Comp Sales decrease 1.3 percent as Michigan jobless rate rises
by Terrie Ellerbee/associate editor
Spartan Stores reported a nearly 3 percent increase in net sales in its retail segment in the second quarter. The increase was attributed to rising retail fuel prices and volume, as well as to rolling out the Yes Rewards loyalty program to all of the company’s banners.
Net sales were up 2.9 percent to $619.6 million in Spartan Stores’ second quarter of fiscal 2012, compared to $602.1 million in the same period a year ago.
The fuel program at Spartan Stores has resonance with the consumer, Dennis Eidson, president and CEO of the Grand Rapids, Mich.-based company, said as he discussed the company’s earnings Oct. 20.
Michigan’s unemployment rate rose from 10.3 percent at the beginning of the company’s fiscal year to 11.1 percent in September this year.
“It surprised us a little bit that we’ve had the upturn in unemployment,” Eidson said. “We were kind of expecting that it would level off and probably get a little bit better. So that’s been a bit of a negative to our business plan. But I think the consumer has largely remained unchanged with respect to that. Still tough, very cautious, value oriented.”
He said that’s one reason why the fuel discount program has been an attractive way to drive value with the consumer base.
Inflation also is impacting consumer spending somewhat. Retail inflation has been north of 4 percent, Eidson said. He said that could be the ceiling for now. The company expects it will decline somewhat in the fourth quarter.
“We’ve seen pricing continue to be rational,” he said. “The competitors in the marketplace have all taken price from Q1 to Q2 at a fairly consistent level. So I think the sledding is tough but I don’t think it is dramatically different.”
Same store sales declined 1.3 percent in the quarter, below the company’s expectations. The drop was attributed in part to bad weather during the Labor Day holiday selling period. Prior to the holiday, same store sales were tracking ahead of expectations, Eidson said.
There also has been a shift in Michigan in the timing of food stamp distribution. That had a $1.5 million impact on the company in the second quarter. Dave Staples, EVP and CFO for Spartan Stores, said that previously, benefits were distributed from the third to the 10th of each month. Now, distribution has shifted from the third of the month through to the 21st.
“In any given week in the past, if you had a week that included the third and the 10th … you had all the food stamps in that week and that is a substantial amount of money,” Staples said. “Now that’s gone from a one-week concentrated disbursement to really three weeks, and so it really plays havoc with your performance from a sales line in each of those weeks as it changes.”
The Yes Rewards program has drawn 250,000 households since it was rolled out at Spartan’s Family Fare and D&W Fresh Market banners in September. All told, 720,000 households have signed up for the program across all of the company’s banners since it was first introduced in 2009 at 32 Glen’s Market locations. In 2010, it was expanded to 16 VG’s stores.
This “improved connectivity” also will help Spartan Stores “increasingly understand (consumers’) purchasing behavior,” Eidson said.
Spartan Stores increase the number of SKUs under its corporate brand, adding 60 during the quarter to bring the total to 190. The company is on track to have 300 new corporate brand items for the fiscal year.
In the second quarter, the company completed two major remodels and opened a new fuel center. In the current quarter, Spartan Stores has opened a fuel center and will complete two more major remodels.
Distribution segment comp sales increase
Second quarter net sales for Spartan Stores’ distribution segment increase 3.1 percent, to $256.2 million from $248.6 million in the year-ago period, a rise the company attributes to increased to new customer growth, improvement in pharmacy related sales and increased sales to existing customers.
Spartan Stores added 19 independents customers to its count vs. a year ago.
“It is interesting. So many folks kind of write off the independent retailer, right?,” Eidson said. “We have some great independent retailers that despite the environment, despite the unemployment, and all of those headwinds … that consistently post positive numbers. I tell you it’s because they are relevant in their marketplace with a neighborhood offer. They know their consumer. It’s something the big chain guys just can’t harness. Those who are just writing off the independent retailer are making a huge mistake.”