Harris Teeter 2007 Annual Report Download - page 20

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reserves and other costs associated with store closings and other expenses incurred in connection with the
2005 Winn-Dixie store acquisition. Pre-Opening costs consist of pre-opening rent, labor and associated fringe
benefits and recruiting and relocations costs incurred prior to a new store opening and amounted to $17.9 million
(0.54% of sales) in fiscal 2007, $15.8 million (0.54% of sales) in fiscal 2006 and $3.3 million (0.13% of sales)
in fiscal 2005. Costs associated with the 2005 Winn-Dixie store acquisition amounted to $2.3 million (0.08%
of sales) in fiscal 2006. The sales increases along with continued emphasis on operational efficiencies and cost
controls have provided the leverage to partially offset the incremental costs associated with the company’s new
store program (pre-opening costs and incremental start-up costs) and increased associate benefit costs, credit
and debit card fees and occupancy costs. As previously disclosed, SG&A expense for fiscal 2005 included a
charge of $2.9 million (0.11% to sales) for a lease accounting correction that related to rent holidays.
The improvements in operating profit as a percent to sales in each of fiscal 2007 and fiscal 2006 resulted
from the sales and cost elements described above. The company continues to concentrate on its core markets,
which management believes have greater potential for improved returns on investment in the foreseeable future.
The company had 164 stores in operation at September 30, 2007, compared to 152 stores at October 1, 2006 and
145 stores at October 2, 2005.
American & Efird, Industrial Thread Segment
The following table sets forth the consolidated operating profit components for the Company’s American
& Efird textile subsidiary for fiscal years 2007, 2006 and 2005. The table also sets forth the percent to sales and
the percentage increase or decrease over the prior year (in thousands):
Fiscal 2007 Fiscal 2006 Fiscal 2005 % Inc. (Dec.)
% to % to % to 07vs 06 vs
Sales Sales Sales 06 05
Net Sales . . . . . . . . . . . . . . . . . . . $ 339,831 100.00 $ 343,177 100.00 $ 319,679 100.00 (1.0) 7.4
Cost of Sales . . . . . . . . . . . . . . . . 265,223 78.05 268,892 78.35 241,461 75.53 (1.4) 11.4
Gross Profit . . . . . . . . . . . . . . . . . 74,608 21.95 74,285 21.65 78,218 24.47 0.4 (5.0)
SG&A Expenses . . . . . . . . . . . . . 73,184 21.53 72,706 21.19 69,208 21.65 0.6 5.1
Operating Profit . . . . . . . . . . . . . . $ 1,424 0.42 $ 1,579 0.46 $ 9,010 2.82 (9.8) (82.5)
Sales decreased 1.0% in fiscal 2007 from fiscal 2006 and increased 7.4% in fiscal 2006 from fiscal 2005.
The fiscal 2007 sales decrease was partially offset by sales gains attributable to the fiscal 2006 acquisition of TSP
and obtaining a majority ownership interest in two joint ventures in South Africa, resulting in the consolidation
of those entities. Fiscal 2006 sales increases resulted from the expansion of A&E’s global operations through the
fiscal 2006 acquisitions and acquiring Jimei Spinning Company in the fourth quarter of fiscal 2005, Robison-
Anton Textile Co. in the fourth quarter of fiscal 2005 and Ludlow Textiles Company, Inc. in the second quarter
of fiscal 2005.
Foreign sales for fiscal 2007 accounted for approximately 54% of total A&E sales as compared to
approximately 51% in fiscal 2006 and 53% in fiscal 2005. Foreign sales continue to be a significant factor of
total A&E sales, as a result of the shifting global production of its customers and A&E’s strategy of increasing its
presence in such global markets. Management recognizes that a major challenge facing A&E is the geographic
shift of its customer base and, as a result, the company will continue to pursue business acquisitions that will
diversify its product lines and build upon its global footprint by way of joint ventures and other investments.
Gross profit as a percent to net sales increased in fiscal 2007 from fiscal 2006 primarily as a result of
improved operating schedules in several of the company’s foreign operations. The increase in fiscal 2007 was
partially offset by $448,000 of severance costs associated with the consolidation of the operations of two of
A&E’s manufacturing facilities in Pennsylvania into A&E’s North Carolina operations. The production from one
North Carolina manufacturing facility was consolidated into the remaining North Carolina operations, but there
were no layoffs as a result. Gross profit as a percent to sales decreased in fiscal 2006 from fiscal 2005, primarily