Harris Teeter 2009 Annual Report Download - page 17

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13
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 Item 1A
“Risk Factors” 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 primarily in two business segments through two wholly owned subsidiaries: retail
grocery (including related real estate and store development activities) – operated by Harris Teeter, and industrial
sewing thread (textile primarily), including embroidery thread and technical textiles – operated by A&E. Harris
Teeter is a regional supermarket chain operating primarily in the southeastern and mid-Atlantic United States,
including the District of Columbia. A&E is a global manufacturer and distributor of sewing thread for the
apparel and other markets, embroidery thread and technical textiles. The Company evaluates the performance
of its two businesses utilizing various measures which are based on operating profit.
The economic environment has motivated changes in the consumption habits of the retail consumer
which has impacted the financial results of both operating subsidiaries. Unprecedented economic uncertainty,
tumultuous market conditions, and a decreasing level of consumer confidence has created a more cautious
consumer and increased the competitive environment in Harris Teeter’s primary markets. Harris Teeter competes
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, Harris Teeter’s markets continue to experience new store opening activity and aggressive
feature pricing or everyday low prices by competitors. In response, Harris Teeter utilizes information gathered
from various sources, including its Very Important Customer (“VIC”) loyalty card program, and works with
suppliers to deliver effective retail pricing and targeted promotional spending programs that drive customer
traffic and create value for Harris Teeter customers. In addition, Harris Teeter differentiates itself from its
competitors with its product selection, assortment and variety, and its focus on customer service. These efforts
along with Harris Teeter’s new store development program have resulted in overall gains in market share within
Harris Teeter’s primary markets.
Harris Teeter continued its planned new store development program and has opened 15 new stores during
fiscal 2009, 15 new stores during fiscal 2008 and 19 new stores during fiscal 2007. Much of Harris Teeter’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. The new store activity, and its
associated pre-opening and incremental start-up costs, has required additional borrowings under the Company’s
revolving credit facility.
Business conditions for A&E’s customers have also been negatively impacted by the current economic
environment and the cautious consumer. A&E has experienced a significant decline in sales as a result of the
serious global economic conditions facing its customers in the apparel and non-apparel markets. In addition,
apparel production in the Americas has continued to decline due to the shift of apparel sourcing from the
Americas to other regions of the world, predominately Asia. It has been estimated by the U.S. Department of
Commerce Office of Textiles and Apparel that Asia and the Indian sub-continent accounted for approximately
69% of the apparel imports into the U.S. in 2006, approximately 73% in 2007, approximately 74% in 2008
and approximately 76% for the first eight months in 2009. This has greatly impacted A&E’s operations in the
Americas. As a result, A&E’s strategic plans have included the expansion of its operations in the Asian markets
and the expansion of product lines beyond apparel sewing thread.