Grocer Nash Finch tops estimates, but sales fall

Nash Finch Co. handily beat Wall Street's third-quarter profit estimates and investors reacted favorably, sending the shares up about 8.5 percent.

But a tough economy and fierce competition continued to drag down sales at the company's retail stores and its distribution businesses.

The Edina-based grocery company said adjusted earnings jumped 15 percent to $16.4 million, or $1.25 per share. Analysts had expected $1.07 per share.

But third-quarter retail sales at stores open for at least a year, a key measure of growth, declined 0.5 percent. For the year, same-store sales fell 2.2 percent.

Food distribution sales declined 5 percent, to $620.1 million from $652.7 million in the third quarter of 2010, primarily reflecting the loss of a major wholesale customer. Nash Finch's military distribution business fared better, with sales increasing 1.4 percent to $709.7 million, up from the $699.7 million a year ago.

"We continue to focus on operational improvements and initiatives aimed at growing sales as we and our customers weather this prolonged economic recovery," CEO Alec Covington said in a statement. "Despite the challenging times, we have maintained our solid balance sheet and continue to look for growth opportunities."

While the stock has recovered somewhat, it came only after a lengthy decline that set the stage for a price increase on Thursday's favorable news. Besides beating Wall Street earnings estimates, the company reported a slowing in the rate of decline in its grocery business.

Nash Finch and other grocery companies face the triple whammy of a weak economy, rising commodity costs and intense competition from nonunion food retailers like Target Corp. and Wal-Mart Stores Inc.

Minneapolis-based Target, in particular, has spent millions of dollars this past year remodeling its stores to include its new PFresh format, which includes an expanded assortment of the company's Archer Farms brand and more fresh produce, meats, and baked goods. Target attributes most of its same-store gains this year to its PFresh format.

The tough competitive climate has also affected Nash Finch's Minnesota competitor Supervalu Inc., based in Eden Prairie. The company, which acquired Albertsons Inc. in 2006, faces mounting speculation that potential buyers may acquire pieces of the company as regional supermarkets seek to lower costs and boost efficiencies by gobbling up weaker competitors.