Q1 2004 Ingles Markets, Incorporated Earnings Conference Call - Final.

(From Fair Disclosure Wire)

OPERATOR: Good day every one and welcome to the Ingles Markets incorporated conference call. At this time for opening remarks and introductions, I would like to turn the call over to vice president of finance, chief financial officer, Ms. Tudor. Please go ahead. BRENDA TUDOR, VP OF FINANCE AND CFO, INGLES MARKETS: Good morning. Welcome to Ingles Markets 2004 first quarter conference call. With me today are Robert Ingle, founder of our company, chairman of the board and chief executive officer, Jim Lanning, president, and Tom Outlaw, vice president of sales and marketing. Statements made on this call include forward-looking statements, which are based on current expectations, estimates, forecasts and projections about the company's business based on management's beliefs and assumptions. These statements are forward-looking statements within the meaning of section 27A of the Securities Act of 1933, section 21E of the Securities and Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995 and are subject to the Safe Harbor created by such laws. Words such as "expect", "anticipate", "intend", "plans" and "believe" and variations of such words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcome results may differ materially from what is expressed in this call. We do not undertake to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. For a description of factors that could cause actual results to differ materially from that anticipated by forward-looking statements, you are referred to the company's public filings including the Form 10-K for the fiscal year ended September 27th, 2003. Now I will give you a brief overview of our first quarter ended December 27th, 2003. Then we would be happy to take your questions. Hopefully you've all seen our press release. If not, it is available on our Web site at www.ingles-markets.com. We're pleased to report a 7.9% total sales growth and a 6.3% comparable store sales growth for the December 2003 quarter. This is the largest comparable store sales growth we've had in 18 quarters. Much of the increase is attributable to the introduction of our Ingles and Vantage Savings and Rewards card at the beginning of the December 2003 quarter. Obviously, the card was well received by our customers. Both customer traffic and average ticket price increased during the quarter. Gross profit dollars increased 1.2% for the first quarter, have a gross margin decreased to 24.7% compared to 26.3% last year. Aggressive promotional activities surrounding the card introduction fueled sales growth but it tightened margins. Operating expenses as a percentage of sales decreased to 22.1% for the December 2003 quarter compared to 23.3% for the December 2002 quarter due primarily to the increased sales volume. Operating expenses in dollars increased 2.4% due primarily to cost of $1.4 million incurred in connection with the card introduction. The $1.4 million in card for one-time card for design, purchasing cards and for one to retagging the stores, enrolling customers and extra advertising. Rental income for the December 2003 quarter declined $0.6 million over the prior-year quarter due primarily to the mark of the income from the sale of a shopping center in September 2003. You may recall the shopping center was sold at the end of the fourth quarter in 2003 at an $11.7 million gain. Operating income decreased $1.9 million in the December 2003 quarter, the result of the $1.4 million in introductory card costs and the $0.6 million decline in rental income. During the quarter, we sold an out parcel of land adjacent to an Ingles store site to a drug store chain at a pre-tax gain of $1 million. Interest expense increased $1.1 million for the December 2003 quarter, due primarily to the issuance on May 29th, 2003 of a $100 million add-on to the existing 8-7/8th unsecured subordinated notes due September 2011. A portion of price age from the additional note which used to reduce $30.5…