Harris Teeter 2010 Annual Report Download - page 23

selected items (price investment) reduced the gross profit margin by 71 basis points during fiscal 2010 and 72 basis
points during fiscal 2009. The reduction in the gross profit margin in fiscal 2010 was offset, in part, by the annual
LIFO adjustment. The reduction in fiscal 2009 was offset, in part, by the annual LIFO adjustment and management’s
emphasis on distribution and manufacturing cost controls and decreased fuel costs. The annual LIFO adjustment
was a credit of $1.6 million (0.04% to sales) in fiscal 2010, a charge of $4.4 million (0.12% to sales) in fiscal 2009
and a charge of $8.8 million (0.24% to sales) in fiscal 2008. The LIFO adjustment during the comparable periods
was driven by a decrease in annualized product cost inflation for those categories of inventory on the LIFO method
of valuation. Distribution operating efficiencies, including lower fuel costs, accounted for a 10 basis point reduction
in distribution costs during fiscal 2009.
SG&Aexpenses increased during fiscal 2010 and fiscal 2009 when compared to prior years, due to incremental
store growth and its impact on associated operational costs such as labor, credit and debit card fees, rent and other
occupancy costs. The increase in SG&A expenses (excluding advertising and support department costs) over the
previous year for stores opened in fiscal 2010 accounted for $45.0 million of the $52.0 million increase in total
SG&A expenses from fiscal 2009 to fiscal 2010. The increase in SG&A expenses (excluding advertising and support
department costs) over the previous year for stores opened in fiscal 2009 ($38.2 million) exceeded the $32.8 million
increase in total SG&A expenses from fiscal 2008 to fiscal 2009. SG&A expenses as a percent to sales decreased
46 basis points from fiscal 2009 to fiscal 2010 and decreased 26 basis points from fiscal 2008 to fiscal 2009, as
a result of the leverage created through sales gains that apply against fixed costs, along with improved labor
management and cost reductions in support departments. Even though store labor and associated benefit costs
increased, as a result of Harris Teeter’s new store growth, there was a 23 basis point reduction in these costs as
a percent to sales from fiscal 2009 to fiscal 2010 and a 19 basis point reduction from fiscal 2008 to fiscal 2009.
Reduced costs in advertising and support departments represented a 42 basis point reduction on a percent to sales
basis between fiscal 2009 and 2010 and a 40 basis point reduction between fiscal 2008 and 2009. 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 $8.4 million (0.20% of sales)
in fiscal 2010, $14.4 million (0.37% of sales) in fiscal 2009 and $15.4 million (0.42% of sales) in fiscal 2008. 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 and one additional week of operations in fiscal
2010, operating profit increased 3.4% in fiscal 2010 from fiscal 2009, as compared to a 1.2% decline in operating
profit from fiscal 2008 to fiscal 2009. 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 199
stores in operation at the end of fiscal 2010, compared to 189 stores at the end of fiscal 2009 and 176 stores at
the end of fiscal 2008.
American & Efird, Industrial Thread Segment
The following table sets forth the consolidated operating profit components for the Company’s A&E textile
subsidiary for the 53 weeks of fiscal 2010 and the 52 weeks of fiscal years 2009 and 2008. The table also sets forth
the percent to sales and the percentage increase or decrease over the prior year (in thousands):
Fiscal 2010 Fiscal 2009 Fiscal 2008 % Inc. (Dec.)
%to
Sales %to Sales %to Sales 10 vs 09 09 vs 08
Net Sales ................... $301,097 100.00 $250,817 100.00 $327,593 100.00 20.0 (23.4)
Cost of Sales ................ 228,685 75.95 202,901 80.90 258,003 78.76 12.7 (21.4)
Gross Profit ................. 72,412 24.05 47,916 19.10 69,590 21.24 51.1 (31.1)
SG&A Expenses ............. 52,907 17.57 52,646 20.99 67,262 20.53 0.5 (21.7)
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 ........ $ 19,505 6.48 $ (14,621) (5.83) $ 2,328 0.71 n.m. n.m.
Sales increased 20.0% in fiscal 2010 from fiscal 2009 and decreased 23.4% in fiscal 2009 from fiscal 2008.
The fiscal 2010 increase was attributable to sales gains between the comparable fiscal years for the U.S. and all
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