Ingles Markets, Incorporated F4Q09 (Qtr End 09/26/09) Earnings Call Transcript

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Ingles Markets, Incorporated (IMKTA)

F4Q09 Earnings Call

December 7, 2009 9:00 am ET

Executives

Ron Freeman – Chief Financial Officer

Robert Ingle – Founder and Chief Executive Officer

Robert Ingle II – Chairman of the Board

Jim Lanning – President

Tom Outlaw - Vice President of Sales and Marketing

Analysts

Emily Shanks – Barclays Capital

Bryan Hunt – Wells Fargo Securities

Karen Short – BMO Capital Markets

Damian Witkowski – Gabelli & Company

Andrew Berg – Post Advisory Group

[Ken Ban] – Jefferies & Company

Presentation

Operator

(Operator Instructions) Welcome to the Ingles Markets Incorporated Fourth Quarter Conference Call. 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 2009 Fourth Quarter and Year End Conference Call. With me today are Robert Ingle, Founder of the Company and Chief Executive Officer, Robert Ingle II, Chairman of the Board, 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 Harbors 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 the Form 10-K for the fiscal year ended September 26, 2009 that will be filed later today.

This morning, I’ll provide you with a summary of our annual and fourth quarter results followed by additional comments on each period. After that, we will be pleased to take your questions. Our press release issued this morning is available on our website, www.Ingles-Markets.com. Our Form 10-K will be available on the website as well after it’s filed.

We are very pleased to report that this was our 45^th consecutive year of record sales totaling $3.25 billion. Fourth quarter sales totaled $830.1 million. Excluding gasoline, sales grew 4.3% for the year and 1.5% for the fourth quarter. Net income totaled $5.2 million for the three months ended and $28.8 million for the fiscal year ended September 26, 2009, compared with $10.5 million and $62.1 million for the comparable three month and fiscal year periods of 2008.

Net income for the fiscal 2009 fourth quarter and full fiscal year were adversely affected by higher interest expense following the company’s issuance of $575 million face value senior notes in May 2009, higher depreciation, and higher operating expenses resulted from our increased level of store development activities, and also by higher income tax expense. The full fiscal year 2009 results also include income reductions of $10.2 million and pre-payment penalties and loan cost write-offs related to the $575 million bond issuance.

Given the extended recession and intensified competition for a smaller amount of consumer dollars we’re pleased with our sales growth. Our long term objective remains focused on driving top line sales through product offerings, customer satisfaction, and expanded store offerings. Although this focus can temporarily depress operating results we believe it is important to maintain customer loyalty during these difficult economic times.

We believe we have been successful in this regard as evidenced by this quarter’s 9.9% increase in average weekly customer visits compared with the fourth quarter of last year. In addition, we’ve experienced a higher percentage of private label sales. Our private label products are very good quality and represent excellent value. We are continuing to add more private label products throughout our store as part of this program.

First, our fourth quarter results. Net sales totaled $830.1 million for the quarter ended September 26, 2009, compared with $842.8 million for the comparable quarter in fiscal 2008. Total and comparable store sales comparisons were affected by retail gasoline prices which were approximately $0.37 lower during the fourth fiscal quarter of 2009 compared with the prior year. Grocery segment comparable store sales excluding gasoline sales rose 2.4% compared with the fourth quarter of fiscal 2008.

The growth in comparable store sales have benefited from the 9.9% increase in average weekly customer visits that more than offset a $1.51 decrease in the average purchase amount compared with the fourth quarter of fiscal 2008. In effect, we are seeing our customer on a more frequent basis in our stores and we are optimistic about this trend for future sales as the economy improves.

Gross profit for the fourth quarter of fiscal 2009 totaled $184.8 million an increase of $4.4 million compared with the fourth quarter fiscal 2008. Gross profit as a percentage of sales increased to 22.3% for the fourth quarter of fiscal 2009 compared with 21.4% for the fourth quarter of fiscal 2008. Grocery segment gross margins excluding gasoline were stable, while gross profit in the company’s Milkco dairy operations increased due to substantially lower milk commodity prices for the fourth fiscal quarter of 2009 compared with 2008.

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