Harris Teeter Supermarkets, Inc. Reports Fiscal 2012 Results Business Wire MATTHEWS, N.C. -- November 01, 2012 Harris Teeter Supermarkets, Inc. (NYSE:HTSI) (the “Company”) today reported that sales for the 52 weeks ended October 2, 2012 increased by 5.8% to $4.54 billion from $4.29 billion in fiscal 2011. Sales for the fourth quarter of fiscal 2012 increased by 3.7% to $1.14 billion from $1.10 billion in the fourth quarter of fiscal 2011. The increase in sales for the year and quarter was driven by an increase in comparable store sales and sales from new stores, partially offset by store closings. Comparable store sales increased by 3.97% for the year, and 3.01% for the fourth quarter of fiscal 2012, from the respective comparable periods of fiscal 2011. During fiscal 2012, the Company closed its previously announced purchase and sale agreement between the Company’s subsidiary Harris Teeter, Inc. (“Harris Teeter”) and Lowes Food Stores, Inc. (“Lowes Foods”) (the “Lowes Foods Transaction”). Per the agreement Harris Teeter acquired ten Lowes Foods store locations in the central Carolinas region and Lowes Foods acquired six Harris Teeter store locations in western North Carolina. The majority of the stores acquired by Harris Teeter were temporarily closed for remodeling, stocking and training of employees. Six of the acquired stores were re-opened during the fourth quarter of fiscal 2012. Subsequent to the fiscal year end, two of the acquired stores were re-opened under a new format and banner - “201central.” The 201central format features a worldwide variety of wine, beer, specialty foods and other selected merchandise. During fiscal 2012, the Company opened thirteen new stores (which includes six of the stores acquired from Lowes Foods and one replacement for a store closed in the first quarter) and closed eight stores (comprised of the six stores sold to Lowes Foods, one replacement that opened in fiscal 2012 and one replacement which is expected to open in fiscal 2013). In addition, one store located in the Washington D.C. market has been temporarily closed while the Company repairs damage caused by flooding that occurred in the third quarter of fiscal 2012. The Company operated 208 stores as of the end of fiscal 2012 and retail square footage increased by 4.5% in fiscal 2012, as compared to an increase of 3.2% in fiscal 2011. As previously disclosed, the Company sold all of its ownership interest in its wholly-owned industrial thread manufacturing company American & Efird (“A&E”) on November 7, 2011. As such, A&E’s results of operations and financial position are reported as discontinued operations. Gross profit increased in fiscal 2012 by 7.0% to $1.36 billion (29.95% of sales) from $1.27 billion (29.64% of sales) in fiscal 2011. For the fourth quarter of fiscal 2012, gross profit increased by 6.0% to $339.8 million (29.73% of sales) from $320.5 million (29.10% of sales) in the fourth quarter of fiscal 2011. The LIFO charge for fiscal 2012 was $3.0 million (0.07% of sales) as compared to $11.1 million (0.26% of sales) for fiscal 2011. During the fourth quarter of fiscal 2012 the LIFO adjustment was a credit of $4.4 million (0.38% of sales) as compared to a credit of $0.2 million (0.02% of sales) in the fourth quarter of fiscal 2011. The fiscal 2012 annual inflation rate moderated toward the end of the year, resulting in lower product cost inflation than that anticipated by the Company in its quarterly estimates. Selling, general and administrative (“SG&A”) expenses for fiscal 2012 increased from fiscal 2011 as a result of incremental store growth and its impact on associated operational costs, and $29.8 million of impairment losses and other incremental costs associated with the Lowes Foods Transaction. The increase in SG&A expenses was partially offset by gains of $3.1 million recognized from life insurance proceeds the Company recorded in the third quarter of fiscal 2012. On a percent of sales basis, SG&A