The recent acquisition of the Gourmet Garage specialty mini-chain in New York helped Village Super Market post a sales gain in its fiscal first quarter, but falling margins and increased expenses led to a sharp decline in net earnings for the period.
The Springfield Township, N.J.-based ShopRite operator said sales in the quarter, which ended Oct. 26, increased by 1.5% overall to $407 million, with help from the July acquisition of Gourmet Garage and by a 0.1% increase in same-store sales. The company said comps increased due to continued sales growth in its Bronx store, other recently remodeled or replaced stores, and continued growth of the ShopRite From Home e-commerce offering, including expansion to four additional stores. Those increases were partially offset by the effect of two competitor store openings, decreased promotional spending in Maryland and reduced sales in a store in Stroudsburg, Pa., leading up to its closure.
The Stroudsburg store closed as Village opened a nearby replacement Nov. 1. About $600,000 in preopening expenses for the new store and a $200,000 lease termination expense for the closing unit contributed to increased expenses in the period that weighed on net earnings. For the period, Village posted net income of $2.6 million vs. $6.3 million in the same period last year. Adjusted for expenses in this period and for insurance proceeds realized in the first quarter last year, net income was down by 44%.
Gross profit as a percentage of sales dipped slightly in the quarter to 27.87% of sales from 27.92% in the previous year, also contributing to the earnings decline.
Excluding Gourmet Garage, margins fell by 26 basis points due to decreased departmental gross margin percentages, primarily in pharmacy, and increased warehouse assessment, partially offset by a favorable change in product mix and decreased LIFO charges.
The introduction in early October of ShopRite’s “Right Price Promise” program providing lower everyday pricing on frequently purchased items also contributed to the margin decrease.
Excluding one-time events in both quarterly periods, operating and administrative expense as a percentage of sales increased by 0.79% due primarily to increased payroll, benefit and occupancy costs.
Payroll costs increased primarily because of the addition of Gourmet Garage and the expansion of e-commerce. Occupancy costs increased primarily due to the addition of Gourmet Garage and increased common area maintenance charges, Village said.
Village, a member of the Wakefern Food Corp. cooperative, operates 30 ShopRite stores in four states, along with three Gourmet Garage stores in Manhattan. It said it expects same-store sales in fiscal 2020 to range from a 2% decline to flat.