Spartan Stores surges on strong 4Q profit report

Shares of Spartan Stores Inc. rose Thursday, a day after the grocery store operator reported that an acquisition helped drive strong quarterly earnings.

Spartan Stores said late Wednesday its fiscal fourth-quarter net income rose 12 percent to $8.1 million, or 37 cents per share, as sales rose nearly 10 percent.

Same-store sales, or sales in stores open at least a year, rose 5.2 percent year over year. Same-store sales is a key indicator of retailer performance since it measures growth at existing stores, rather than newly opened ones.

The Grand Rapids, Mich., company said the purchase of Felpausch helped results, as well as incremental distribution sales to new and existing customers. Spartan, the nation's 10th largest grocery distributor, distributes more than 40,000 private-label and national brand products to nearly 400 independent grocery stores in Michigan, Indiana and Ohio. It also owns 84 supermarkets in Michigan.

Karen Short of Friedman, Billings, Ramsey said the company's adjusted earnings per share of 36 cents surpassed her own 31-cent estimate. She credited the improvement to better gross margins, which rose 60 basis points to 20.9 percent in the March quarter.

"We believe the company's valuation has been unnecessarily negatively impacted by an erroneous conclusion that the business will suffer if the economy in Michigan remains weak," Short said. The company's stock is down 7 percent in the year to date and 23 percent over the past year. "Yesterday's results should serve to convince the market that Spartan's business is strong, and we continue to believe the stock remains an attractive defensive play," Short added.

The stock added $2.41, or 11.3 percent, to $23.68 on volume nearly four times normal trading.