Thank you. Good morning, everyone.

Welcome to Ingles Markets 2012 Fourth Quarter and Year End Earnings Announcements and Conference Call. With me today are Robert Ingle II, Chairman and Chief Executive Officer; Tom Outlaw, Vice President of Sales; and Jim Lanning, President.

Statements made on this call include forward-looking statements as defined by and subject to the Safe Harbors created by federal securities laws. Words such as expect, anticipate, intend, plan, likely, goal, seek, believe and similar expressions are intended to identify forward-looking statements.

These statements are not guarantees of future performance and involve risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expected on this call.

Ingles Markets does not undertake and declines any obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. For a description of factors that could cause actual results to differ materially from that anticipated by forward-looking statements, you are referred to the company's public filings, including the upcoming Form 10-K for the fiscal year ended September 29, 2012.

In accordance with the long-standing company policy and in recognition of the extremely competitive nature of our industry, this call will not address individual competitors or Ingles marketing strategies other than what is included in the company's filings.

This morning, I'll provide you with a summary of our fourth quarter and annual result, followed by additional comments on each period. After that, we will be pleased to take your questions.

Our press release issued this morning is available on our website at www.ingles-markets.com. Our Form 10-K will be filed later.

Upon filing, it will be available on our website as well.

We are very pleased to report this morning that this was our 48th consecutive year of record sales, totaling $3.71 billion. Fourth quarter sales totaled $992 million.

Fiscal 2012 contains 53 weeks. The fourth quarter of this year contains 14 weeks.

In comparison, fiscal 2011 contained 52 weeks, with a 13-week fourth quarter.

Net income totaled $13.3 million for the 3 months ended and $43.4 million for the fiscal year ended September 29, 2012, compared with $11 million and $39.1 million for the 2011 3-month and fiscal year periods.

On a percentage basis, fourth quarter income increased 21.1% and annual net income increased 11.2%. As we'll discuss in more detail later, the most important positive factors contributing to these increases were sales growth and gross profit increases in the grocery segment.

We also achieved operating expense leverage, including the positive effect of opening our new 839,000 square foot distribution center during the latter part of fiscal 2012.

Competition was intense and our customers are still facing difficulties, so we're pleased with our increased sales and profits. First, our fourth quarter results.

Net sales totaled $991.8 million for the quarter ended September 29, 2012, 9.5% higher than the $905.8 million of sales for the comparable quarter in fiscal 2011.

Total sales comparisons are affected by the difference in the number of weeks in the comparative quarters. Comparing the 14 weeks of the fourth fiscal quarter of 2012 with the corresponding 14 calendar weeks of the previous year, grocery segment comparable store sales, excluding gasoline, increased 2.0%.

The growth in grocery segment sales benefited from increases in average weekly customer visits and in the average purchase amount compared with the fourth quarter of fiscal 2011. Adjusting for the difference in weeks, gallons of gasoline sold increased, while their average price per gallon dropped slightly.

Gross profit for the fourth quarter of fiscal 2012 totaled $220 million, an increase of $17.6 million compared with the fourth quarter of fiscal 2011. Gross profit as a percentage of sales was 22.2% for the fourth quarter of fiscal 2012 compared to 22.4% for the fourth quarter of fiscal 2011.

Grocery segment gross margins, excluding gasoline, were 26.1% for both the current year quarter and for last year's fourth quarter.

Total operating expenses were $185.2 million for the fourth quarter of fiscal 2012 compared with $172.3 million for the 2011 quarter. Operating expenses as a percentage of sales were 18.7% and 19% for the fourth quarters of fiscal 2012 and 2011, respectively.

Ingles operated 203 stores and 11 million square feet of store space at the end of both fiscal 2012 and 2011. The company's store improvement capital projects this year did not result in increased square footage but improved merchandising, convenience and the range of products offered to our customers.

Net rental income, other income and losses on assets, asset disposals totaled $1 million and $1.4 million for the fourth quarters of fiscal 2012 and 2011, respectively. This decrease was primarily due to lower rental income and sales of waste paper and packaging.

Interest expense totaled $15.2 million for the fourth fiscal quarter of 2012 compared with $15.1 million for the fourth fiscal quarter of 2011. Total debt was $835.2 million at the end of fiscal 2012 compared with $855.1 million at the end of fiscal 2011.

Over the year, the company has either paid down or refinanced maturing debt at lower interest rates.

