Harris Teeter's fiscal Q4 earnings dip 7.3% from a year ago to US$21.2M as sales rise 4.5% to US$1.19B, comparable-store sales increase 1.49%; for fiscal 2013, earnings up 30.8% to US$107.9M, sales up 3.8% to US$4.71B, comparable-store sales up 2.23%

MATTHEWS, North Carolina , November 1, 2013 (press release) – Harris Teeter Supermarkets, Inc. (HTSI) (the “Company”) today reported that sales for the 52 weeks ended October 1, 2013 increased by 3.8% to $4.71 billion from $4.54 billion in fiscal 2012. Sales for the fourth quarter of fiscal 2013 increased by 4.5% to $1.19 billion from $1.14 billion in the fourth quarter of fiscal 2012. The increase in sales for the year and quarter was driven by an increase in comparable store sales and sales from new stores, partially offset by store closings. Comparable store sales increased by 2.23% for the year, and 1.49% for the fourth quarter of fiscal 2013, from the respective comparable periods of fiscal 2012.

During fiscal 2013, the Company opened nine new stores, two of which were the stores acquired from Lowe’s Food Stores, Inc. (“Lowes Foods”) in 2012 that were re-opened under a new format and banner - “201central,” and one of which replaced a store previously closed, and closed one store that will be replaced with a new store to be opened in fiscal 2014, for a net addition of eight stores. The Company operated 216 stores as of the end of fiscal 2013 and retail square footage increased by 4.2% in fiscal 2013, as compared to an increase of 4.5% in fiscal 2012.

On July 8, 2013, the Company and The Kroger Co. (“Kroger”) entered into a definitive merger agreement under which Kroger will acquire all outstanding shares of the Company for $49.38 per share in cash (“The Merger Agreement”). The terms of the Merger Agreement were approved by the Boards of Directors of both companies and has been approved by the Company’s shareholders; however, it remains subject to regulatory approvals (including under the Hart-Scott-Rodino Antitrust Improvements Act of 1974, as amended) and other customary closing conditions, and is expected to close in the fourth quarter of calendar year 2013.

On September 12, 2013, the Company announced that its operating subsidiary, Harris Teeter, Inc. entered into an agreement with Greenbax Enterprises, Inc. and certain of its subsidiaries (“Piggly Wiggly”) to purchase six Piggly Wiggly store locations and one future store location in the Charleston, S.C. area (the “Piggly Wiggly Acquisition”). The acquisition was completed during the first quarter of fiscal 2014 with five of the locations being re-opened shortly after the acquisition date. The remaining two locations are expected to be opened during fiscal 2014.

Gross profit increased in fiscal 2013 by 4.3% to $1.42 billion (30.08% of sales) from $1.36 billion (29.95% of sales) in fiscal 2012. For the fourth quarter of fiscal 2013, gross profit increased by 6.1% to $360.5 million (30.19% of sales) from $339.8 million (29.73% of sales) in the fourth quarter of fiscal 2012. The LIFO adjustment for fiscal 2013 was a credit of $1.7 million (0.04% of sales) as compared to a charge of $3.0 million (0.07% of sales) for fiscal 2012. During the fourth quarter of fiscal 2013 the LIFO adjustment was a credit of $2.4 million (0.20% of sales) as compared to a credit of $4.4 million (0.38% of sales) in the fourth quarter of fiscal 2012.

Selling, general and administrative (“SG&A”) expenses for fiscal 2013 increased by $35.1 million from fiscal 2012 as a result of incremental store growth and its impact on associated operational costs. On a percent of sales basis, SG&A expenses for fiscal 2013 decreased by 22 basis points over fiscal 2012. SG&A expenses for fiscal 2013 include an aggregate of $7.4 million of incremental costs related to our pending merger with Kroger and expenses related to the Piggly Wiggly Acquisition (“Merger Related and Acquisition Costs”). As reported in the prior year, SG&A expenses for fiscal 2012 included $29.8 million of impairment losses and other incremental costs associated with the store purchase and sale transaction with Lowe’s Food Stores, Inc. (“Lowes Foods Transaction Costs”), which was partially offset by gains of $3.1 million recognized from life insurance proceeds the Company recorded in the third quarter of fiscal 2012.

