 fourth quarter. For fiscal 2004, we expect capital expenditures to approximate $15m with depreciation and amortization of approximately $28m. We will provide you with more financial guidance in our first quarter earnings announcement.

I will now turn the call back to Craig. Craig?

Thanks, Dave. I will now discuss more details relating to the fundamental changes we made in our core distribution and retail operations.

One of the first steps we took to improve our distribution sales was to meet with the current, former, and potential distribution customers to better understand their service needs. These meetings provided valuable insights that we are using to improve our distribution products and service quality. For example, we have changed our distribution sales strategy to focus on incremental gains rather than our previous tendency to take an all-or-nothing approach and we are forging a stronger collaborative effort with our distribution customers as we strive to help make them more profitable retailers. We have already identified significant incremental growth opportunities within our markets and will be aggressively pursuing these new sales strategies.

In addition to this basic strategy shift, we are also devoting more effort to fine tune our forward buying practices and have additional opportunities to reduce inventory balance and costs without sacrificing quality or service levels. Turning to our retail operations, it is obvious that our retailing approach had to change in order to improve our overall financial performance. This business segment accounts for approximately 40% of our consolidated sales and has recently been the primary source of our weak financial performance.

Beginning in late March, we fundamentally changed the very basics of our retail practices and have significant opportunities for further improvement. Although our first quarter results are improving, our opportunities to drive better retail performance are significant. What has changed? The more profound change to our retail strategy has been to shift our product mix, pricing, marketing, and merchandising decisions to be consumer centric. This change represents a major strategy departure from our past practice of using supplier discounts and promotions as the primary driver of our marketing and merchandising strategy.

Our past practice created a less than desirable mix of merchandise at the store level and ineffective advertising campaigns. Consumer preferences are now recognized as the foundation for all marketing and merchandising decisions.

To shift our organizational focus towards the consumer, we reintroduced and mandated the use of critical, syndicated marketing reports such as AC Nielsen. These reports are very important because they serve as a barometer for consumer product preferences. This strategy change has raised the importance of implementing strong category management practices and made this function central to our sales growth and margin improvement efforts.

By making better use of market based consumer intelligence, we are transforming the category management function into a more disciplined science. We will now have far greater visibility and insight into product category growth opportunities and can more rapidly stop product performance deficiencies by geographic region. Another change to our category management function has been to centralize much of the decisioned authority and we are in the process of developing a more comprehensive and cohesive company wide retail strategy.

Our marketing and merchandising programs are becoming more focused on what the consumer wants. Advertising campaigns have been redesigned to bring customers more information on our products they desire most. We are also implementing better market segment practices and engaging in long range category management strategic planning. I can say that our entire management team has embraced these new practices with strong vigor and enthusiasm.

We fully expect these improvements in our category management practices to ripple through our distribution operation as well. The improvements will provide ancillary benefits to our independent storeowners and should drive stronger product volumes through our distribution network. Another important fundamental change was to improve our organization's operational performance measurement and accountability.

Since the fourth quarter, we have implemented additional performance monitoring tools and are now extracting data from our information systems in a core map that is more meaningful to the end users. This basic change is providing much better performance feedback and sharpening our focus on key operational performance benchmarks. This as a central change has had a positive and immediate effect particularly on our retail operations. As mentioned in our press announcement, these collective changes are significantly improving our sales trends and will be the basis for improved gross margins. We are optimistic that these fundamental changes are leading to sustainable improvements in our rate of sales growth and competitive market position.

The final issue I want to cover is our cost structure because it continues to be above industry standards and higher than warranted by our current level of business. In March, we began another phase of cost reductions that will eliminate approximately 11% of our corporate administrative staff. We expect this action to lower operating cost by approximately $8m annually beginning in our fiscal 2004 second quarter.

There are, however, more opportunities to lower our operating costs. These cost savings opportunities will come from a variety of sources including continued efficiency and improvements in our operating divisions, incremental overhead reductions in more stringent budgetary control over site and accountability. The tighter budgetary controls are designed to ensure that resources and capital are directed to only those programs with a stronger sales, profit growth, and return on capital potential. These cost savings steps are beginning to transform our organizational culture in oneness, allocates resources more prudently and is more conscientious about operating costs.

As I stated earlier, the changes I have just discussed are tied to four primary organizational priorities that are essential for our future success. Broadly speaking, the priorities are to improve sales growth, reduce operating costs, strengthen our financial position, and to make category management and customer focus a way of life throughout our organization. We are confident that these changes will continue to produce better operating results and our preliminary first quarter results demonstrate that these changes are already working.

We will now open the call for your questions.

Thank you. The floor is now open for questions. If you have a question or a comment, please press the number one followed by four on your touchtone phone at this time. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. We do ask that while you pose your question that you pick up the handset to provide optimum sound quality. Once again, to ask a question, please press the number one followed by four on your touchtone phone at this time. Please hold while we poll for questions.

Our first question is coming from Chuck Cerankosky from McDonald Investments. Please go ahead with your question.

