Harris Teeter 2009 Annual Report Download - page 22

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18
habits of Harris Teeter’s customers. The decline in the gross profit margin for fiscal 2009 was offset, in part,
by management’s emphasis on distribution and manufacturing cost controls, decreasing fuel costs and a lower
LIFO charge. Gross profit, and its percent to sales, for fiscal 2008 improved as a result of changes in Harris
Teeter’s market mix and its retail pricing and targeted promotional spending strategies. The annual LIFO charge
reduced gross profit by $4.4 million (0.12% to sales) in fiscal 2009, $8.8 million (0.24% to sales) in fiscal 2008
and $1.4 million (0.04% to sales) in fiscal 2007.
SG&A expenses for fiscal 2009 increased from fiscal 2008 as a result of incremental costs associated with
Harris Teeter’s new store program (pre-opening costs and incremental start-up costs), increased credit and debit
card fees and other occupancy costs. However, SG&A expenses as a percent to sales decreased 26 basis points in
fiscal 2009 from fiscal 2008 as a result of the leverage created through sales gains that apply against fixed costs,
along with improved labor management and additional cost controls in support departments. SG&A expenses
as a percent to sales decreased in fiscal 2008 from fiscal 2007 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 $14.4 million (0.37% of sales) in fiscal 2009, $15.4 million (0.42% of sales)
in fiscal 2008 and $17.9 million (0.54% of sales) in fiscal 2007. Pre-opening costs fluctuate between periods
depending on the new store opening schedule and market location.
As a result of the sales and cost elements described above, operating profit declined 1.2% in fiscal 2009
from fiscal 2008 and increased 15.4% in fiscal 2008 from fiscal 2007. Harris Teeter continues to invest within
its core markets, which management believes have greater potential for improved returns on investment in the
foreseeable future. Harris Teeter had 189 stores in operation at September 27, 2009, compared to 176 stores at
September 28, 2008 and 164 stores at September 30, 2007.
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 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 ....................... $250,817 100.00 $327,593 100.00 $339,831 100.00 (23.4)(3.6)
Cost of Sales .................... 202,901 80.90 258,003 78.76 265,223 78.05 (21.4)(2.7)
Gross Profit ..................... 47,916 19.10 69,590 21.24 74,608 21.95 (31.1)(6.7)
SG&A Expenses ................. 52,646 20.99 67,262 20.53 73,184 21.53 (21.7)(8.1)
Goodwill Impairment ............. 7,654 3.05 — — — — n.m. n.m.
Long-Lived Asset Impairments . . . . . 2,237 0.89 — — — — n.m. n.m.
Operating (Loss) Profit ............ $(14,621)(5.83) $ 2,328 0.71 $1,424 0.42 n.m. 63.6
Sales decreased 23.4% in fiscal 2009 from fiscal 2008 and 3.6% in fiscal 2008 from fiscal 2007. The decrease
in fiscal 2009 was driven primarily by sales declines for all regions between the comparable fiscal years. The
global recession and its continuing negative impact on consumer spending is depressing the worldwide supply
chain and A&E’s customers have cut back orders in response to the reduction of retail sales. The decrease in
fiscal 2008 was driven primarily by sales declines in the United States, Canada and Mexico (the North American
Free Trade Association Region or “NAFTA”) from fiscal 2007. Sales gains during fiscal 2008 in A&E’s Asian
operations were offset by the sales declines realized in NAFTA.
Foreign sales accounted for approximately 55% of total A&E sales in both fiscal 2009 and fiscal 2008, and
54% in fiscal 2007. Foreign sales, especially in the Asian markets, will continue to be a significant proportion
of total A&E sales due to the shifting global production of its customers and A&E’s strategy of increasing its