The company's effective tax rate was 35.5% for the fourth quarter of fiscal 2012 compared with 33.5% for the fourth quarter of fiscal 2011 due to higher employment-related tax credits recognized in the fourth quarter of last year.

Net income for the September 2012 quarter totaled $13.3 million compared with net income of $11 million for the September 2011 quarter. Basic and diluted earnings per share for the company's publicly traded Class A common stock were $0.58 and $0.55 per share, respectively, for the September 2011 quarter compared with $0.47 and $0.45 per share, respectively, for the September 2011 quarter.

Now, I'll go over our annual results. Net sales totaled a record $3.71 billion for the fiscal year ended September 2012, an increase of $149.5 million, or 4.2%, from $3.56 billion for the fiscal year ended September 2011.

Fiscal year 2012 was Ingles' 48th consecutive year of record sales. Comparing the 53 weeks of fiscal 2012 with the corresponding 53 calendar weeks of the previous year, grocery segment comparable store sales increased 1.9%, excluding gasoline sales, where the retail per gallon price was approximately 5% higher.

The number of customer transactions increased 1.5% and the average transaction size increased by $0.07, including -- excluding gasoline sales.

Gross profit for the fiscal year ended September 29, 2012, increased $28.3 million, or 3.6%, to $820.1 million compared with $791.9 million for the fiscal year ended September 24, 2011. The increase in grocery segment gross profit dollars was primarily due to higher sales volume, including the 53rd week in fiscal 2012.

As a percentage of sales, gross profit totals 22.1% for the year ended September 29, 2012, and 22.2% for the year ended September 24, 2011. Grocery segment gross profit as a percentage of total sales, excluding gasoline, was 25.9% for fiscal 2012 compared with 25.8% for the comparable fiscal 2011 period.

The beneficial impact of a favorable change in sales mix and modest inflation has generally been offset by competitive effects. The company strives to keep prices low as possible in order to grow sales and market share.

Operating expenses increased $20.5 million in fiscal 2012 compared with fiscal 2011, and were 18.8% of sales for fiscal 2012, an improvement over the 19% of sales for fiscal 2011. Excluding gasoline sales and associated gasoline operating expenses, which are primarily payroll, operating expenses were 21.9% of sales for fiscal 2012 compared with 22.1% for fiscal 2011.

As noted in the fourth quarter comments, payroll represented the largest cost increase of our total operating expense increase.

Net rental income, gains and losses on asset disposals and other income totaled $5.6 million for fiscal 2012 compared with $8.7 million for fiscal 2011. The decrease is attributable to a $2.8 million gain on property sold in an eminent domain proceeding during last year, which was fiscal 2011.

Interest expense decreased $2 million for the year ended September 29, 2012, to $60 million from $62 million for the year ended September 24, 2011. Interest expense decreased due to the net reduction of total debt and the refinancing of existing debt at lower rates.

Interest on the $99.7 million of bonds issued in 2010 was capitalized as part of the construction cost of the company's new distribution warehouse facility, until that facility opened during the third quarter of fiscal 2012.

The company's effective tax rate decreased to 35.5% for fiscal 2012 compared with 35.7% for fiscal 2011 due to additional federal tax credits available in the first part of fiscal 2012.

Net income for fiscal 2012 totaled $43.4 million compared with net income of $39.1 million for fiscal 2011. Basic and diluted earnings per share for the company's Class A common stock were $1.87 and $1.79 per share, respectively, for the year ended September 29, 2012 compared with $1.67 and $1.60 per share, respectively, for the year ended September 24, 2011.

Now updating our investing and financing activities. Capital expenditures totaled $180.6 million and $97.5 million for fiscal years 2012 and 2011, respectively.

The majority of 2012's capital expenditures were for the new distribution center, including related vehicles and equipment. Ingles capital expenditure plans for fiscal 2013 include investments of approximately $100 million to $130 million.

Following the 2012 completion of the distribution center, 2013 capital expenditures will be more focused on continued improvements in our store base.

We have a $175 million line of credit facility that is in place through the end of 2015. There was $40.1 million outstanding on that line at September 2012.

And also at the end of 2012, the company has allowed us a credit outstanding of $8.2 million. We are in compliance with all of our debt agreements and we have significant unencumbered real property and equipment.

At the close of another year, we look forward to serving our customers with more stores and more products delivered with value and exceptional service regardless of overall economic conditions.

And we'll now be happy to take your questions.

You, in your prepared remarks, said competition is intense and consumers still facing difficulty. It doesn't serve a general statement.