expenses for fiscal 2012 increased by 76 basis points (of which 66 basis points represented the Lowes Foods Transaction incremental costs) over fiscal 2011. During the fourth quarter of fiscal 2012, the Company recorded $7.5 million of Lowes Foods Transaction incremental costs which represented 65 basis points of the 107 basis points increase in SG&A expenses as a percent to sales from the fourth quarter of fiscal 2011 to the fourth quarter of fiscal 2012. The Company’s emphasis on cost controls and improved labor management has been effective in offsetting a portion of the increases in health and welfare costs, pension expense and other fringe benefit costs, as well as increased costs associated with the Company’s store remodeling program. Operating profit for fiscal 2012 was $171.0 million, comprised of Harris Teeter operating profit of $178.2 million ($208.0 million, or 4.59% to sales, without the Lowes Foods Transaction incremental costs) and Corporate operating losses of $7.2 million (including the $3.1 million gain on life insurance proceeds). Operating profit in fiscal 2011 was $180.7 million, comprised of Harris Teeter operating profit of $191.1 million (4.45% of sales) and Corporate operating losses of $10.4 million. Operating profit for the fourth quarter of fiscal 2012 was $39.7 million, comprised of Harris Teeter operating profit of $42.1 million ($49.6 million, or 4.34% of sales, without the Lowes Foods Transaction incremental costs) and Corporate operating losses of $2.4 million. Operating profit for the fourth quarter of fiscal 2011 was $43.0 million, comprised of Harris Teeter operating profit of $45.0 million (4.09% of sales) and Corporate operating losses of $2.0 million. The Company reported net earnings of $82.5 million for fiscal 2012, compared to net earnings of $91.2 million for fiscal 2011. Net earnings for fiscal 2012 were comprised of earnings from continuing operations of $99.9 million, or $2.04 per diluted share, and losses from discontinued operations of $17.4 million. The net impact of the Lowes Foods Transaction incremental costs offset by the insurance gains reduced earnings from continuing operations after tax in fiscal 2012 by $15.0 million, or $0.31 per diluted share. Earnings from continuing operations for fiscal 2012 were also favorably impacted by a reversal of accrued interest amounting to $1.3 million that was associated with a reduction of the Company’s unrecognized tax positions. Net earnings for fiscal 2011 were comprised of earnings from continuing operations of $111.4 million, or $2.28 per diluted share, and losses from discontinued operations of $20.2 million. Fiscal 2011 earnings from continuing operations included a pre-tax gain of $19.5 million ($10.3 million after tax or $0.21 per diluted share) from the sale of the Company’s interest in a foreign investment. Net earnings for the fourth quarter of fiscal 2012 totaled $22.8 million and were comprised of earnings from continuing operations of $23.7 million, or $0.48 per diluted share and losses from discontinued operations of $0.9 million. The net impact of the Lowes Foods Transaction incremental costs reduced earnings from continuing operations after tax in the fourth quarter of fiscal 2012 by $4.5 million, or $0.09 per diluted share. A net loss of $8.9 million was recognized in the fourth quarter of 2011, comprised of earnings from continuing operations of $24.6 million, or $0.50 per diluted share, and losses from discontinued operations of $33.5 million. Pre-tax losses from discontinued operations for fiscal 2012 amounted to $19.5 million, $17.4 million after tax benefits or $0.36 per diluted share. The fiscal 2012 losses from discontinued operations included $26.3 million of non-cash charges for the settlement of pension liabilities and other employee benefits in connection with the sale of A&E. The majority of these charges resulted from adjustments for the recognition of a pro-rata share of the pension plan’s