Net sales from continuing operations increased 16.4 percent to $973.8 million during Roundy’s Inc.’s third quarter ended Sept. 27. That reflects an increase of $137.3 million vs. the third quarter of fiscal 2013 due primarily to new and acquired stores, partially offset by a decrease in same-store sales.
Same-store sales from continuing operations declined 2.7 percent. The company saw a 5.2 percent decrease in the number of customer transactions, partially offset by a 2.6 percent increase in average transaction size.
Roundy’s said same-store sales continue to be negatively impacted by competitive store openings and the weak economic environment in the Milwaukee-based company’s core markets.
Gross profit for the third quarter of 2014 increased 21.0 percent to $258.2 million, up from $213.4 million in the same period last year. Gross profit as a percentage of net sales was 26.5 percent for the third quarter of 2014 vs. 25.5 percent in the same period last year.
Roundy’s said reduced promotional spending, as well as the closure of its Stevens Point, Wisconsin, distribution facility and the resulting LIFO reserve decrease related to the disposition of inventory there contributed to the rise in gross profits. The gains were partially offset by increased shrink, including the higher perishables mix in the company’s Illinois stores, and the start-up impact of new or acquired stores in that state. Roundy’s acquired 11 former Dominick’s locations in the Chicago area and has now reopened all of them.
Operating and administrative expenses for the third quarter of 2014 increased to $248.4 million, up from $197.7 million in the same period last year primarily due to increased start-up labor costs and higher occupancy and labor costs in new or acquired Illinois stores relative to the chain average. The company also experienced reduced fixed cost leverage in its core business resulting from lower sales.
For the third quarter, the net loss from continuing operations was $249.9 million, or $5.19 net loss per diluted common share, compared to net income from continuing operations of $3.2 million, or $0.07 diluted net earnings per common share, for the third quarter of 2013.
Adjusted EBITDA from continuing operations for the third quarter of 2014 was $25.6 million vs.$29.5 million in the third quarter of 2013. The decline was primarily due to the decrease in same-store sales in the company’s core markets, start-up costs related to the Dominick’s stores acquired from Safeway and the increase in operating and administrative expenses previously mentioned.
“During the third quarter, we continued to focus on improving sales and operational efficiencies in our core business,” said Robert A. Mariano, chairman, president and CEO of Roundy’s. “While we still need to address key challenges in our core market, we believe the strategic initiatives we have in place facilitated progress during the quarter and will allow us to continue to improve.
“We opened three additional Mariano’s stores during the quarter and we currently have a total of 29 stores in the Chicagoland area. We closed our Stevens Point distribution facility and we finalized the sale of certain Rainbow stores along with the closure of the remaining nine Rainbow stores. We will continue to focus on our goals of improving operational efficiency and delivering sustainable top-line growth to our business,” Mariano said.
Year-to-date financial results
Net sales were $2,779.4 million for the 39 weeks ended Sept. 27, an increase of $279.5 million, or 11.2 percent, from $ 2,499.9 million for the 39 weeks ended Sept. 28, 2013. The increase primarily reflects the benefit of new and acquired stores, partially offset by a decrease in same-store sales.
Same-store sales from continuing operations declined 3.1 percent, which was due to a 5.2 percent decrease in the number of customer transactions, partially offset by a 2.2 percent increase in average transaction size.
Adjusted EBITDA from continuing operations for the 39-week period was $82.3 million, compared to $111.1 million a year ago. The company attributes the decrease to lower same-store sales in its core markets, start-up costs related to the Dominick’s stores and the increase in occupancy and labor costs for new or acquired Illinois stores.
Stevens Point warehouse for sale
During the third quarter, the company closed its Stevens Point distribution center. The warehouse is now being marketed for sale. With the closing of the warehouse, Roundy’s consolidated supply chain operations previously performed at the Stevens Point warehouse moved into its Oconomowoc, Wisconsin, distribution center. The company recorded severance and other one-time charges of $1.8 million related to the closure of the Stevens Point warehouse.
Disposition of Rainbow stores
During the second quarter of 2014, Roundy’s entered into definitive agreements to sell 18 Rainbow stores in the Minneapolis-St. Paul market to a group of local grocery retailers, including Supervalu. The Rainbow sale closed during the third quarter.
In addition, during the second quarter, the company announced its intention to exit the Minneapolis-St. Paul market entirely. The remaining nine Rainbow stores not included in the sale were closed during the third quarter. The 27 Rainbow stores are included in discontinued operations for the 13 and 39 weeks ending Sept. 28, 2013, and Sept. 27, 2014. The company has provided revised historical quarterly results for fiscal 2013 and fiscal 2014 that include the 27 Rainbow stores in discontinued operations.
Roundy’s recorded a $23.9 million tax charge during the third quarter related to an estimated employer pension withdrawal liability for the nine Rainbow stores closed during the quarter. The company expects the liability will be paid out in quarterly installments over a period of up to 20 years.
Fourth quarter and fiscal 2014 guidance
Roundy’s also provided its guidance from continuing operations for the fourth quarter and the remainder of fiscal 2014. For the quarter, it predicts net sales of $1.06 billion to $1.07 billion and same-store sales growth of 2.6 percent to 3.6 percent.
For fiscal 2014, Roundy’s expects net sales of $3.84 to $3.85 billion and same-store sales growth of 3.0 percent to 3.25 percent.
Founded in Milwaukee in 1872, Roundy’s operates 148 retail grocery stores and 97 pharmacies under the Pick ’n Save, Copps, Metro Market and Mariano’s retail banners in Wisconsin and Illinois.