SG&A expenses for the fourth quarter of fiscal 2013 increased by $17.8 million (37 basis points) from the fourth quarter of fiscal 2012 as a result of incremental store growth and its impact on associated operational costs. Merger Related and Acquisition Costs included in the fourth quarter of fiscal 2013 amounted to $6.2 million, while Lowes Foods Transaction Costs included in the fourth quarter of fiscal 2012 were $7.5 million.

Operating profit for fiscal 2013 increased by 13.7% to $194.3 million (4.13% of sales) from $171.0 million (3.77% of sales) in fiscal 2012. For the fourth quarter of fiscal 2013, operating profit increased by 7.2% to $42.5 million (3.56% of sales) from $39.7 million (3.47% of sales) in the comparable period of fiscal 2012.

The Company reported net earnings of $107.9 million for fiscal 2013, compared to net earnings of $82.5 million for fiscal 2012. Net earnings for fiscal 2013 were comprised of earnings from continuing operations of $109.0 million, or $2.21 per diluted share, and losses from discontinued operations of $1.1 million. The Merger Related and Acquisition Costs reduced earnings from continuing operations after tax in fiscal 2013 by $6.6 million, or $0.13 per diluted share. Net earnings for fiscal 2012 were comprised of earnings from continuing operations of $99.9 million, or $2.04 per diluted share, and losses from discontinued operations of $17.4 million. The net impact of the Lowes Foods Transaction incremental costs offset by the insurance gains reduced earnings from continuing operations after tax in fiscal 2012 by $15.0 million, or $0.31 per diluted share. Earnings from continuing operations for fiscal 2012 were also favorably impacted by a reversal of accrued interest amounting to $1.3 million that was associated with a reduction of the Company’s unrecognized tax positions.

Net earnings for the fourth quarter of fiscal 2013 totaled $21.1 million, or $0.43 per diluted share. The Merger Related and Acquisition Costs reduced net earnings in the fourth quarter of fiscal 2013 by $5.9 million, or $0.12 per diluted share. Net earnings for the fourth quarter of fiscal 2012 totaled $22.8 million and were comprised of earnings from continuing operations of $23.7 million, or $0.48 per diluted share and losses from discontinued operations of $0.9 million. The net impact of the Lowes Foods Transaction incremental costs reduced earnings from continuing operations after tax in the fourth quarter of fiscal 2012 by $4.5 million, or $0.09 per diluted share.

The loss from discontinued operations in fiscal 2013 resulted from adjustments required to true up the tax benefits realized from the loss on the sale of the Company’s wholly-owned industrial thread manufacturing company American & Efird (“A&E”). Pre-tax losses from discontinued operations for fiscal 2012 amounted to $19.5 million, $17.4 million after tax benefits or $0.36 per diluted share and were primarily driven by non-cash charges for the settlement of pension liabilities and other employee benefits in connection with the sale of A&E.

Thomas W. Dickson, Chairman of the Board and Chief Executive Officer stated, “We are pleased with our results for fiscal 2013 and the opportunities ahead of us with the Kroger merger and our recent store acquisitions. Our pricing and promotional strategies were effective during fiscal 2013 in driving unit sales and customer visits. On a comparable store basis, we experienced increased unit sales compared to fiscal 2012 and our store brand penetration continues to improve. We believe these positive results are attributable to our continuing commitment to our customers to deliver outstanding values and excellent customer service.”