accumulated unrecognized net actuarial losses that was previously included in Accumulated Other Comprehensive Income and the impact from allocating existing plan assets under pension regulations and was based on actuarial calculations. The final purchase price allocation and its impact on income taxes will not be complete until the Company files its tax return in the third quarter of fiscal 2013. Additional adjustments to taxes or other costs related to the A&E sale could occur in the future. Thomas W. Dickson, Chairman of the Board and Chief Executive Officer stated, “We are pleased with our results for fiscal 2012 and the completion of our purchase and sale transaction with Lowes Foods. As we reported, the non-cash impairment charges and additional incremental expenses we incurred in this transaction reduced the Company’s operating profit by $29.8 million and decreased the operating margin by 66 basis points in fiscal 2012. Without these additional costs, our operating profit for fiscal 2012 would have increased 11.1% and our operating margin would have increased 21 basis points over fiscal 2011. Our pricing and promotional strategies continue to be effective in driving unit sales and customer visits. On a comparable store basis, we continue to experience increased unit sales compared to the prior year and our store brand penetration continues to improve. We believe these positive results are attributable to our continuing commitment to our customers to deliver outstanding values and excellent customer service.” The Company’s operating performance and strong financial position provides the flexibility to continue with its store development program for new and replacement stores along with the remodeling and expansion of existing stores. Capital expenditures for fiscal 2012 totaled $200 million and are expected to total approximately $235 million for fiscal 2013. The Company continues to accelerate its new store growth. The fiscal 2013 capital plan includes 12 new stores (which includes two replacements and the two store locations acquired from Lowes Foods that were converted to our 201central format) and nine major remodels (three of which will be expanded in size). The fiscal 2013 new store openings are currently scheduled for three in the first quarter, two in the third quarter and seven in the fourth quarter. In addition, the Company anticipates re-opening the store in the Washington D.C. market that was closed to repair damage caused by flooding. The fiscal 2013 store development program is expected to result in a 5.4% increase in retail square footage, as compared to a 4.5% increase in fiscal 2012. The Company routinely evaluates its existing store operations in regards to its overall business strategy and from time to time will close or divest underperforming stores. The Company’s capital expenditure plans entail the continued expansion of its existing markets, including the Washington, D.C. metro market area which incorporates northern Virginia, the District of Columbia, southern Maryland and coastal Delaware. Real estate development by its nature is both unpredictable and subject to external factors including weather, construction schedules and costs. Any change in the amount and timing of new store development can impact the expected capital expenditures, sales and operating results. The Company’s management remains cautious in its expectations for fiscal 2013 due to the current economic environment and its impact on the Company’s customers. The Company will continue to refine its merchandising strategies to respond to the changing shopping demands. The retail grocery market remains intensely competitive, and any operating improvement will be dependent on the Company’s ability to increase its market share and to effectively execute the Company’s strategic expansion plans. This news release may contain forward-looking statements that involve uncertainties. A discussion of various important factors that