A statement by Robert F Weis, Chairman and Norman S. Rich, President and Chief Executive Officer of Weis Markets, follows. This statement has been taken from the company’s 2006 Annual Report.
In 2006, we continued to make progress while investing for a future of sustained growth and strong returns for our shareholders.
For the 52-week period ending December 30, 2006, our sales increased 1.0% to $2.2 billion compared to the 53-week period ending December 31, 2005. Adjusting for the extra week in 2005, our sales increased 2.8% and our comparable store sales were up 2.0%.
In 2006, our net income totaled $56.0 million for the 52-week period compared to $63.4 million for the 53-week period in 2005. For the same period, our basic and diluted earnings per share totaled $2.07 compared to $2.35 per share in 2005.
We are encouraged by our sales performance.We came off a strong year in 2005, which had one additional week compared to 2006. Despite this challenge, we generated a record sales year in 2006. As we noted in our 2005 Annual Report, we launched our Where Freshness Matters campaign, highlighting the quality and value of our perishables. Our commitment to freshness and service has already paid dividends. Early in 2006, we successfully introduced our new Weis Steakhouse Angus program, which resulted in strong customer acceptance and a 23% increase in beef category sales.Our produce sales also increased significantly in 2006.
We continue to perform well in key center store categories where our grocery, frozen and dairy sales are up. In addition, our private label market sales continue to grow.
However, our year over year earnings comparison was impacted by:
The additional week in 2005, a 53-week year, compared to the 52-week year in 2006.
3.5% increase in labor expenses due in large part to additional staffing requirements for new stores, expansions and remodels.
16.0% increase in fuel costs and an estimated 15% increase in petroleum-based store supplies.
7.3% increase in utility costs.
11.4% increase in credit and debit interchange fees.
6.3% increase in advertising and media expenses.
$1.7 million pre-tax write-off for two closed store properties.
$1.1 million increase in depreciation due to our accelerated capital expenditure program.
We are taking action to rein in expenses and note our success in addressing similar challenges in past years.
Investing in Growth:
As a company with a commitment to growth and the financial resources to achieve our goals, we made a record investment in our store base and infrastructure. In 2006, our capital expenditures totaled $100.0 million, nearly double our 2005 investment.During the year, we opened new superstores in Ranson,West Virginia and Thurmont, Maryland.We also opened a replacement unit in Mifflintown, Pennsylvania, while completing five expansions and nine remodels.
In addition, we continue to upgrade our distribution system.We reacquired existing warehouse space in Sunbury which was previously leased to a food service tenant. Instead of building an expensive addition to our distribution center, we are upgrading this existing facility at a significantly lower cost.We plan to convert a 56,000-square-foot section for frozen food, ice cream and novelty storage. Afterward, we will upgrade an additional 27,000-squarefoot section to accommodate increased variety in dairy, deli, packaged meats and produce.
Our ultimate goal is long-term, profitable growth. To achieve this goal, we will continue to invest in our existing store base, particularly proven store assets. In 2007, we plan to invest $72.5 million in our capital expenditures program. Two-thirds of this budget is targeted to store construction. Over the next twelve months, we plan to build two new superstores, including one replacement unit, eight additions and nine remodels.
While we intend to complete these projects in 2007, our schedule is subject to site acquisition considerations, the local approval process, weather and construction challenges.
Our Annual Report is designed to give a detailed review of the past year and an update on our plans for the future. It is also designed to give our readers a feel for who we are as a company. Our associates are at the heart of everything we do.We strongly believe our success is rooted in their commitment and dedication. To give them the tools to succeed and better serve our customers, we make it a priority to invest in their training programs.
Our company and associates are increasingly active in the communities we serve. Four years ago, we started our annual charitable golf tournament which raises money for communitybased health care organizations throughout our marketing area. It is a tournament run and managed by our associates, and it has helped us significantly expand our charitable efforts.
Since the inception of our golf tournament, we have donated more than $1 million to local hospitals, health groups and clinics.We have been particularly supportive of neo-natal, women’s health and pediatric programs.
We are proud of our associates and all they do on behalf of our company and customers.With their able assistance, we look to the future with confidence and optimism.