The Company’s operating performance and strong financial position provides the flexibility to continue with its store development program for new and replacement stores along with the remodeling and expansion of existing stores. Capital expenditures for fiscal 2013 totaled $191 million and are expected to total approximately $240 million for fiscal 2014. The fiscal 2014 capital plan includes 18 new stores (which includes two replacements and seven acquired Piggly Wiggly store locations). The fiscal 2014 new store openings are currently scheduled for eight in the first quarter, three in the second quarter, two in the third quarter and five in the fourth quarter. Subsequent to the end of fiscal 2013, the Company re-opened the store in the Washington D.C. market that was closed to repair damage caused by flooding. The 2014 store development program is expected to result in a 7.9% increase in retail square footage as compared to a 4.2% increase realized in fiscal 2013. The Company routinely evaluates its existing store operations in regards to its overall business strategy and from time to time will close or divest underperforming stores.

The Company’s capital expenditure plans entail the continued expansion of its existing markets, including the Washington, D.C. metro area which incorporates northern Virginia, the District of Columbia, southern Maryland and coastal Delaware. Real estate development by its nature is both unpredictable and subject to external factors including weather, construction schedules and costs. Any change in the amount and timing of new store development can impact the expected capital expenditures, sales and operating results.

This news release may contain forward-looking statements that involve uncertainties. A discussion of various important factors that could cause results to differ materially from those expressed in such forward-looking statements is shown in reports filed by the Company with the Securities and Exchange Commission and include: generally adverse economic and industry conditions; changes in the competitive environment; economic or political changes; changes in federal, state or local regulations affecting the Company; the passage of future tax legislation, or any negative regulatory or judicial position which prevails; management's ability to predict the adequacy of the Company's liquidity to meet future requirements; volatility of financial and credit markets which would affect access to capital for the Company; changes in the Company's expansion plans and their effect on store openings, closings and other investments; the ability to predict the required contributions to the Company's pension and other retirement plans; the Company’s requirement to impair recorded goodwill or other long-lived assets; the cost and availability of energy and raw materials; the continued solvency of third parties on leases that the Company guarantees; the Company’s ability to recruit, train and retain effective employees; changes in labor and employer benefits costs, such as increased health care and other insurance costs; the Company’s ability to successfully integrate the operations of acquired businesses; the extent and speed of successful execution of strategic initiatives; unexpected outcomes of any legal proceedings arising in the normal course of business; the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement; the failure to receive, on a timely basis or otherwise, the approval of government or regulatory agencies with regard to the Merger Agreement; the failure of one or more conditions to the closing of the Merger Agreement to be satisfied; the amount of the costs, fees, expenses and charges related to the Merger Agreement or merger; risks arising from the merger’s diversion of management’s attention from our ongoing business operations; risks that our stock price may decline significantly if the merger is not completed; and, the ability to retain and hire key personnel and maintain relationships with customers, suppliers and other business partners pending the completion of the merger. Other factors not identified above could cause actual results to differ materially from those included, contemplated or implied by the forward-looking statements made in this news release.

Harris Teeter Supermarkets, Inc. operates a leading regional supermarket chain in eight states primarily in the southeastern and mid-Atlantic United States, and the District of Columbia.

Selected information regarding Harris Teeter Supermarkets, Inc. and its subsidiaries follows. For more information on Harris Teeter Supermarkets, Inc., visit our web site at: www.harristeeter.com.

Harris Teeter Supermarkets, Inc.                                        
Consolidated Condensed Statements of Earnings                                        
(in thousands, except per share data)                                        
(unaudited)                                        
                                         
        13 Weeks Ended       52 Weeks Ended
        October 1, 2013   October 2, 2012       October 1, 2013   October 2, 2012
Sales       $ 1,193,856       100.00 %   $ 1,142,793       100.00 %       $ 4,709,866       100.00 %   $ 4,535,414       100.00 %
Cost of Sales         833,391       69.81 %     803,009       70.27 %         3,292,903       69.92 %     3,176,914       70.05 %
Gross Profit         360,465       30.19 %     339,784       29.73 %         1,416,963       30.08 %     1,358,500       29.95 %
                                         
