Earnings Labs

Ingles Markets, Incorporated (IMKTA)

Q3 2009 Earnings Call· Mon, Aug 3, 2009

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Transcript

Operator

Operator

(Operator Instructions) Welcome to the Ingles Markets Incorporated Third 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. Ronald Freeman.

Ron Freeman

Management

Welcome to Ingles Markets Fiscal 2009 Third Quarter Conference Call. With me today are Robert Ingle, Founder of our 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 the 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 28, 2008. This morning, I’ll provide you with a summary of our third quarter and nine month results followed by additional comments. 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. We filed our 10-Q for the quarter on Friday afternoon and it is available via our website as well. The most significant event of the third fiscal quarter of this year was the issuance in May of $575 million of face value senior notes due 2017. The notes were issued at a discount to yield 9.5%. Using the net proceeds we repaid a $349.5 million of subordinated notes due 2011; repaid $45.3 million outstanding on our…

Operator

Operator

(Operator Instructions) Your first question comes from Emily Shanks – Barclays Capital Emily Shanks – Barclays Capital: Thank you for the break out of traffic versus ticket as it pertains to the comparable store sales. Just to be clear, those figures of plus 7.8% for traffic and the negative 1.3% for ticket, that excludes fuel but does that exclude Easter?

Ron Freeman

Management

No they do not; they’re not adjusted for Easter. Emily Shanks – Barclays Capital: Can you give us a sense of what traffic would have been if you had accounted for Easter?

Ron Freeman

Management

I haven’t calculated that number. I think it’d be pretty safe to say that since the quarter and the year to date traffic numbers are both up by similar amounts that there wouldn’t have been an appreciable difference. Emily Shanks – Barclays Capital: In terms of your CapEx indications, this baseline CapEx of $125 to $175 million which I know the Q notes that’s what’s required to maintain a modern store base. Does that include any new stores?

Ron Freeman

Management

We have a number of new, redeveloped, and remodeled store projects in the queue, it’s really just a question of how many and in what order we execute them. I don’t think you’ll see the overall store count change by a whole lot. Emily Shanks – Barclays Capital: The baseline CapEx of $125 to $175 million does incorporate some new store growth plans?

Ron Freeman

Management

Yes. Emily Shanks – Barclays Capital: What number is that?

Ron Freeman

Management

We don’t break that out into individual numbers until the projects are completed. Emily Shanks – Barclays Capital: Can you give me a sense of how you would evaluate what maintenance CapEx is as a component of that, is that possible?

Ron Freeman

Management

Maintenance CapEx I think we’ve addressed this on previous calls, is a concept that we really subscribe to around here because we believe so strongly that you have got to improve your store base to stay competitive in this business. There’s not really a level that would say we’re not going to do anything to our stores and this would be what we would have to spend. It’s just not a concept we subscribe to. Emily Shanks – Barclays Capital: In terms of a new store versus a major remodel, can you give us a sense of what the average cost of each of those are?

Ron Freeman

Management

It’s going to vary a good bit primarily because of land costs, especially given the terrain that we operate in up here. Beyond that, we really don’t provide details on our individual CapEx type breakdowns. Emily Shanks – Barclays Capital: As you look at your interaction with the vendors, are you seeing any trends that are noteworthy, specifically are you seeing that vendors are looking to increase their allowances or are they targeting being more specific with their vendor dollars, what are you seeing as it relates to supporting promotions?

Ron Freeman

Management

In general, the vendors are being more aggressive which we find very helpful and we think is necessary in today’s environment. They are trying to be more pointed in their promotions. Emily Shanks – Barclays Capital: When you say more aggressive, are you seeing an actual increase in targeted dollars or is it just simply that they’re being deeper in some categories?

Ron Freeman

Management

There is an increase in dollars and in times of promotion.

Operator

Operator

Your next question comes from Robert Beal – Bank of America Securities Robert Beal – Bank of America Securities: Could you provide us what same store sales were without the adjustment for Easter and excluding gasoline sales?

Ron Freeman

Management

Without the adjustment for Easter and excluding gasoline sales, 5.1% for the quarter and 5.3% for the nine months. Robert Beal – Bank of America Securities: In terms of your market share in the quarter do you think that changed at all?

Ron Freeman

Management

It’s up some. We’re really pleased with that. Robert Beal – Bank of America Securities: Could you tell us what percent of your grocery sales were promotion our coupon based and how that compared to last year?

Ron Freeman

Management

I do not have that information available to me right here. Typically that’s not a hard number that we disclose but it’s pretty safe to say that our customers are very aware of promotions that are going on and ad prices, no question. Robert Beal – Bank of America Securities: What about the percentage of private label sales in the quarter and how important that is to keeping your gross margins where they are?

Ron Freeman

Management

The percentage of private label sales is up and that is important to help us maintaining our margins. What we want to make sure is with our generally larger stores that we give the customer a choice. We’re not going to try to push them one way or the other; we want to make sure that there is a large selection of both national and private label brands. Robert Beal – Bank of America Securities: Have you ever disclosed what the percentage of private label penetration is in your stores?

Ron Freeman

Management

I believe we disclose that annually in the 10-Q but not in the quarters. It is up this year over last year. Robert Beal – Bank of America Securities: Do you think the same store sales and gross margins seen in third quarter are sustainable or do you expect them to change going into the fourth quarter?

Ron Freeman

Management

It’s hard to say, things are changing so rapidly right now that again the quarterly numbers somewhat track the nine month numbers. Third quarter was off just a little bit in the column. The main thing for us is that we want to make sure that we continue to grow those top line sales regardless of what the price of gasoline is and that we keep that transaction count up. Both of those were late in the market share gains or market share maintenance and that’s really important to us given the climate right now.

Operator

Operator

Your next question comes from Meredith Fowler – Wells Fargo Securities Meredith Fowler – Wells Fargo Securities: To build on the previous market share question, can you disclose what markets you’ve seen the greatest gain in market share?

Ron Freeman

Management

I’m sorry we don’t break our markets down into segments that way for public disclosure. Meredith Fowler – Wells Fargo Securities: Can you discuss how you track your market share gains given your strategy?

Ron Freeman

Management

We subscribe to the same standard data that most everyone else in the industry gets. Again, we also track our transaction counts. Meredith Fowler – Wells Fargo Securities: Can you discuss the drivers behind your non-food sales growth during the quarter?

Ron Freeman

Management

I’m not sure because gasoline prices were down a good bit so in total dollars the gasoline sales were down but we did experience gallon growth. That’s the biggest portion of our non-food items. Meredith Fowler – Wells Fargo Securities: Inventory growth has outpaced your sales growth for the last three consecutive quarters. Can you talk about what you’re doing to manage your inventories?

Ron Freeman

Management

We’ve also had a pretty decent square footage growth and a lot of new store projects. It’s pretty important to make sure that those stores are adequately stocked especially with so many fairly new stores. You don’t want to open a new store, a remodel and have holes on your shelves. We are managing our inventory growth, we implemented a new software system this past year that is still in the learning curve phase, which helps us manage that inventory down as closely as we can. Fortunately incremental financing costs are pretty low these days so that helps soften the flow of the inventory growth.

Operator

Operator

There are no further questions at this time. I’ll turn it back to our speakers for any additional or closing comments.

Ron Freeman

Management

Thank you everyone for joining us today. We’re in our fourth quarter and we look forward to speaking with you again in late November, early December with our annual results. Everyone have a good day.

Operator

Operator

That does conclude today’s conference call. Thank you for your participation.