Harris Teeter 2012 Annual Report Download - page 13

Note: In April 2012, the Company’s fiscal year end was changed from the Sunday nearest to September 30 to the Tuesday nearest
to September 30 to coincide with Harris Teeter’s fiscal year. Fiscal 2012 and 2011 include the 52 weeks ended October 2, 2012
and October 2, 2011, respectively. Fiscal 2010 includes the 53 weeks ended October 3, 2010 and Fiscal 2009 and 2008 include
the 52 weeks ended September 27, 2009 and September 28, 2008, respectively.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking
statements. We have based these forward-looking statements on our current plans, expectations and beliefs about future events.
In light of the risks, uncertainties and assumptions discussed under “Risk Factors” in Item 1A of this Annual Report on Form
10-K and other factors discussed in this section, there are risks that our actual experience will differ materially from the
expectations and beliefs reflected in the forward-looking statements in this section and throughout this report. For more
information regarding what constitutes a forward-looking statement, please refer to “Risk Factors” in Item 1A hereof.
Overview
The Company operates one primary business segment, retail grocery (including related real estate and store development
activities) through its wholly-owned subsidiary Harris Teeter. Harris Teeter is a regional supermarket chain operating primarily
in the southeastern and mid-Atlantic United States, and the District of Columbia.
Historically, the Company also engaged in industrial sewing thread (textile primarily), including embroidery thread and
technical textiles, through its A&E business. In the first quarter of fiscal 2012, the Company sold all of its ownership interest
in A&E to two newly formed affiliates of KPS Capital Partners, LP. A definitive agreement to sell A&E was entered into on
October 27, 2011 and the closing occurred on November 7, 2011. The sale price for A&E was $180 million in cash, subject
to adjustments for working capital and certain liabilities including underfunded pension liability and foreign debt. In connection
with the sale, the Company recorded pre-tax losses on disposition of discontinued operations of $3.7 million in fiscal 2012 and
$48.8 million in fiscal 2011. As a result of this disposition, the sales and operating results of A&E are categorized as discontinued
operations in the discussion that follows and in the financial statements included in Item 8 hereof for all periods presented. For
additional information regarding discontinued operations, see Note 17 to the Consolidated Financial Statements in Item 8 hereof.
The economic environment over the past few years has motivated changes in the consumption habits of the retail consumer
which continues to impact our financial results. Economic uncertainty, tumultuous market conditions and low levels of consumer
confidence have created changes in the type of products purchased by our customers and increased the competitive environment
in our primary markets. We compete with other traditional grocery retailers, as well as other retail outlets including, but not
limited to, discount retailers such as “neighborhood or supercenters” and “club and warehouse stores,” specialty supermarkets
and drug stores. Generally, our markets continue to experience new store opening activity and increased feature pricing or
everyday low prices by competitors. We utilize information gathered from various sources, including our Very Important
Customer (“VIC”) loyalty card program, and work with suppliers to deliver effective retail pricing and targeted promotional
spending programs that drive customer traffic and create value for our customers. In addition, our product selection, assortment
and variety, and our focus on customer service differentiate us from our competitors.
In June 2012, the Company completed its purchase and sale agreement with Lowe’s Food Stores, Inc. (the “Lowes Foods
Transaction”). Per the agreement Harris Teeter acquired ten Lowes Foods store locations in the central Carolinas region and
Lowes Foods acquired six Harris Teeter store locations in western North Carolina. The majority of the stores acquired were
temporarily closed for remodeling, stocking and training of employees. Six of the acquired stores were re-opened during the
fourth quarter of fiscal 2012. Subsequent to the end of fiscal 2012, two of the acquired stores were re-opened under a new format
and banner - “201central.” The 201central format features a worldwide variety of wine, beer, specialty foods and other selected
merchandise.
The Company continued with its planned new store development program and during fiscal 2012, has opened thirteen new
stores (which includes six of the stores acquired from Lowes Foods and one replacement) and closed eight stores (comprised
of the six stores sold to Lowes Foods, one replacement that opened in fiscal 2012 and one replacement that is expected to open
in fiscal 2013) for a net addition of five stores. In addition, one store located in the Washington D.C. market was closed due
to flooding that occurred in the third quarter of fiscal 2012. The Company is in the process of repairing damage and expects
to re-open the store during fiscal 2013. During fiscal 2011, the Company opened seven new stores and closed two stores for
a net addition of five stores, and during fiscal 2010, the Company opened 13 new stores and closed three stores for a net addition
of 10 stores. Much of the Company’s new store growth is focused on expanding its Washington, D.C. metro market area which
incorporates northern Virginia, the District of Columbia, southern Maryland and coastal Delaware. During fiscal 2011, the
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