Good morning everyone. I was wondering if you could talk about some of the goals you have going forward for the gross profit margin and the SG&A ratio, because we have had a lot of moving parts here and sort of getting to what the return on sales goals are for the continuing ops at Spartan?

Hi Chuck. What I would like to do is ask Dennis Eidson to deal with the margin question and then we will have Dave deal with your SG&A question.

Okay.

Chuck, as Craig articulated earlier, we believe with the category management plans that we have in place, we will be able to show continued improvement going forward on the gross margin line for the balance of the fiscal year. We are not without challenges, but we clearly believe that we are on the right track, moving that margin rate forward.

Do you have a specific numerical target?

Chuck, we plan on as with our first quarter guidance, which is in the next four or five weeks providing you with much more specifics on the upcoming year. So, we expect the margin trends to be significantly improved from the third quarter and more in line, but let's give you specific guidance at the end of the next call.

Okay, related to the headcount reduction in corporate administrative staff, how many people are involved in that?

In total, Chuck, it's 129 positions.

On a net to net. All right, thank you. I have some other questions, but I will get off the line now to let anybody else in.

As a reminder, if you do have a question or a comment, please press the number one followed by four on your touchtone phone at this time. Our next question is a follow-up question coming from Chuck Cerankosky from McDonald Investments. Please go ahead.

Any sign of picking up any business from Fleming at this time?

Chuck, this is Craig Sturken. We have been fortunate enough to pick up some business and I would like to ask John Sommavilla to address that. But before I hand it over to John, I would like to just point out to the fact that the Fleming penetration in our trade area is very minor as compared to the balance of the Midwest. It's unfortunate that this opportunity affords itself, but we are geographically not in the right spot. However, we have been able to add some wholesale business that I would like to ask John to explain that part.

Sure. Chuck, looking at our first quarter, we have had obviously but that was one of our major initiatives to grow our topline in distribution as well as retail and we have had some significant efforts underway to support existing customers with new growth and then also pick up additional non-current related customers. And over that first quarter, we have added another six stores. Projected volumes on that is almost $13m that will come on over this year, moving forward from the first quarter.

Related to sales, I will just add that we have some other opportunities in Q2. We are not ready to discuss the final terms of that, but we've substantially told our customers that we are bringing on additional distribution volume. As you know, the impact on our wholesale sales, we've been impacted by competition and while there has been some substantially new customers coming on. We are also trying to balance that out. We have had the impact of a couple of store closures that would have a slight negative impact, but overall, we are in a positive front as regards to the new business versus the business that we've lost due to competitive pressures. I would like to add that we have not lost any customers to any of the competitive pressures from other distribution wholesalers. Any losses we have experienced have been through store closures.

So, net-net, you expect for the first quarter or say just the first half of the calendar year to be net positive in distribution sale.? Positive growth?

Chuck, what happened is with the new business initiative, they will come forward over really beginning in the second quarter because most of the new business was uncovered during the first quarter and what John is talking about is into the second quarter. So we expect our sales trend to stabilize and we are looking for improved run rate on that. At this time, it is a little too early to speculate whether we will actually be up or not. But again, let us give you that specific detail at our next call .

As I look at comps, was there any regional differences between, say the Pharms in Greater Toledo and your operations in Houghton (ph), Michigan.

Chuck, this is Craig again. Yes, there is. For the Pharm stores, we have made a modest investment in that. We now promote the Pharms on a weekly basis. We produce a small circular that we are able to insert locally on a weekly basis. The Pharm comp sales, and I don't mind telling you this because the number is good, the comp sales in the Pharm were negative 9.5% in the fourth quarter and it looks like we are going to come in over 10% positive in the first quarter.

At the Pharms?

It's at the Pharms. So with a very dramatic movement forward in our comp sales just because we have improved the program that we put on the street and we talked to our customers on a more frequent basis.

Okay, so, some of that is Easter, some of it is the closure of the Food Town stores and liquidation and then some is the better promotion and merchandising.

That's right. As a matter of fact, Easter effect, the way we are reading it is, the Easter effect is a hurt in the fourth quarter of about 2% and a help in the first quarter of about 2%. That is overstating it a little bit, but it washes out. So in fact, the improvement in the Pharm is not a 20% improvement. It's probably a 15% improvement on a comp basis, on a trend basis. So, we are really encouraged with the fact that we have gotten a return on our investments and as the consumers have not left us on a permanent basis that they are waiting for us to deal with them and it is a very positive trend.

Last question I have is, what kind of a store opening, store remodel do you expect to do this year? I think you just opened three stores. I think that's in the press release, but can you talk about that a little bit?

We do not have any new stores scheduled for fiscal '04 for several reasons. We really have to let the dust settle and gain control of our environment, which we are doing. But we do have a minor remodel program in place, because there are several stores that have not had any kind of investment made for several years. So we have just begun to do a minor remodel program beginning with the [Inaudible] and we will probably be able to touch six or seven stores this fiscal year with an investment anywhere from $200,000 - $400,000 and as included in our capital campaign.

Okay. Thank you.

Thank you. Our next question is coming from Garry Heinemann (ph) from Global Credit Services. Please go ahead with your question.

