Harris Teeter 2009 Annual Report Download - page 24

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20
Outlook
Harris Teeter’s operating performance and the Company’s strong financial position provides the flexibility
to continue with Harris Teeter’s store development program that includes new and replacement stores along with
the remodeling and expansion of existing stores. During fiscal 2010, Harris Teeter plans to open 13 new stores
(2 of which will be replacements for existing stores) and complete 2 major remodels (1 of which will be expanded
in size). The new store opening program for fiscal 2010 is expected to result in a 6.8% increase in retail square
footage as compared to an 8.7% increase in fiscal 2009. The annual number of new store openings for fiscal year
2011 and thereafter are expected to be similar to that of fiscal 2010 which is down from fiscal 2009. Management
will continue to evaluate Harris Teeter’s capital expenditures during these times of economic uncertainty and will
adjust its strategic plan accordingly. In addition, the Company routinely evaluates its existing store operations in
regards to its overall business strategy and from time to time will close or divest older or underperforming stores.
The new store program for fiscal 2010 anticipates the continued expansion of Harris Teeter’s existing markets,
including the Washington, D.C. metro market area which incorporates northern Virginia, the District of Columbia,
southern Maryland and coastal Delaware. Real estate development by its nature is both unpredictable and subject to
external factors including weather, construction schedules and costs. Any change in the amount and timing of new
store development would impact the expected capital expenditures, sales and operating results.
Startup costs associated with opening new stores under Harris Teeter’s store development program can
negatively impact operating margins and net income. In the current competitive environment, promotional costs
to maintain market share could also negatively impact operating margins and net income in future periods. The
continued execution of productivity initiatives implemented throughout all stores, maintaining controls over
waste, implementation of operating efficiencies and effective merchandising strategies will dictate the pace at
which Harris Teeter’s operating results could improve, if at all.
A&E has been able to diversify its customer base, product mix and geographical locations through acquisitions
and joint venture agreements completed in recent years. In addition, A&E continues to increase its investment
in China and India to support the growth opportunities in these countries and to become more Asian-centric.
A&E will find it difficult to generate significant improvements in profitability in the absence of a more favorable
retail environment. A&E management continues to focus on providing best-in-class service to its customers and
expanding its product lines throughout A&E’s global supply chain. In addition, management intends to continue to
reduce expenses at its U.S. operations and certain foreign operations, and to evaluate its structure to best position
A&E to take advantage of opportunities available through its enhanced international operations.
The Company’s management is cautious in its expectations for fiscal 2010 due to the current economic
environment and its impact on our customers. The Company will continue to refine its merchandising strategies
to respond to the changing shopping demands as a result of the challenging economic environment. The retail
grocery market remains intensely competitive and the textile and apparel environment faces additional challenges
during this recessionary period. Operating improvement will be dependent on the Company’s ability to increase
Harris Teeter’s market share, optimize A&E’s operations, offset increased operating costs with additional
operating efficiencies, and to effectively execute the Company’s strategic expansion plans.
Capital Resources and Liquidity
The Company is a holding company which, through its wholly-owned operating subsidiaries, Harris Teeter
and A&E, is engaged in the primary businesses of retail grocery and the manufacturing and distribution of
industrial thread, technical textiles and embroidery thread, respectively. The Company has no material
independent operations, nor material assets, other than the investments in its operating subsidiaries, as well
as certain property and equipment, cash equivalents and life insurance contracts to support corporate-wide
operations and benefit programs. The Company provides a variety of services to its subsidiaries and is dependent
upon income and associated cash flows from its operating subsidiaries.