“The investments we have made to increase our relevance to the customer are delivering results. We are driving more traffic, and we are increasing our market share,” said Howard R. Levine, Chairman and CEO. “While the near-term economic environment remains difficult to predict, I continue to be excited about the long-term opportunity for our business. We are seeing tangible benefits from our margin-enhancing investments in global sourcing and private brands, and as we work to drive further benefit from the investments we are making to expand profitability, I remain confident that our efforts will deliver stronger results as we progress through fiscal 2013 and beyond.”
Fiscal 2013 First Quarter Results
Commenting on the first quarter results, Levine said, “Early results from our sales-driving initiatives exceeded our expectations in the first quarter, resulting in more gross margin pressure than anticipated. This mix pressure, combined with expected headwinds from insurance expense, resulted in earnings that were at the low end of our guidance.”
Net sales for the quarter increased 12.7% to $2.42 billion compared to $2.15 billion in the first quarter of fiscal 2012. Sales were strongest in the Consumables category, which increased 18.5% during the quarter, driven primarily by strong growth in tobacco, food and health and beauty aids. During the quarter, the Company opened 125 new stores, closed one store, and renovated relocated or expanded 169 stores.
Comparable store sales for the quarter increased 6.6% as a result of increased customer traffic and an increase in the average customer transaction value.
Gross profit for the quarter increased 9.1% to $826.8 million, or 34.1% of net sales, compared to $757.6 million, or 35.3% of net sales, in the first quarter of fiscal 2012. As a percentage of sales, the impact of stronger sales of lower-margin consumables, higher markdowns and increased inventory shrinkage was partially offset by higher markups and lower freight expense.
Selling, general and administrative (SG&A) expenses, as a percentage of net sales, were 28.9% in the quarter compared to 29.2% in the first quarter of fiscal 2012. Most expenses were leveraged during the quarter. Additionally, as a percentage of net sales, lower store labor expenses were offset by higher insurance expense and higher marketing expense.
The effective income tax rate in the quarter was 36.4% as compared to 37.4% in the first quarter of fiscal 2012. The decrease in the effective tax rate was due primarily to foreign tax benefits associated with the Company’s global sourcing efforts and favorable resolution of uncertain state tax positions, which were partially offset by a decrease in federal jobs tax credits.
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