Consumer spending in the U.S. inched up in the month of January, up 0.1% from December. However, this was better than the drop of 0.3% in the month of December. One of the key reasons for the improvement was the decline in gasoline prices, which increased purchasing power, resulting in higher demand.
Therefore, supermarket chains, such as Ingles Market (IMKTA, Financial), are witnessing growing sales as more customers come into its stores. This resulted in a blockbuster third quarter, wherein both the top line and the bottom line exceeded analysts’ expectations. This led to a sharp increase in share price. Let us take a closer look at the results.
The tale of impressive numbers
Driven by higher demand for its products, revenue for the quarter surged 2.1% to $964.5 million, over last year. The growth in the top line was helped by same store sales growth of 2.3%. The key reason for this increase was a surge of 3.1% in average transaction size. However, the number of transactions fell, partially offsetting the effect of a higher transaction size.
The Grocery segment of the company also registered growth. Comp sales of this segment rose 1.4% and were driven by both the number of transactions and average transaction size.
The gross margin expanded 174 basis points to 23.3%, as compared to the previous year. Margins were helped by higher sales and a better product mix. Also, the company is able to enhance its operating efficiencies due to the new distribution facility opened in June 2012.
Moving ahead, the bottom line of the company was way ahead of last year’s number. Thus, earnings grew 57.7% to $0.74 per share, over last year’s quarter. Therefore, it is clear that the company is able to manage its costs pretty well. Further, it reduced its capex to $27.6 million from $30 million in the last year, and expects capex to be between $100 million to $140 million in 2015. However, it opened 1 new store during the quarter, along with the addition of 5 pharmacies and 10 fuel centers.
Further insights
Ingles Market faces tough competition from peers such as Whole Foods Market. Such retailers offer organic and natural food for the health conscious customers. Since people have become increasingly health conscious, they prefer to have food made of natural ingredients. Hence, such supermarket chains have gained popularity. Thus, Ingles Market too needs to strengthen its presence in this category.
As of now, the supermarket chain has 202 supermarkets in various south-eastern states. It also owns a fluid dairy facility that supplies to the supermarkets and unaffiliated customers. Furthermore, the company plans to expand its footprint in the coming months, which would help it grow. Hence, it increased the estimate for its capital expenditures.
Conclusive thoughts
The supermarket chain has performed well, but has very few strategies for the upcoming months. Although it plans to expand its presence, expansion of product assortment also needs to be done. Nonetheless, the retailer is being able to attract customers, boost its top line and register great profits.Ă‚