could cause results to differ materially from those expressed in such forward-looking statements is shown in reports filed by the Company with the Securities and Exchange Commission and include: generally adverse economic and industry conditions; changes in the competitive environment; economic or political changes; changes in federal, state or local regulations affecting the Company; the passage of future tax legislation, or any negative regulatory or judicial position which prevails; management's ability to predict the adequacy of the Company's liquidity to meet future requirements; volatility of financial and credit markets which would affect access to capital for the Company; changes in the Company's expansion plans and their effect on store openings, closings and other investments; the ability to predict the required contributions to the Company's pension and other retirement plans; the Company’s requirement to impair recorded goodwill or other long-lived assets; the cost and availability of energy and raw materials; the continued solvency of third parties on leases that the Company guarantees; the Company’s ability to recruit, train and retain effective employees; changes in labor and employer benefits costs, such as increased health care and other insurance costs; the Company’s ability to successfully integrate the operations of acquired businesses; the extent and speed of successful execution of strategic initiatives; and, unexpected outcomes of any legal proceedings arising in the normal course of business. Other factors not identified above could cause actual results to differ materially from those included, contemplated or implied by the forward-looking statements made in this news release. Harris Teeter Supermarkets, Inc. operates a leading regional supermarket chain in eight states primarily in the southeastern and mid-Atlantic United States, and the District of Columbia. Selected information regarding Harris Teeter Supermarkets, Inc. and its subsidiaries follows. For more information on Harris Teeter Supermarkets, Inc., visit our web site at: www.harristeeter.com. Harris Teeter Supermarkets, Inc. Consolidated Condensed Statements of Earnings (in thousands, except per share data) (unaudited) 13 Weeks Ended 52 Weeks Ended October 2, 2012 October 2, 2011 October 2, 2012 October 2, 2011 Sales $ 1,142,793 100.00 % $ 1,101,488 100.00 % $ 4,535,414 100.00 % $ 4,285,565 100.00 % Cost of Sales 803,009 70.27 % 780,996 70.90 % 3,176,914 70.05 % 3,015,517 70.36 % Gross Profit 339,784 29.73 % 320,492 29.10 % 1,358,500 29.95 % 1,270,048 29.64 % Selling, General and Administrative Expenses: Harris Teeter 297,699 26.05 % 275,449 25.01 % 1,180,311 26.02 % 1,078,978 25.18 % Corporate 2,413 0.21 % 1,991 0.18 % 7,211 0.16 % 10,364 0.24 % Total 300,112 26.26 % 277,440 25.19 % 1,187,522 26.18 % 1,089,342 25.42 % Operating 39,672 3.47 % 43,052 3.91 % 170,978 3.77 % 180,706 4.22 % Profit Other Expense (Income): Interest 4,395 0.38 % 4,754 0.43 % 16,998 0.37 % 19,116 0.44 % expense Interest (103 ) -0.01 % (47 ) 0.00 % (587 ) -0.01 % (133 ) 0.00 % income Net investment - 0.00 % - 0.00 % - 0.00 % (19,392 ) -0.45 % gain Total 4,292 0.38 % 4,707 0.43 % 16,411 0.36 % (409 ) -0.01 % Earnings From Continuing Operations Before Income 35,380 3.09 % 38,345 3.48 % 154,567 3.41 % 181,115 4.23 % Taxes Income Tax 11,686 1.02 % 13,722 1.24 % 54,640 1.21 % 69,657 1.63 % Expense Earnings from Continuing Operations, Net of Income 23,694 2.07 % 24,623 2.24 % 99,927 2.20 % 111,458 2.60 % Taxes (Loss) Earnings from Operations of Discontinued (436 ) (42,847 ) (19,472 ) (22,672 ) Operations Income Tax Expense 444 (9,335 ) (2,057 ) (2,461 ) (Benefit) (Loss) Earnings from Discontinued Operations, Net of Income (880 ) (33,512 ) (17,415 ) (20,211 ) Taxes Net Earnings $ 22,814 $ (8,889 ) $ 82,512 $ 91,247 (Loss) Net Earnings (Loss) Per Share - Basic: Continuing $ 0.49 $ 0.51 $ 2.05 $ 2.30 Operations Discontinued $ (0.02 ) $ (0.69 ) $ (0.36 ) $ (0.42 ) Operations Total $ 0.47 $ (0.18 ) $ 1.69 $ 1.88 Net Earnings (Loss) Per Share - Diluted: Continuing $ 0.48 $ 0.50 $ 2.04 $ 2.28 Operations Discontinued $ (0.02 ) $ (0.69 ) $ (0.36 ) $ (0.41 ) Operations Total $ 0.46 $ (0.18 ) $ 1.68 $ 1.87 Weighted Average Number of Shares of Common Stock Outstanding: Basic 48,790 48,496 48,751 48,469 Diluted 49,110 48,916 49,053 48,852 Dividends Declared Per $ 0.14 $ 0.13 $ 0.55 $ 0.52 Common Share Effective Tax Rate on 33.0 % 35.8 % 35.4 % 38.5 % Continuing Operations Harris Teeter Supermarkets, Inc. Consolidated Condensed Balance Sheets (in thousands) (unaudited) October 2, October 2, 2012 2011 Assets Current Assets: Cash and Cash Equivalents $ 212,211 $ 164,479 Accounts Receivable, Net 59,267 47,088 Refundable Income Taxes 27,583 15,055 Inventories 305,106 287,137 Deferred Income Taxes 6,044 1,321 Prepaid Expenses and Other Current Assets 24,182 24,576 Current Assets of Discontinued Operations - 220,017 Total Current Assets 634,393 759,673 Property, Net 1,102,703 1,019,468 Investments 107,424 112,556 Goodwill 19,301 - Intangible Assets 15,039 13,609 Other Long-Term Assets 73,628 79,118 Total Assets $ 1,952,488 $ 1,984,424 Liabilities and Shareholders' Equity Current Liabilities: Current Portion of Long-Term Debt and Capital $ 4,219 $ 3,902 Lease Obligations Accounts Payable 281,142 252,859 Accrued Compensation 69,390 63,236 Other Current Liabilities 96,887 87,805 Current Liabilities of Discontinued Operations - 71,571 Total Current Liabilities 451,638 479,373 Long-Term Debt and Capital Lease Obligations 208,271 283,428 Deferred Income Taxes 10,941 19,674 Pension Liabilities 119,883 113,617 Other Long-Term Liabilities 124,136 113,250 Shareholders' 'Equity: Common Stock 111,347 104,211 Retained Earnings 1,039,935 984,535 Accumulated Other Comprehensive Loss (113,663 ) (100,423 ) Accumulated Other Comprehensive Loss of - (19,048 ) Discontinued Operations Total Shareholders' Equity of Harris Teeter 1,037,619 969,275 Supermarkets, Inc. Noncontrolling Interest of Discontinued - 5,807 Operations Total Shareholders' Equity 1,037,619 975,082 Total Liabilities and Shareholders' Equity $ 1,952,488 $ 1,984,424 Harris Teeter Supermarkets, Inc. Consolidated Condensed Statements of Cash Flows (in thousands) (unaudited) 52 Weeks Ended October 2, October 2, 2012 2011 Cash Flow From Operating Activities: Net Earnings $ 82,512 $ 91,247 Losses from Discontinued Operations 17,415 20,211 Non-Cash Items Included in Net Income Depreciation and Amortization 135,542 128,717 Deferred Income Taxes 1,814 13,684 Net Gain on Sale of Property and Investments (132 ) (20,162 ) Share-Based Compensation 7,121 8,073 Other, Net (1,863 ) (1,496 ) Changes in Operating Accounts Providing (Utilizing) Cash Accounts Receivable (12,179 ) 785 Inventories (17,969 ) (15,112 ) Prepaid Expenses and Other Current Assets 864 3,308 Accounts Payable 24,665 37,528 Other Current Liabilities (4,513 ) 18,449 Other Long-Term Operating Accounts (25,980 ) (41,312 ) Net Cash Provided by Operating Activities of - 28,326 Discontinued Operations Net Cash Provided by Operating Activities 207,297 272,246 Investing Activities: Capital Expenditures (199,946 ) (147,993 ) Purchase of Other Investments (3,448 ) (19,436 ) Business Acquisition (26,296 ) - Proceeds from Sale of Property and Investments 172,143 65,697 Net Proceeds From (Investments in) Company-Owned 12,486 (1,073 ) Life Insurance Other, Net (28 ) (627 ) Net Cash Used by Investing Activities of - (5,538 ) Discontinued Operations Net Cash Used by Investing Activities (45,089 ) (108,970 ) Financing Activities: Payments on Long-Term Debt and Capital Lease (83,706 ) (30,910 ) Obligations Dividends Paid (27,112 ) (25,555 ) Proceeds from Stock Issued 486 622 Share-Based Compensation Tax Benefits 1,760 908 Shares Effectively Purchased and Retired for (5,129 ) (2,485 ) Withholding Taxes Other, Net (775 ) 139 Net Cash Used by Financing Activties of - (4,698 ) Discontinued Operations Net