Second Quarter
Net sales were $1.83 billion for the second quarter of 2010 compared to $1.71 billion for the same period in 2009, a 7.2% increase. On a constant-currency basis, net sales increased 5.1%. The primary drivers to this increase were market-share wins, increased volume [image-nocss] in non-cigarette categories and excise tax inflation on essentially flat cigarette carton volume.
Gross profit for the second quarter of 2010 was $97.1 million compared to $87.5 million for the same period last year. Gross profit in the second quarter of last year was adversely impacted by an $11.5 million federal excise tax (FET), net of manufacturers' reimbursements. Gross profit, excluding cigarette holding profits, FET and LIFO expense, was $98.3 million this quarter compared to $100.7 million in the second quarter of 2009, a 2.4% decrease. However, the second quarter of 2010 included $2.9 million less in non-cigarette income mainly in floor stock gains than the same period last year.
The company's operating expenses for the second quarter of 2010 increased to $84.8 million compared to $82.8 million in the same quarter in 2009. Operating expenses in this year's second quarter include a $1.0 million expense relating to the settlement of an auto liability claim previously assumed from the Fleming bankruptcy.
As a percent of net sales, total operating expenses decreased by 21 basis points. The second quarter of 2010 also included a $1.2 million increase in fuel expense and $0.6 million more in health-care costs than in the same quarter a year ago.
Net income for the second quarter of 2010 was $6.7 million, or $0.59 per diluted share compared to $4.2 million, or $0.39 per diluted share for the same period in 2009.
"We remain focused on our costs especially in light of the gross profit margin pressure we are experiencing," said Michael Walsh, president and CEO. "Revenues are healthy, and we continue to grow our fresh offering as the best manner in which we can positively influence both our margins and those of our customers."
First Six Months of 2010
Net sales were $3.42 billion for the first six months of 2010 compared to $3.10 billion for the same period in 2009, a 10.1% increase. On a constant currency basis, net sales increased 7.6% during the first half of 2010 compared to the same period in the prior year. Approximately one-third of this increase included cigarette price inflation related to the State Children's Health Insurance Program (SCHIP) legislation.
Gross profit for the first six months of 2010 was $184.9 million compared to $205.6 million for the same period last year. Cigarette holding profits were $35.2 million, offset by $11.5 million of FET, net of manufacturer's reimbursements, in the first half of 2009 compared to $3.0 million of cigarette holding profits in the first half of this year.
Gross profit, excluding cigarette holding profits, other tobacco tax gains, FET and LIFO expense, was $186.2 million in the first half of 2010 compared to $187.0 million in 2009, a decline of $0.8 million. However, the first half of this year included $5.4 million less in non-cigarette income mainly in floor stock gains than the same period last year.
Guidance for 2010
The company increased its annual sales guidance from $6.9 billion to $7.1 billion for 2010, including expected sales from its recently announced acquisition of Finkle Distributors Inc. (FDI). This guidance contemplates a decline in cigarette carton volume offset by higher cigarette price and excise tax inflation.
In addition, the non-cigarette categories are expected to benefit from further progress implementing key strategies including "Fresh" and the Vendor Consolidation Initiative. Management also lowered its expectation for capital expenditures from $20 million to $19 million for 2010. The reduction includes additional infrastructure to integrate FDI into its logistics platform.
South San Francisco-based Core-Mark is one of the largest marketers of fresh and broad-line supply solutions to the convenience retail industry in North America. Founded in 1888, Core-Mark provides distribution and logistics services as well as marketing programs to approximately 25,000 retail locations in 50 U.S. states and five Canadian provinces through 26 distribution centers.
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