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Kmart bakery products fall prey to salmonella scare traced to peanuts

BY Jim Frederick

HOFFMAN ESTATES, Ill. The escalating salmonella outbreak stemming from tainted peanut butter has reached the shelves of some of Kmart’s bakery departments.

Kmart parent company Sears Holdings said today it was voluntary recalling some baked goods from Super Kmart stores over concerns the items may have contained peanut products originating from a processing plant operated by Peanut Corp. of America. The plant has been identified as the source of salmonella contamination and an outbreak of the disease that has sickened hundreds and claimed at least eight lives, according to a report from the Associated Press and Crain’s Chicago Business.

Contamination traced to the plant, located in Blakely, Ga., has led to the recall of more than 1,300 foods that contain peanut butter or other ingredients.

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Fred’s posts January 5% sales, 1.9% comps declines

BY Michael Johnsen

MEMPHIS, Tenn. Discount retailer Fred’s on Thursday recorded a 5% decline in sales for the four weeks ended Jan. 31, posting $126.1 million.

Excluding stores closed during 2008, total sales from ongoing stores were flat in January, versus the same month last year, the company reported. Comparable store sales for the month declined 1.9%.

“We were disappointed by January sales, particularly in the last week of the month, where the impact of the slumping economy, combined with severe ice storms and adverse weather in several of our markets, resulted in negative comparable sales for that week that reached into the high single digits,” stated Fred’s chairman Michael Hayes.

“We estimate the impact of the adverse weather and related store closings on comparable-store sales for the month to be in the range of 0.5% to 1%,” Hayes continued. “Also, while customer traffic was positive for the month, the increase was more than offset by a downturn in average transaction amount, as sales for January were driven by lower pharmacy sales, since the cold and flu season has not yet developed, and conservative purchasing patterns by customers that are focused on promotional items and basic product mix.”

Fred’s total sales for the 13-week fourth quarter decreased 5% to $469.4 million. Comparable-store sales for the fourth quarter decreased 1.1%, compared with a decline of 2.5% in the fourth quarter last year.

Total sales for fiscal 2008 increased 1% to $1.8 billion. Comparable-store sales for 2008 rose 1.8%, versus a 0.3% gain for the prior year.

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Drugstore.com reports record 4Q sales

BY Michael Johnsen

BELLEVUE, Wash. Drugstore.com on Wednesday reported net sales of $366.6 million for its fiscal year ended Dec. 28, representing a net loss of $8.3 million. The online druggist recorded EBITDA of $13.9 million, more than double the adjusted EBITDA reported in fiscal year 2007, the company noted. Additionally, the company reported operating cash flow of $9.9 million for 2008 compared with $7.8 million for 2007.

“I am pleased to report record quarterly [over-the-counter] revenues, net income, free cash flow and adjusted EBITDA, as we delivered a profitable fourth quarter and achieved positive free cash flow for the year for the first time in company history,” stated Dawn Lepore, CEO and chairman of drugstore.com. “Importantly, while holiday sales were clearly impacted by the economy, we saw strong sales of our everyday OTC basics, reinforcing our belief that a large portion of our products are not considered discretionary by our customers. Overall, we continued to drive solid OTC and vision growth of 6% and 14.5%, respectively, significantly ahead of eCommerce trends. … These improvements allowed us to be more promotional in the fourth quarter, while maintaining a strong operating model,” she said.

This kind of success portends well for the future, Lepore noted. “We can and will continue to grow our OTC and vision revenues amidst a more challenging economic environment. January started off strong, with continued demand for everyday OTC basics, increased [flexible-spending-account] sales, and customers’ capitalizing on our loyalty program — drugstore.com dollars. Importantly, we also have a number of key initiatives — such as ramping our strategic partnerships with Medco and Rite Aid, adding new prestige beauty brands, and expanding international sales — that leverage our existing infrastructure and which should help fuel growth in 2009,” Lepore said.

For the first quarter of 2009, the company is targeting net sales in the range of $93 million to $97 million, net income ranging from flat to a net loss of $2 million, and adjusted EBITDA in the range of $3 million to $5 million.

Drugstore.com served approximately 406,000 new customers during the fourth quarter 2008, up 8% over the same period in the prior year, brining the total number of unique customers to 9.8 million since inception. The number of active customers for the quarter was 2.6 million, up 9% year over year.

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