Thank you and good morning. I wanted to just clarify some of the liquidity issues. I understand you are anticipating the next batch of stores sales to turn into cash sometime later in the summer?

Correct.

Okay. And hoping to actually deal with the last 20 stores before September or before Christmas?

We would expect to have those dealt with before say mid-second quarter. The 20 stores that we referred to in our previous part of the presentation, is that what you referring to?

Yes.

That will be resolved by mid-second quarter.

That's very good. I gathered from your comments on your revolver usage, I have what you have been doing with your -- the proceeds is paying down the various term loans on the bank facility. Is that correct?

Correct, and yet our revolver balance is still lower than it was at year-end.

Well, it's a discretionary kind of thing.

Yes, like you are paying down debt.

My response to your question. From these asset sales, we have paid down term debt with those proceeds. In addition, our revolver balance, it's still lower than it was at the end of the year, by the end of our first quarter. So, not only have we use these proceeds to pay down term debt, we have also managed our business and our working capital in such a way that has allowed us to lower our revolver.

Okay. Can you back fill the details on that since the K isn't yet available? The revolver you said was $5.2m at the end of June. What was that at the end of March?

Roughly $12m.

Okay, March.

So, we have a $7m improvement in our revolver.

And one of the availabilities that go with those two numbers?

We have overall a $60m or $65m over debt at any time, has $60m available and then offset by letters of credit and borrowings.

Okay.

So, we have obviously substantial availability.

So, you are figuring about $60m, accessible on the $65m revolver?

Yes, $65m revolver with $60m available typically and then you reduce from that, outstanding borrowings and letters of credit. You can usually expect a $60m availability then you reduce letters of credit and borrowings.

My notes indicate that last winter, the letters of credit were in that 13 range.

It's roughly 13 to 15.

Okay.

So at any time if you do the math, you are in that $45m to $50m availability. Well, I would say at the end of the first quarter, we had roughly $40m plus of availability.

So, paying down the term loans hasn't been dramatically increasing the immediate availability?

Obviously, it hasn't increased at all because the availability has gone up.

Okay, thank you. The call administrator interrupted just while you were discussing how you were dealing with Fleming. So, I will call back later and fill in that gap. But anyway, thank you.

Okay.

Okay.

As a final reminder, if you do have a question or a comment, please press the number one followed by four on your touch-tone phone at this time. Our next question is coming from Dennis Riland (ph) from Private Manager Group. Please go ahead with your question.

Okay, good morning. I was trying to get it better, how and what proceeds from the store sales are composed of whether they are actually real estate and is there couple of large real estate proceeds or is it all inventory? And secondarily, if you are retaining the wholesale business from that or what's actually happening to the stores? I then I have a follow up.

Sure. It is a mixed bag, obviously, from proceeds, but if you look at the 26 remaining Food Town stores, we own the real estate either as a stand-alone center or store or a shopping center in approximately 19 of those 26 locations. Of the 20 that we are working on currently with at least signed agreement, about 17 or so of those are owned real estate. So, when you look to the $25m to $30m in proceeds, the predominance of that is real estate and the remainder would be what inventory we expect to be in the stores at the final time of closure.

Are you retaining the wholesale business there?

There is a potential for that in a few stores, but predominantly, we are not.

Can you talk about the competitive store openings and other promotional environment and whether or not, you feel like you have pricing issues, how is your pricing compared to the peers at this point?

Let me answer that, this is Craig Sturken again. From a competitive standpoint, we saw one new super center opened in our trade area in Sebewaing, Michigan in our first period, which was in April and I mean, as everybody knows there is no secret when a super center opens there is an effect. We see two more Wal-Mart super centers opening in the State of Michigan during our fiscal year '04 and that will be way down at the end in our fourth quarter.

However, we also will, during the fiscal year of '04 cycle two super center openings. So, they will be behind us. We see no other new store competitor activity until possibly way at the end of our fiscal year and that would be from Meijer (ph) where they have a new store that they are going to open in the north end of the Grand Rapid Street area but as everybody knows, Meijer has a presence everywhere in the state of Michigan and just about any customer can shop in Meijer already, but this is an incremental story for the traders. So we will have an effect.

We are working very hard on Wal-Mart strategy. I think that one of the things that maybe, had been missing here is the fact that as retailers, we need to have a game plan to deal with Wal-Mart and there's a lot of information out there and a lot of strategies already in place designed by other retailers and we're taking advantage of that. We've actually brought in manufacturers that help us crack the strategy that we're working on and we think that we will be able to moderate the impact of new store activity. But it's a fact of life. It is not going to go away and we are going to learn how to deal with it.

Okay, thanks.

Ladies and gentlemen, there appear to be no further questions in the queue at this time. I'd like to turn the floor back over to the presenters for any closing remarks.

Well, if there are no further questions, we will conclude this call. On behalf of Dave Staples, Dennis Eidson, John Sommavilla, and everyone else on the Spartan team, I thank you again for listening to our comments today. We are very enthused by the preliminary results for our first quarter. I really look forward to discussing our first quarter progress with you in about three months. Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.