Harris Teeter 1997 Annual Report Download - page 16

Ruddick
RUDDICK CORPORATION
AND SUBSIDIARIES
14
Consolidated net income of $42.8million was up 9% from
the $39.3million reported in fiscal 1995. On a per share basis,
earnings from continuing operations were $.92 for
fiscal
1996, an increase of 9.5% when compared to $.84
reported in fiscal 1995. The discontinued operations of the
printing business segment, the assets of which were sold in
January 1996, generated no significant earnings or loss
during either fiscal year. Fiscal 1996 consolidated operating
profit increased 8.4%, led by gains at Harris Teeter.
On June 3, 1996, American & Efird completed the
acquisition of certain assets of Threads USA. The assets
included the plants and equipment at four manufacturing
facilities in Gastonia, N.C. and the equipment at one man-
ufacturing facility in Puerto Rico.
Harris Teeter, Inc. Sales in fiscal 1996 increased 7% over
fiscal 1995. Sales for stores in operation in both periods
were ahead 3.9% compared to 6.5% in 1995. Sales increas-
es were attributable to customer acceptance of larger,
new-format stores, strong feature plans, merchandising and
advertising, strong holiday sales and a 4% increase
in store square footage during fiscal 1996. Grocery sales
were up 6%, which accounted for 43% of the sales increase.
Dairy, meat, produce and frozen products had sales increas-
es ranging from 4% to 10% and accounted for 38% of the
sales increase. Operating profit showed an improvement of
15% over 1995, derived mainly from higher sales volume, a
favorable product mix of higher gross margin items and
continued control of ongoing operating expenses. Pre-opening
expenses associated with aggressive new store openings and
major remodels served to increase operating expenses in the
year. Several store prototypes of varying sizes were devel-
oped in 1996 in an effort to enable efficient store sizing to
specific markets, amenities to customers and standardized,
reduced construction costs.
At the end of fiscal 1996, 134 stores were in operation,
compared to 139 in 1995. During fiscal 1996, seven smaller
stores in less urban markets were sold at no significant gain
or loss. Nine new larger stores were opened during the year,
four of which were replacement stores, and three addition-
al smaller stores were closed. Four of the stores closed in
fiscal 1996 were closed under a previously announced mar-
keting strategy and related plan to replace a finite number
of smaller, less competitive stores in specified markets with
larger stores. A reserve of $5.3million was established in fis-
cal 1993 for the direct costs of these future store closings.
Charges incurred in fiscal 1996 were $1.5million and cumu-
latively, $3.1million. The closings were substantially com-
pleted by 1996 year end, except for the payment of future
rents. Management anticipates that the remaining charges
to be incurred, primarily closed store rents, will not materially
effect the Company’s operating results or its financial position.
American & Efird, Inc. Sales increased 4% over fiscal 1995.
This increase was achieved during a period of poor demand
for thread due to weak retail sales of apparel and home fur-
nishings. Gradual improvement in U.S. market conditions
was evidenced toward the 1996 fiscal year end. The pur-
chase of the assets of Threads USA in the June quarter, by
which A&E became the largest U.S. industrial sewing
thread company, contributed $24.8million to the sales
increase although only four months of sales from this
acquisition were reflected in fiscal 1996. The sales increase
was primarily due to industrial sewing thread sales as con-
sumer thread and notions sales recorded a modest decline
for the year. Operating profit of $34.7million was slightly
ahead of 1995. Utilizing sales from the Threads USA acqui-
sition resulted in improved operating schedules, which had a
positive impact on operating profit for the year. A&E
responded to the weak domestic demand for thread by exer-
cising tight control of inventories and operating costs while
improving quality and customer service.
Significant progress was achieved towards integrating
Threads USA into A&E and reducing costs in the Threads
USA facilities. As of the 1996 fiscal year end, A&E was
continuing the process of integrating the Threads USA
operations into its own. The nature and location of product
lines and facilities of the two companies were enabling A&E
to combine and streamline manufacturing, reduce duplica-
tive general and administrative expenses and integrate the
qualified, skilled workforce of Threads USA.
Sales by foreign operations comprised 18% of A&E’s
total sales and 7% of its operating profit. While not material
to the Company’s consolidated financial results, foreign
sales and operating profits increased over the 1995 fiscal
year, with all foreign subsidiaries except Canada and Costa
Rica reporting improved earnings. NAFTA had stimulated
growth of apparel manufacturing in Central and South
America. As a result, A&E subsidiaries in Mexico, Costa
Rica and the Dominican Republic displayed growth, and
A&E’s U.S. production benefited from export growth.
Additionally, A&E announced commitments to establish
future operations in China and India to enhance its position
in Asia.