Smart & Final Hit By Suit

Excluding the lawsuit charge, Smart & Final's profit for the quarter would have been $12.3 million, compared with $12 million for the third quarter last year. With the charge, the company earned $1 million, or three cents per diluted share.

The $19 million charge related to a lawsuit called Olivas vs. Smart & Final Inc. that was filed in Orange County Superior Court in 2001 by employees claiming that the company failed to pay proper overtime and other compensation. Smart & FInal initially filed a general denial to the claims and was defending the suit in ongoing litigation before the settlement.

Smart & Final announced the settlement in September and said that it expected the charge of $19 million, saying it would compensate class members who make verified claims to a third party claims administrator appointed by the court. The settlement specifically disclaims any liability or wrongdoing by the company.

Aside from the one-time charge associated with the lawsuit, Smart & Final president and CEO Etienne Snollaerts said during Wednesday's conference call with financial analysts that the company performed positively in the sense that it boosted sales and comparable sales despite strong competition. However, Snollaerts said that the company "continued to struggle with higher than planned distribution costs" that have affected its margins throughout 2005.

Smart & Final is implementing a new supply chain management system to improve the accuracy and timeliness of warehouse operations. For the short term, implementing the system is impacting sales and expenses, the Smart & Final CEO said, but, "We view the near-term challenges as essential to building a more flexible, higher capacity distribution system."

The company sees the improved distribution system also as a necessity for its store growth, which is planned for 15 new locations this year and a like number next year, according to Wednesday's conference call. Smart & Final has opened seven stores so far this year, including three that debuted in the third quarter. The new openings increased the total number of stores to 241 at the end of the third quarter, compared with 231 at the end of the third quarter last year.