Harris Teeter 2010 Annual Report Download - page 25

containment and its strategic plans to become more Asian centric. A&E has made good progress in becoming more
Asian centric through investments in various non-consolidated subsidiaries that have substantial sales and good
operating results. A&E currently has over 60% of its total finishing production capacity located in Asia, including
its joint ventures, which emphasizes A&E’s progress toward its strategic plans.
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 2011, Harris Teeter plans to open 8 new stores (one
of which will replace an existing store) and complete major remodels on 8 stores. The fiscal 2011 new store openings
are currently scheduled for 2 in the first quarter, 3 in the second quarter, 1 in the third quarter and 2 in the fourth
quarter which will result in a 4.1% increase in retail square footage as compared to a 6.4% increase in fiscal 2010.
The decrease in planned new store openings from fiscal 2010 to fiscal 2011 reflects the Company’s efforts, as
previously initiated and disclosed, to delay new store openings during these challenging economic times. The annual
number of new store openings in future years is expected to be similar to current plans for fiscal 2011. 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, Harris Teeter 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 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. Although
A&E has benefited from improved business conditions and the cost reduction measures taken in fiscal 2009, the
economic environment for A&E’s customers could worsen in the future. 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 evaluate its structure to best position A&E to take advantage
of opportunities available through its enhanced international operations.
On November 30, 2010, the Company closed on the sale of its interest in a foreign investment company. As
a result of this transaction, the Company will record a pre-tax gain of approximately $19 million during the first
quarter of fiscal 2011.
The Company’s management remains cautious in its expectations for fiscal 2011 due to the current economic
environment and its impact on the Company’s customers. Harris Teeter will continue to refine its merchandising
strategies to respond to the changing shopping demands and to maintain or increase its customer base. The retail
grocery market remains intensely competitive and there is no assurance that the recent improvements in the textile
and apparel industries will continue. Any operating improvement will be dependent on the Company’s ability to
increase Harris Teeter’s market share, to continue to rationalize A&E’s operations, to 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
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