Competitive Retailer Report: Second Quarter Net Income Flat For Stater Bros. Supermarkets Due In Part to Holding the Line on Price Increases

Stater Bros. Holdings, which operates the Stater Bros. supermarket chain with stores in Southern California's Inland Empire region and other parts of the Southland, reported flat earnings for the second quarter that ended March 30, 2008.

Stater Bros., which is the food and grocery sales market share leader in the huge twin-county (San Bernardino and Riverside) Inland Empire region where Tesco is making a major push with its Fresh & Easy grocery stores, reported net income for the 13-week second quarter of $13.5 million, which happens to be identical with the grocery chain's net income a year ago in the same quarter.

Second quarter sales at Stater Bros'. supermarkets however increased by 7% to $925.4 million, and same store sales 3.7%.

Year-to-date, the supermarket chain's net income rose 4.3% to $24.3 million, with sales up a respectable 5.5% to $1.9 billion and same store sales up 3.5%.

Phil Smith, executive vice president and chief financial and administrative officer, said gross profit margins fell 111 basis points to $27.68% in the quarter and 95 basis points to 27.80% in the half "due to not passing on inflation in product costs and investment of gross margin to increase sales.

In other words, Stater Bros. is holding the line on reflecting complete price increases (resulting in taking some gross margin hits when needed) due primarily to the poor state of the California (and U.S.) economy and soaring food inflation, along with related competitive pressures caused by these two factors.

Stater Bros. operates about 160 supermarkets in Southern California. about half the total number of stores are in the Inland Empire region counties of San Bernardino and Riverside. The remaining supermarkets are located in other parts of Southern California.

The twin-county Inland Empire region is a major target market for Tesco. The retailer plans to have about 45 of its small-format, convenience-oriented grocery stores open in the region by sometime in the middle of next year. It already operates numerous stores in the region.

Tesco's Fresh & Easy Neighborhood Market's corporate headquarters and huge 800,000-plus square foot distribution center also are located in the Inland Empire region, in Riverside County.

Last year Stater Bros. opened its own new corporate headquarters and mega distribution center facility--nearly 2 million square feet total--at a site on the former Norton Air Force Base in San Bernardino County. The distribution center is believed to be the biggest single-facility built to date in the U.S. by a supermarket chain, and allows Stater Bros. to grow its store-base considerably.

Stater Bros. has operated supermarkets in the Inland Empire region and other parts of Southern California for nearly 75 years.