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F&M DISTRIBUTORS PLANS TO OPEN NINE DISCOUNT H&BA STORES

This article was originally published in The Tan Sheet

Executive Summary

F&M DISTRIBUTORS PLANS TO OPEN NINE DISCOUNT H&BA STORES during the balance of fiscal 1994, ending Jan. 31. The plans for the new F&M "superstores" would bring the company's total to 125 outlets, if the discount retailer does not close any other stores during the rest of the year. F&M opened 10 new stores during fiscal 1993, one of which was a relocation. The firm discussed its expansion program in a July 12 filing with the Securities and Exchange Commission. F&M plans to open its new stores in existing or contiguous markets. The firm's outlets are located in Detroit, Chicago, Washington, D.C./Baltimore, Minneapolis/St. Paul and Boston. Over the last five years, the number of outlets operated by the firm has grown from 48 to 116. The company's current prototypical store contains approximately 37,000 square feet. F&M, which claims to have originated the deep discount health and beauty aid business in 1955, also sells household products and some snack and pharmacy items. F&M's net sales for the first quarter ended May 1 were $ 174.6 mil., down 1.4% from the same period the previous year. The firm attributed the decline to "relatively weak consumer confidence levels and general conditions of the economy," as well as to "severe weather conditions in several of the company's key markets." Comparable store sales declined 4% versus the first quarter last year, and F&M said it "has not seen a substantial change in that trend to date" during the second quarter, which ended July 31. Comparable store sales represent a compilation of sales by month in the period indicated for stores that have been open at least 12 months. Second quarter sales have also been affected by a difference in F&M's advertising program implementation in the current year versus the prior year and "heightened competitive conditions in certain markets," the company noted. F&M said it experimented with several forms of advertising during the year ended in January 1993 and that factor, combined with the current economic climate, "is impacting year-to-year comparability of sales in selected markets." Prior to Feb. 1, 1992, the company did not have a regular advertising program. F&M said its plans to improve sales during the remainder of fiscal 1994 include changes to the advertising programs, additional incentive compensation programs for the merchandising and store operations staff, changes in sales mix and implementation of credit cards in all stores by September 1993. Gross profits for the first quarter were up 5.7% to $ 33 mil. and represented 18.9% of net sales, compared to 17.6% of net sales for the first three months of fiscal 1993. During the recent three months, the firm said it "continued to focus on reducing its net cost of merchandising by taking advantage of deal buying in the marketplace and changes in merchandise sales mix to higher margin categories." These "improvements continued to be partially offset by merchandise incentives related to promotional and advertising programs implemented during the first quarter" and higher occupancy expenses, F&M added. First quarter operating income was up 15.7% to $ 4.8 mil. and represented 2.8% of net sales for the first three months of fiscal 1994. The company said it expects second quarter earnings to be below the prior year's second quarter and not above the $ 1.4 mil. earned in the first quarter. H&BAs continue to make up a substantial majority of F&M sales. In fiscal 1993, sales for H&BAs, cosmetics and fragrances were 55% of total sales, or $ 405.3 mil., up 7.4% over the year before. Household supplies were 15% of total sales in fiscal 1993; drinks and snacks accounted for 17% of sales; and "other" products, including greeting cards and pharmacy, generated 13% of revenues. Net sales for fiscal 1993 were $ 736.9 mil., an increase of 9.3% from the previous year. F&M attributed the sales growth to the opening of 10 new superstores during the period and full year's sales from 13 superstores opened in the prior year. Comparable store sales declined marginally in fiscal 1993 due to new store openings by competitors in several markets that disrupted the sales patterns of 34 stores, or 29% of the chain. In addition, the firm pointed out that the 10 existing stores' sales were being drawn away by new F&M superstore locations in their trade areas. The SEC filing detailed the offering of $ 75 mil. in senior subordinated notes. Proceeds from the sale will be used to reduce the company's debt and for working capital. As of May 1, after the effect of the sale of the notes and assuming the application of the proceeds to revolving borrowings, the company said its consolidated long-term debt would be $ 157.8 mil. F&M completed an initial public offering of its stock in September 1992.
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