As part of its ongoing distribution network optimization efforts, Spartan Stores, Inc. announced that it plans to operate all supply chain activities from its Grand Rapids, Michigan distribution center.
Part of the optimization strategy includes the potential closure of the Company’s 415,000 sq. ft. Plymouth, Michigan dry grocery warehouse by the end of its fiscal 2010 fourth quarter. The Plymouth warehouse operating lease is set to expire in October 2010 and the Company’s current collective bargaining agreement with employees at the facility will expire in April 2010. The Company intends to promptly engage in negotiations with the Teamsters Local 337, which represents the approximately 140 Plymouth, Michigan facility bargaining unit employees, prior to making a final decision on closing the Plymouth facility. As part of the negotiations, the Company expects to offer employment opportunities for Plymouth Teamster employees at its Grand Rapids, Michigan distribution center. In conjunction with the warehouse optimization, the Company will implement an administrative cost reduction initiative.
These initiatives are expected to improve the distribution segment’s operational efficiency by increasing inventory turns, warehouse thru-put and capacity utilization, while reducing administrative expenses and inventory investment requirements. If the closing and optimization of the warehouse facility are implemented, along with the administrative cost reduction initiative, the Company expects to incur a fiscal 2010 fourth-quarter net after tax charge of approximately $1.5 to $2.0 million for severance, warehouse and asset impairment costs. The Company also expects to incur a fiscal 2011 first-quarter net after tax benefit of approximately $0.2 to $0.6 million for a favorable LIFO benefit due to inventory reductions net of lease termination and additional distribution center closing costs that are anticipated to occur during the quarter. Excluding the previously mentioned charges, annualized after tax cost savings from these initiatives are expected to range from approximately $2.0 million to $3.0 million.
“This is another important step in our ongoing strategy of continuously improving efficiency and lowering costs in our operations,” said Dennis Eidson, Spartan’s President and Chief Executive Officer. “During the past several years, we have prudently invested capital to upgrade our distribution system technology, expand our produce ripening operations, upgrade our entire fleet of trucks, and just recently completed a major warehouse re-racking project at our Grand Rapids grocery distribution facility that significantly increased warehouse capacity and improved space utilization. These investments have significantly improved our dock scheduling, traffic management, inbound freight and transportation routing system.
“The optimization of our distribution facilities and the current economic conditions provided us with an opportunity to restructure certain aspects of our organization,” said Mr. Eidson. “As such, we will be able to eliminate a number of administrative positions. Collectively, these initiatives will strengthen our competitive position and help ensure that we continue to remain the low cost supplier in our markets for many years to come.”
Mr. Eidson continued, “As previously disclosed, we expected the near-term economic climate in Michigan to continue weakening and pressure our sales and earnings performance as the year progressed. Based on our current view of market trends and Michigan’s nation leading unemployment rate of nearly 15 percent, these expectations are materializing. The economic climate in Michigan remains challenging due to the persistent high unemployment rate and tightening consumer spending patterns. In addition, we continue to experience price deflation in some high volume product categories, pricing pressure in fuel and heightened competition in certain markets due to new store openings. Consequently, we now expect comparable store sales to be in the negative mid-single digit range for the third and fourth quarters compared with our previous expectation of a decline in the low-to-mid single digit range. We also now expect a commensurate sales decline in our distribution segment, excluding the elimination effect on distribution sales related to our VG’s acquisition. Profitability in the third and fourth quarters will be affected by these circumstances and we now expect fiscal 2010’s third quarter earnings per share to range between $0.21 and $0.25.”