Selling, General and Administrative         317,934       26.63 %     300,112       26.26 %         1,222,615       25.96 %     1,187,522       26.18 %
Operating Profit         42,531       3.56 %     39,672       3.47 %         194,348       4.13 %     170,978       3.77 %
                                         
Other Expense (Income):                                        
Interest expense         3,937       0.33 %     4,395       0.38 %         16,425       0.35 %     16,998       0.37 %
Interest income        

(57)

 

 

  0.00 %    

(103)

 

 

  -0.01 %        

(263)

 

 

  -0.01 %    

(587)

 

 

  -0.01 %
          3,880       0.32 %     4,292       0.38 %         16,162       0.34 %     16,411       0.36 %
                                         
Earnings From Continuing Operations                                        
Before Income Taxes         38,651       3.24 %     35,380       3.10 %         178,186       3.78 %     154,567       3.41 %
Income Tax Expense         17,497       1.47 %     11,686       1.02 %         69,206       1.47 %     54,640       1.20 %
Earnings from Continuing Operations, Net         21,154       1.77 %     23,694       2.07 %         108,980       2.31 %     99,927       2.20 %
                                         
Loss from Operations of Discontinued Operations         -             -                 -            

(15,755)

 

 

   
Loss on Disposition of Discontinued Operations         -            

(436)

 

 

            -            

(3,717)

 

 

   
Income Tax Expense (Benefit)         -             444                 1,088            

(2,057)

 

 

   
Loss from Discontinued Operations, Net         -            

(880)

 

 

           

(1,088)

 

 

       

(17,415)

 

 

   
                                         
Net Earnings       $ 21,154           $ 22,814               $ 107,892           $ 82,512        
                                         
Earnings (Loss) Per Share - Basic:                                        
Continuing Operations       $ 0.43           $ 0.49               $ 2.23           $ 2.05        
Discontinued Operations       $ -           $

(0.02)

 

 

          $

(0.02)

 

 

      $

(0.36)

 

 

   
Net Earnings       $ 0.43           $ 0.47               $ 2.21           $ 1.69        
                                         
Earnings (Loss) Per Share - Diluted:                                        
Continuing Operations       $ 0.43           $ 0.48               $ 2.21           $ 2.04        
Discontinued Operations       $ -           $

(0.02)

 

 

          $

(0.02)

 

 

      $

(0.36)

 

 

   
Net Earnings       $ 0.43           $ 0.46               $ 2.19           $ 1.68        
                                         
Weighted Average Number of Shares of                                        
Common Stock Outstanding:                                        
Basic         48,937             48,790                 48,916             48,751        
Diluted         49,261             49,110                 49,212             49,053        
                                         
Quarterly Dividends Declared Per Common Share       $ 0.15           $ 0.14               $ 0.60           $ 0.55        
Special Dividends Declared Per Common Share       $ -           $ -               $ 0.50           $ -        
                                         
Effective Tax Rate on Continuing Operations         45.3   %         33.0   %             38.8   %         35.4   %    
                                         
Harris Teeter Supermarkets, Inc.              
Consolidated Condensed Balance Sheets              
(in thousands)              
(unaudited)              
      October 1,       October 2,
        2013           2012  

Assets

             
Current Assets:              
Cash and Cash Equivalents     $ 187,612         $ 212,211  
Accounts Receivable, Net       62,165           59,267  
Refundable Income Taxes       1,722           27,583  
Inventories       316,809           305,106  
Deferred Income Taxes       7,696           6,044  
Prepaid Expenses and Other Current Assets       30,026           24,182  
Total Current Assets       606,030           634,393  
               
Property, Net       1,142,245           1,102,703  
Investments       103,365           107,424  
Goodwill       19,301           19,301  
Intangible Assets       13,759           15,039  
Other Long-Term Assets       128,537           73,628  
               
