Harris Teeter 1997 Annual Report Download - page 15

Even Better
1997 ANNUAL REPORT
1113
Results of Operations – Fiscal 1997 Compared
to Fiscal 1996
For fiscal year 1997, consolidated sales of $2.3 billion
increased 7.4% over the $2.14 billion reported in fiscal
1996. Consolidated net income of $47.7 million was up
11.5% from the $42.8million reported last year. On a per
share basis, earnings were $1.02 for fiscal 1997, an increase
of 10.9% when compared to $.92 reported in fiscal 1996.
Fiscal 1997 consolidated operating profit increased 14.1%
due to record profitability at American & Efird.
In fiscal 1997, the 11.5% increase in net income was
achieved despite a rise in the Company’s effective income
tax rate to 33% (31% in 1996), driven by a combination of
reduced tax benefits from Company owned life insurance
(“COLI”) and higher relative pre-tax income from opera-
tions. The favorable tax attributes of COLI will continue to
diminish as a result of 1996 federal tax legislation which
will phase out policy interest deductions by 1999.
Harris Teeter, Inc. Sales advanced by 5% in fiscal 1997. In
the supermarket industry environment, where intense com-
petition shows no signs of abating, Harris Teeter sales for
stores in operation in both periods were marginally ahead
by 0.1% in fiscal 1997, compared to 3.9% in fiscal 1996.
Sales increases were primarily due to an 8% expansion in
store square footage over the course of the year, increased
advertising and promotion and the successful system-wide
rollout of the new customer loyalty card (the VIC Card)
introduced in 1996. Grocery sales grew by 4% and accounted
for 36% of the sales increase. Dairy, meat, produce and
frozen products had sales increases ranging from 4% to
10% and accounted for 44% of the sales increase.
Operating profit fell by 6% to $45.7million in fiscal 1997,
primarily as a result of expenses related to the opening of a
record number of new stores, as well as several major store
remodels during the year and higher fixed costs associated
with those stores. These costs were partially offset by
greater sales volume and a favorable product mix of higher
margin items.
At the end of fiscal 1997, 138 stores were in operation,
compared to 134 a year ago. During the year, thirteen new
stores were opened, five of which were replacements, and four
additional, less profitable stores were sold or closed. During
fiscal 1997, charges to a $5.3million reserve established in
1993 for the closing of specified stores to be replaced, which
stores have been closed, totaled $1.3million, for a cumulative
total of $4.4million for all periods to date.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
American & Efird, Inc. Sales increased 19% over fiscal 1996.
This sales growth was primarily due to the inclusion of a
full year’s sales from the June 1996 acquisition of certain
assets of Threads USA, moderate additions to business
with existing U.S. customers and an increase in foreign
sales. Further, sales growth was driven by good market
conditions in most major industries served by A&E, while
during the prior year relative weakness in thread sales was
primarily related to weak apparel sales at retail. Sales
increases were primarily in industrial sewing thread, and
consumer thread and notions sales declined modestly. A&E
believes that its ability to meet the increasing demands of its
customers for top-quality, high-performance industrial
thread in both the apparel and home furnishings markets
provides an opportunity for future growth. Operating prof-
it advanced by 42% to $49.1 million in fiscal 1997 compared
to $34.7million in the prior year. Operating profit was
positively impacted by additional sales volume and the
successful integration of the Threads USA business into
existing facilities, which resulted in improved operating
efficiency, by the renovation and upgrading of a Threads
USA manufacturing facility and by the improved perfor-
mance in a number of foreign operations.
The integration of Threads USA is near completion,
including the consolidation of manufacturing and adminis-
trative operations, customer conversion and sales force reor-
ganization. A new customer support center is also planned,
and construction is expected to begin by early 1998.
Sales by foreign operations made up 20% of A&E’s
total sales and 14% of its operating profit. While foreign
sales and profits were not material to the Company’s
consolidated results of operations, they continued to build
significantly. NAFTA and the Caribbean Basin Initiative
continued to drive strong performances in Mexico and the
Caribbean, due to the growth of apparel manufacturing in
Central and South America. The A&E majority-owned
joint venture in China also evidenced strong growth, and
export sales continued to expand. Slightly offsetting such
improvements were weak financial results in the Korean and
Malaysian operations, due to poor economic conditions
and currency devaluation. Lastly, A&E has begun the
process of establishing operations in India.
Results of Operations – Fiscal 1996 Compared
to Fiscal 1995
For fiscal year 1996, consolidated sales of $2.14 billion
increased
6.6% over the $2.01 billion reported in fiscal 1995.