Despite big sales gain, Ingles profits fall 19%

MMR,  Sept 22, 2008  

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ASHEVILLE, N.C. -- With the prior-year period propped up by a gain on a property sale, Ingles Markets Inc. saw earnings fall in the face of strong top-line growth during the three months ended June 28.

Net income for fiscal 2008's third quarter dropped 19.1% to $16 million even as sales climbed 13.1% to $835.3 million. Management notes that the bottom line would have increased 8.1% but for the effect of the aforementioned $7.7 million gain ($4.9 million after taxes) in the fiscal 2007 period. This compares with a $110,000 pretax loss on property sales this year.

Grocery segment comparable-store sales surged 13.3%--marking the company's 21st consecutive quarter of same-store growth. Management notes that growth was broad-based across departments. Customer visits increased 8.9%, while the average transaction size (excluding gasoline) was approximately 51 cents lower than a year ago. Management believes that these figures indicate that customers are consolidating shopping trips and purchasing ready-to-eat items instead dining in restaurants.

Excluding the effects of additional Easter sales in fiscal 2007's third quarter and gasoline, comparable-store results increased 7.1%. Total gasoline gallons sold jumped about 28%, while the average price per gas gallon increased 83 cents.

Gross margin slid 85 basis points to 22.87%, due primarily to higher sales growth in fuel. Indeed, excluding gasoline, gross margin would have increased 70 basis points to 27.3%. Conversely, the expanding fuel business stoked a 27-basis-point downturn in operating and administrative (O&A) expenses to 18.92% of sales.

Excluding the gas business, the O&A ratio would have expanded 100 basis points to 22.6%, with management pointing to the impact of higher energy prices on distribution, store utilities and plastic supply costs.

Over the first nine months the regional chain saw net income retreat 6.2% to $41.7 million on a 13.8% gain in sales to $2.4 billion.

Backing out the effects of the aforementioned $4.9 million gain and a $3.2 million tax benefit in the fiscal 2007 span, nine-month net income would have risen 14.9%.

At quarter's end, Ingles operated 197 stores and 52 fuel centers, compared to 196 stores and 42 fuel centers a year earlier.

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