Total Assets     $ 2,013,237         $ 1,952,488  
               
               

Liabilities and Shareholders' Equity

             
Current Liabilities:              
Current Portion of Long-Term Debt and Capital Lease Obligations     $ 4,788         $ 4,219  
Accounts Payable       275,909           281,142  
Accrued Compensation       71,371           69,390  
Other Current Liabilities       100,261           96,887  
Total Current Liabilities       452,329           451,638  
               
Long-Term Debt and Capital Lease Obligations       208,691           208,271  
Deferred Income Taxes       8,096           10,941  
Pension Liabilities       88,740           119,883  
Other Long-Term Liabilities       126,509           124,136  
               
Equity:              
Common Stock       117,927           111,347  
Retained Earnings       1,093,414           1,039,935  
Accumulated Other Comprehensive Loss       (82,469 )         (113,663 )
Total Equity       1,128,872           1,037,619  
               
Total Liabilities and Equity     $ 2,013,237         $ 1,952,488  
                       
Harris Teeter Supermarkets, Inc.                
Consolidated Condensed Statements of Cash Flows                
(in thousands)                
(unaudited)                
        52 Weeks Ended
        October 1,       October 2,
        2013       2012
Cash Flow From Operating Activities:                
Net Earnings       $ 107,892         $ 82,512  
Loss from Discontinued Operations         1,088           17,415  
Non-Cash Items Included in Net Income                
Depreciation and Amortization         149,098           135,542  
Deferred Income Taxes         (23,003 )         1,814  
Net Loss (Gain) on Sale of Property and Investments         120           (132 )
Share-Based Compensation         7,720           7,121  
Other, Net         3,300           (1,863 )
Changes in Operating Accounts Providing (Utilizing) Cash                
Accounts Receivable         (2,898 )         (12,179 )
Inventories         (11,703 )         (17,969 )
Prepaid Expenses and Other Current Assets         17,010           864  
Accounts Payable         (5,211 )         24,665  
Other Current Liabilities         5,513           (4,513 )
Other Long-Term Operating Accounts         (24,876 )         (25,980 )
Net Cash Provided by Operating Activities         224,050           207,297  
                 
Investing Activities:                
Capital Expenditures         (190,717 )         (199,946 )
Purchase of Other Investments         (7,760 )         (3,448 )
Business Acquisition         -           (26,296 )
Proceeds from Sale of Property and Investments         15,283           172,143  
Net (Investments in) Proceeds from Company-Owned Life Insurance       (5,788 )         12,486  
Other, Net         -           (28 )
Net Cash Used by Investing Activities         (188,982 )         (45,089 )
                 
Financing Activities:                
Payments on Long-Term Debt and Capital Lease Obligations         (4,325 )         (83,706 )
Dividends Paid         (54,413 )         (27,112 )
Proceeds from Stock Issued         375           486  
Share-Based Compensation Tax Benefits         635           1,760  
Shares Effectively Purchased and Retired for Withholding Taxes       (2,155 )         (5,129 )
Other, Net         216           (775 )
Net Cash Used by Financing Activities         (59,667 )         (114,476 )
                 
(Decrease) Increase in Cash and Cash Equivalents         (24,599 )         47,732  
Cash and Cash Equivalents at Beginning of Period         212,211           164,479  
                 
Cash and Cash Equivalents at End of Period       $ 187,612         $ 212,211  
                 
Supplemental Disclosures of Cash Flow Information                
Cash Paid During the Year for:                
Interest, Net of Amounts Capitalized       $ 16,365         $ 18,141  
Income Taxes         81,157           77,824  
Non-Cash Activity - Assets Acquired Under Capital Leases         5,315           8,866  
                         
Harris Teeter Supermarkets, Inc.                                        
Other Statistics                                        
(dollars in thousands)                                        
        13 Weeks Ended   52 Weeks Ended
        October 1, 2013   October 2, 2012   October 1, 2013   October 2, 2012

