Harris Teeter 2009 Annual Report Download - page 21

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17
Harris Teeter, Retail Grocery Segment
The following table sets forth the consolidated operating profit components for the Company’s Harris Teeter
supermarket subsidiary for fiscal years 2009, 2008, and 2007. The table also sets forth the percent to sales and
the percentage increase or decrease over the prior year (in thousands):
Fiscal 2009 Fiscal 2008 Fiscal 2007 % Inc. (Dec.)
% to
Sales
% to
Sales
% to
Sales
09 vs
08
08 vs
07
Net Sales ................ $ 3,827,005 100.00 $3,664,804 100.00 $3,299,377 100.00 4.4 11.1
Cost of Sales ............. 2,657,564 69.44 2,525,947 68.92 2,277,638 69.03 5.2 10.9
Gross Profit .............. 1,169,441 30.56 1,138,857 31.08 1,021,739 30.97 2.7 11.5
SG&A Expenses .......... 993,850 25.97 961,092 26.23 867,656 26.30 3.4 10.8
Operating Profit . . . . . . . . . . $ 175,591 4.59 $ 177,765 4.85 $ 154,083 4.67 (1.2) 15.4
Sales increased 4.4% in fiscal 2009 over fiscal 2008 and 11.1% in fiscal 2008 over fiscal 2007. The
increase in sales in fiscal 2009 was attributable to incremental new stores that was partially offset by a decline
in comparable store sales, whereas the increase in sales in fiscal 2008 was attributable to both incremental new
stores and comparable store sales increases. During fiscal 2009, Harris Teeter opened 15 new stores (2 of which
were replacements) and closed 2 stores. During fiscal 2008, Harris Teeter opened 15 new stores (2 of which
were replacements) and closed 3 stores and during fiscal 2007 Harris Teeter opened 19 new stores (2 of which
were replacements) and closed 7 stores. The increase in sales from new stores exceeded the loss of sales from
closed stores by $225.4 million in fiscal 2009, $275.7 million in fiscal 2008 and $230.1 million in fiscal 2007.
Comparable store sales (see definition below) decreased 1.49% ($53.1 million) for fiscal 2009, as compared to
increases of 2.86% ($91.3 million) for fiscal 2008 and 4.87% ($136.4 million) for fiscal 2007. Comparable store
sales were negatively impacted by retail price deflation and, to some extent, the cannibalization created by
strategically opening stores in key major markets that have a close proximity to existing stores. In addition, Harris
Teeter customers, in theses economic times, are choosing lower priced store branded products and reducing their
purchases of more discretionary categories such as floral, tobacco, and certain general merchandise. Store brand
product penetration was 25.38% in fiscal 2009, an increase of 10 basis points over fiscal 2008. The number of
shopping visits and items sold increased, however the average ticket size was down in fiscal 2009 from fiscal
2008. In addition, Harris Teeter experienced average increases in active households per comparable store (based
on VIC data) in fiscal 2009 of 3.31% for the fourth quarter and 1.86% for year, evidencing a growing customer
base in those stores. Harris Teeter’s strategy of opening additional stores in its core markets that have a close
proximity to existing stores can negatively impact comparable store sales. However, management expects these
stores, and any similar new additions in the foreseeable future, to have a strategic benefit of enabling Harris
Teeter to capture sales and expand market share as the markets it serves continue to grow.
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.
Fiscal 2009 gross profit as a percent to sales declined 52 basis points from fiscal 2008 as a result of
additional promotional activity designed to provide more value to Harris Teeter’s customers. Management
continues to adjust Harris Teeter’s promotional spending programs in response to the changing purchasing