IMKTA

Ingles Markets, Incorporated (IMKTA)

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Exchange: NASDAQ
Industry: Consumer Services
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Ingles Markets, Incorporated (IMKTA)

F2Q09 Earnings Call

April 28, 2009 9:00 am ET

Executives

Ron Freeman - Chief Financial Officer

Robert Ingle - Founder Chief Executive Officer

Robert Ingle II - Chairman of the Board

Jim Lanning - President

Analysts

Bryan Hunt - Wachovia

Presentation

Operator

Welcome to the Ingles Markets, Incorporated second quarter conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the Chief Financial Officer, Mr. Ron Freeman.

Ron Freeman

Welcome to Ingles Markets fiscal 2009 second quarter conference call. With me today are Robert Ingle Founder of our Company and Chief Executive Officer, Robert Ingle II, Chairman of the Board, and Jim Lanning President.

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, 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 Form 10-K for the fiscal year ended September 27, 2008.

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 was issued yesterday evening and is available on our website at www.ingles-markets.com. We expect to file our 10-Q for the quarter later this week. It will be available on our website as well.

First, our second quarter results. Net sales totaled $789.2 million for the March 2009 quarter, an increase over sales of $782.8 million for the quarter that ended in March 2008. Grocery segment comparable store sales increased 4.9%, excluding gasoline sales and the effect of the Easter holiday. Easter occurred during the company's second fiscal quarter of 2008, but will occur in the third fiscal quarter of 2009.

Sales increased in every major product category except gasoline and fluid dairy where gallons sold increased but retail prices were substantially lower during the March 2009 quarter compared with the same quarter of last fiscal year. The number of customer transactions, excluding gasoline, increased 7.9% while the average transaction amount decreased slightly.

We operated 200 stores with 10.6 million total square feet at the end of 2009 compared with 197 stores totaling 9.8 million square feet at the end of March 2008. Gross profit for the March 2009 quarter increased 4.5% to $192.8 million, an increase of $8.3 million compared with the second quarter of last fiscal year.

Gross margin as a percentage of sales was 24.4% for the March 2009 quarter versus 23.6% for the same quarter last year. Gross profit as a percentage of sales increased primarily due to lower per gallon prices for gasoline and milk. Excluding gasoline sales, grocery segment gross profit as a percentage of sales was 26.9% and 27.4% for the March 2009 and 2008 respectively.

Operating expenses increased $15.6 million for the second quarter of 2009 over 2008, primarily due to additional interest, depreciation and other expenses related to our increased number of store openings over the past year or so. As a percentage of sales, operating expenses were 21.4% for the March 2009 quarter compared with 19.6% for the March 2008 quarter.

Net rental income, gains or losses on asset disposal, and other income totaled $1.2 million for both the March 2009 and 2008 quarters. The sale of an outparcel in the 2009 period was offset by lower income from the sale of scrap cardboard and plastic. Interest expense increased $1.5 million for the three-month period ended March 29, 2008, excuse me, March 28, 2009 to $13.1 million from $11.6 million for the March quarter of last year.

Total debt in March 28, 2009 was $778.3 million compared with $626.1 million at the end of March 2008. The increased debt was used to fund new and redeveloped stores. Income tax expense totaled 36.2% of pre-tax income for the March 2009 quarter compared with 38.1% in the March 2008 quarter due to lower state income taxes and increased tax credit.

Primarily because of higher expenses related to increased book store development activity, net income decreased to $7.8 million for the three-month period ended March 28, 2009 compared with $13.0 million for the three-month period ended March 29, 2008. Net income, as a percentage of sales, was 1% for the March 2009 quarter compared with 1.7% for the March 2008 quarter.

Basic and diluted earnings per share for the company's publicly traded Class A common stock were $0.50 and $0.53 per share respectively for the March 2008 quarter compared with $0.58 and $0.55 per share respectively for the March 2008 quarter. I'm sorry those first numbers were the March 2009 quarter.

Now, I'll discuss our six-month results. Consistent with our quarterly results, six-month performance began with increased sales. Net sales for the six months ended March 29, 2008 totaled $1.59 billion compared with $1.56 billion for the first six months of fiscal year 2008. Grocery segment comparable store sales increased 5%, excluding gasoline sales and the affect of the Easter holiday.

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