Stater Bros. CFO: Refinancing will help company withstand challenges

By Jennifer Lanning Drey

Savannah, Ga., Feb. 9 - Stater Bros. Holdings Inc. believes its recent debt refinancing actions and related reduction in interest rates, along with an emphasis on operating cost control, will allow the company to weather challenges affecting sales and gross margins, Phillip Smith, Stater Bros.' chief financial officer, said Wednesday during the company's first-quarter earnings conference call.

Stater Bros. has reduced its debt by $125 million since the start of the first quarter through a series of transactions in which the company retired early all of its outstanding 8 1/8% senior notes.

The company funded the early retirement of the notes through the issuance of $255 million of unregistered 7 3/8% senior notes due November 2018, as well as by entering into a $145 million secured term loan and using cash on hand.

Stater Bros.' supermarket sales declined 2.31% in the first quarter, compared to the same period in 2010. Consolidated sales in the first quarter were $899.0 million, versus consolidated sales of $923.9 million in the first quarter of 2010.

"The high unemployment rate in our marketing areas and the current weak economic conditions and significant competitive environment of southern California is challenging our top line sales and gross margins," Smith said.

Stater Bros. anticipates lower sales in fiscal 2011 as compared to 2010, he said.

The company was in compliance with all of its debt covenants at the Dec. 26 close of the period.

First-quarter net income dropped to $1.3 million, compared to net income of $6.7 million in the comparable prior-year period. Net income in the first quarter of 2010 included an after-tax gain of $4.7 million from the company's dairy asset sale, while the current-year figure included after-tax charges of $3.0 million involving one-time costs from the refinancing.

Stater Bros. had $218.18 million of cash and cash equivalents at Dec. 26, according to its earnings release.

Based in Colton, Calif., Stater Bros. is a supermarket chain.

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