Cash Used by Financing Activities (114,476 ) (61,979 ) Increase in Cash and Cash Equivalents 47,732 101,297 Effect of Foreign Currency Fluctuations on Cash of - (107 ) Discontinued Operations Cash and Cash Equivalents at Beginning of Period 164,479 73,612 Cash and Cash Equivalents at End of Period $ 212,211 $ 174,802 Cash and Cash Equivalents of Continuing $ 212,211 $ 164,479 Operations Cash and Cash Equivalents of Discontinued - $ 10,323 Operations SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash Paid During the Year for: Interest, Net of Amounts Capitalized $ 18,141 $ 19,194 Income Taxes 77,824 41,753 Non-Cash Activity: Assets Acquired Under Capital Leases 8,866 12,144 Note Received in Connection with Sale of - 2,855 Investments Harris Teeter Supermarkets, Inc. Other Statistics (dollars in thousands) 13 Weeks Ended 52 Weeks Ended October 2, 2012 October 2, 2011 October 2, 2012 October 2, 2011 Dollars Margin Dollars Margin Dollars Margin Dollars Margin LIFO Charge $ (4,364 ) -0.38 % $ (166 ) -0.02 % $ 3,024 0.07 % $ 11,059 0.26 % (Credit) Operating Profit Analysis: Harris Teeter operating profit without Lowes Foods incremental $ 49,567 4.34 % $ 45,043 4.09 % $ 207,999 4.59 % $ 191,070 4.45 % transaction costs Lowes Foods incremental (7,482 ) -0.65 % - 0.00 % (29,810 ) -0.66 % - 0.00 % transaction costs Corporate operating loss without gains from insurance (2,413 ) -0.21 % (1,991 ) -0.18 % (10,327 ) -0.23 % (10,364 ) -0.24 % proceeds Gains from insurance - 0.00 % - 0.00 % 3,116 0.07 % - 0.00 % proceeds Consolidated operating $ 39,672 3.47 % $ 43,052 3.91 % $ 170,978 3.77 % $ 180,706 4.22 % profit New Store Pre-Opening Costs (excluding stores acquired from $ 1,365 0.12 % $ 1,673 0.15 % $ 5,839 0.13 % $ 7,027 0.16 % Lowes Foods) Pre-opening costs are included with SG&A expenses and consist of rent, labor and associated fringe benefits, and recruiting and relocation costs incurred prior to a new store opening. 13 Weeks Ended 52 Weeks Ended October 2, October October 2, October 2, 2, 2012 2011 2012 2011 Comparable Store Sales 3.01 % 5.00 % 3.97 % 3.27 % Increase Comparable Active 1.18 % 1.13 % 1.61 % 1.69 % Household Increase Store Brand Penetration 24.74 % 24.58 % 24.26 % 23.95 % Based on Units Store Brand Penetration 25.22 % 25.12 % 25.15 % 24.57 % Based on Sales Store Count Beginning number of 201 204 204 199 stores Opened during 7 1 13 7 the period Temporarily closed during - - (1 ) - the period Closed during - (1 ) (8 ) (2 ) the period Stores in operation at 208 204 208 204 end of period Number of Major Store 9 4 12 8 Remodels Completed Number of Expansion 5 - 6 - Remodels Included Above Definition of Comparable Store Sales: Comparable store sales are computed using corresponding calendar weeks to account for the occasional extra week included in a fiscal year. A new store must be in operation for 14 months before it enters into the calculation of comparable store sales. A closed store is removed from the calculation in the month in which its closure is announced. A new store opening within an approximate two-mile radius of an existing store that is to be closed upon the new store opening is included as a replacement store in the comparable store sales measure as if it were the same store. Sales increases resulting from existing comparable stores that are expanded in size are included in the calculations of comparable store sales, if the store remains open during the construction period. If the location is closed during the construction period, the sales during the reporting period are removed from the calculation. If the location is completely rebuilt, it is reported as a replacement store and included in the same store sales calculation for the weeks actually open. Contact: Harris Teeter Supermarkets, Inc. John B. Woodlief, 704-844-7516 Executive Vice President and Chief Financial Officer
Harris Teeter Supermarkets, Inc. Reports Fiscal 2012 Results
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