Harris Teeter 2008 Annual Report Download - page 21

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Harris Teeter considers its reporting of comparable store sales growth to be effective in determining core
sales growth during periods of fluctuation in the number of stores in operation, their locations and their sizes.
While there is no standard industry definition of “comparable store sales,” Harris Teeter has been consistently
applying the following definition. 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 measurement 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.
Gross profit, and its percent to sales, for fiscal 2008 and 2007 continued to improve as a result of changes
in Harris Teeter’s market mix and its retail pricing and targeted promotional spending strategies. Improvements
have also been realized from the continued emphasis Harris Teeter places on distribution, manufacturing and
store level productivity efforts, private label branding, assortment and product mix, in addition to volume
increases. These improvements help offset higher fuel costs and increased LIFO charges.
SG&A expenses as a percent to sales has continued to decrease from prior years, as a result of the leverage
created through sales gains that apply against fixed costs. Included with SG&A expenses are pre-opening
costs, which 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 $15.4 million (0.42% of sales) in fiscal 2008,
$17.9 million (0.54% of sales) in fiscal 2007 and $15.8 million (0.54% of sales) in fiscal 2006. These costs will
fluctuate between reporting periods depending on the new store opening schedule and market location. As
previously disclosed, incremental 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 a continued emphasis on operational
efficiencies and overhead cost containment during this time of expansion, have provided the savings that offset
the increased costs associated with Harris Teeter’s new store program (pre-opening costs and incremental start-
up costs), increased petroleum-based supply costs, associate benefit costs, credit and debit card fees, and new
store occupancy costs.
The improvements in operating profit as a percent to sales in each of fiscal 2008 and fiscal 2007 resulted
from the sales and cost elements described above. Harris Teeter continues to concentrate on its core markets,
which management believes have greater potential for improved returns on investment in the foreseeable future.
Harris Teeter had 176 stores in operation at September 28, 2008, compared to 164 stores at September 30, 2007
and 152 stores at October 1, 2006.
American & Efird, Industrial Thread Segment
The following table sets forth the consolidated operating profit components for the Company’s A&E textile
subsidiary for fiscal years 2008, 2007 and 2006. The table also sets forth the percent to sales and the percentage
increase or decrease over the prior year (in thousands):
Fiscal 2008 Fiscal 2007 Fiscal 2006 % Inc. (Dec.)
% to
Sales % to Sales % to Sales 08 vs 07 07 vs 06
Net Sales .................... $327,593 100.00 $339,831 100.00 $343,177 100.00 (3.6) (1.0)
Cost of Sales ................. 258,003 78.76 265,223 78.05 268,892 78.35 (2.7) (1.4)
Gross Profit .................. 69,590 21.24 74,608 21.95 74,285 21.65 (6.7) 0.4
SG&A Expenses .............. 67,262 20.53 73,184 21.53 72,706 21.19 (8.1) 0.6
Operating Profit . . . . . . . . . . . . . . $ 2,328 0.71 $ 1,424 0.42 $ 1,579 0.46 63.6 (9.8)