Operating Profit Analysis:

      Dollars   Margin   Dollars     Margin   Dollars     Margin   Dollars   Margin

Operating profit without incremental merger

related costs, Lowes Foods transaction costs

and gains from insurance proceeds

    $     48,734       4.08 %   $ 47,154       4.13 %   $ 201,752       4.28 %   $     197,672       4.36 %

Incremental merger related and acquisition

costs

         

(6,203)

 

 

  -0.52 %     -       0.00 %     (7,404 )     -0.16 %         -       0.00 %
Lowes Foods transaction costs             -       0.00 %     (7,482 )     -0.65 %     -       0.00 %        

(29,810)

 

 

  -0.66 %
Gains from insurance proceeds             -       0.00 %     -       0.00 %     -       0.00 %         3,116       0.07 %
Consolidated operating profit       $     42,531       3.56 %   $ 39,672       3.47 %   $ 194,348       4.13 %   $     170,978       3.77 %
                                         
LIFO (Credit) Charge (Included in COGS):     $    

(2,370)

 

 

  -0.20 %   $ (4,364 )     -0.38 %   $ (1,700 )     -0.04 %   $     3,024       0.07 %
                                         
New Store Pre-Opening Costs (excluding                                      
stores acquired from Lowes Foods) (1)     $     2,359       0.20 %   $ 1,365       0.12 %   $ 5,961       0.13 %   $     5,839       0.13 %
                                         
                                         
                13 Weeks Ended   52 Weeks Ended        
                October 1,     October 2,   October 1,     October 2,        
                2013     2012   2013     2012        
Comparable Store Statistics:                                        
Increase in Comparable Store Sales                 1.49 %     3.01 %     2.23 %     3.97 %        
(Decrease) Increase in Active Household - VIC Customers     -0.54 %     1.18 %     0.52 %     1.61 %        
(Decrease) Increase in Number of Items Sold         -1.29 %     0.68 %     0.48 %     0.27 %        
                                         
Store Brand Penetration Based on Units               24.95 %     24.74 %     24.60 %     24.26 %        
Store Brand Penetration Based on Sales               25.57 %     25.22 %     25.32 %     25.15 %        
                                         
Store Count                                        
Beginning number of stores                 212       201       208       204          
Opened during the period                 4       7       9       13          
Temporarily closed during the period                 -       -       -       (1 )        
Closed during the period                 -       -       (1 )     (8 )        
Stores in operation at end of period                 216       208       216       208          
                                         
Number of Major Store Remodels Completed         2       9       5       12          
Number of Expansion Remodels Included Above         2       5       2       6          
                                         
Total Square Footage at Beginning of Period         10,421,259       9,811,378       10,218,118       9,818,232          
New Stores and Remodels                 229,827       406,740       449,174       750,023          
Closed Stores                 -       -       (16,206 )     (350,137 )        
Total Square Footage at End of Period                 10,651,086       10,218,118       10,651,086       10,218,118          
                                         
                                         

Definition of Comparable Store Sales:

                                       
Comparable store sales are computed using corresponding calendar weeks to account for the occasional extra week included in a fiscal year.
A new store must be in operation for 14 months before it enters into the calculation of comparable store sales. A closed store is removed
from the calculation in the month in which its closure is announced. A new store opening within an approximate two-mile radius of an
existing store that is to be closed upon the new store opening is included as a replacement store in the comparable store sales measure
as if it were the same store. Sales increases resulting from existing comparable stores that are expanded in size are included in the    
calculations of comparable store sales, if the store remains open during the construction period. If the location is closed, the sales during the
store sales calculation for the weeks actually open.                                
                                         
(1) Pre-opening costs are included with SG&A expenses and consist of rent, labor and associated fringe benefits, and recruiting and    
relocation costs incurred prior to a new store opening.        

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