The third-quarter results for Ingles
Now, taken in context, the quarter wasn't quite as bad as it looked. Net income plummeted by 71% to $4.7 million, or $0.19 per share, on a 1% drop in revenues to $826.8 million. But a year ago, gasoline prices were higher by about $1.50 per gallon, and that difference represents most of the weakness in Ingles' top line. In fact, excluding gas revenues, net sales rose by more than 5%, and customer transactions increased by nearly 8%.
So why the big drop in profits? If it seems that something isn't adding up, you're right.
Money in the bank
Ingles' leadership decided that the time had come to refinance its existing debt. So the company tapped the high-yield debt market -- as Wendy's/Arby's Group
Ingles used most of that cash to redeem its outstanding 2011 notes, as well as other secured debt and lines of credit. By repaying its 2011 debt early, the company had to take a $10.2 million loss that had a significant impact on its bottom line.
It's clear that Ingles is trying to build a newer look to stand out from competitors such as Whole Foods Market
Ingles has no plans for further expansion in 2009, but management said it continues to carefully evaluate future projects. But the company's competitors aren't standing still, and unless Ingles can build a stronger image of its own, it could experience big problems down the road.
Is it a smart buy?
Making an investment in a grocery-store chain takes courage. With razor-thin profit margins, the industry is ultracompetitive.
Threats to Ingles don't come only from well-known publicly listed grocers such as Safeway
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Fool contributor Chris Jones owns no shares of any company mentioned in this article. Whole Foods Market is a Motley Fool Stock Advisor selection. Wal-Mart is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletter services free for 30 days. And Daddy, won't you take me back to Muhlenberg County, down by the Green River where Paradise lay? Well, I'm sorry, my son, but you're too late in asking. The Motley Fool's disclosure policy has hauled it away.