Is that really any change? I know you don't talk about specific competitors, but has the competitive environment gotten worse sequentially, or -- and the same for the consumer environment, or is it about the same?

It's about the same, still difficult.

Yes. And any -- if you look at your monthly comps, I know you don't disclose them, but as gasoline prices went down, did you see an impact on the consumer and what they bought within the store?

Not really. And again, our gallons sold were up while the price was down a little bit, but it wasn't a huge shift either way.

Okay. And then you haven't -- I don't know if there's a way of breaking out.

You broke out the comparable same-store sales 13 weeks versus 13 weeks, but if you look at your net income, the $2.3 million increase, what is the benefit of the extra week this fourth quarter?

Well, you can't quantify it exactly because we have certain expenses that are period expenses, whether it's a 14-week quarter and a 53-week year versus a 52 and a 13. It's a lot easier to do that with sales numbers when you compare the number of weeks.

So by the time you get to the bottom line, you lose a lot of the ability to do that.

Okay. And then you said the CapEx, the $180.6 million for the full year, majority of it was for the new DC.

That's correct.

How should we think about majority? I mean, are we saying half of it, of 60%, 75%?

Well, we don't break it down in any of our disclosures between the DC and everything else. We try to manage our CapEx from a particular number and then allocate how we use that number.

The number was higher for 2012 because of the distribution center. Looking forward, now that we've completed that, we're projecting to settle back down into a lower range of total CapEx and get back to devoting that almost exclusively to the store base.

Okay. And again, the -- there was obviously a benefit in the fourth quarter from the new DC, but you don't break that out.

But, I mean, how should we think about 2013 benefit for the full year? And again, it doesn't have to be an exact number, but I assume you kind of assume some sort of a benefit for the full year and I think there's a ramp-up period.

Could you just remind me how that works?

Well, at this point, we've pretty much ramped-up. So fiscal year 2013, we are anticipating giving a full -- getting a full unfiltered year of benefit out of that.

But those benefits come in a lot of different places. It comes from not only your distribution cost.

It also involves your negotiations with vendors, who you're now buying from directly and some allowances you get there. And some of that, you can't predict with a tremendous amount of accuracy.

And again, it's going to end up in 2 or 3 different places on the financials. But suffice it to say, we're happy the facility is opened, we're very pleased with the performance of it so far and we absolutely expect that to continue.

Okay. And then finally, when does it make sense, if you look at your $575 million note that you have to pay, I think, 8.75% on.

I know it matures in 2017, but when does it make sense to start thinking about prepaying that amount? Have you actually started the process?

Well, high-yield market conditions are pretty good right now, so it's something that we're keeping an eye on. And so we haven't run any hard numbers yet.

We're still 6 months out from that first call date, but we're absolutely keeping an eye on that.

Okay. And your preferred way is just to refinance in the bond market, or...

Well, that's part of the evaluation process. We don't have to use that product solely.

Again, we've got lots of unencumbered real estate and a number of different financing options available to us. And we're looking at all of those right now and see where we are come May.

I mean, part of that -- Loblaw last night -- yesterday, actually, announced that they're doing a REIT there in Canada, so it's different rules. But -- and I know we've talked about in the past, but it seems like that would a viable way for you to really lower your cost of capital.

Well, it depends upon which side of the REIT you're on, I suppose. It's something that we've considered in the past and, obviously, never done, and it's something we'll continue to look at.

Well, I mean, can you share what the reason you have -- it wasn't attractive in the first place? Was it the rates?

Was it the structure?

We can't talk about that.

Yes, I was going to ask a question about that extra week as to value of the week, but I heard your explanation. The number of stores that you put into open or close in the coming year, do you have a feel for that?

Well, we have a feel for it, but there's so many variables involving weather and involving how the company performs over that time period. We're a little hesitant to say it's going to be x number of stores or y number of stores.

Plus, as you've seen over the last couple of years, we're going to continue our program of doing smaller projects that don't involve new buildings or additional square feet in a larger number of stores. That's been a very successful process for us.

What is your feeling as to continuation of progress in terms of central record sales or record earnings?

We don't publicly talk about any future projections.

On the topic that you just touched on, on more projects or smaller projects in more stores using your CapEx dollars, and I know you guys outlined in your disclosures how many major remodels and new stores you've opened on a 5-year look back. But is there any way you can give us an idea of how many stores that you all touched overall in the 5-year look back, maybe with a minor remodel?

Well, again, in a minor remodel and the types of things that we've been doing, we aren't adding any square feet at all. And depending upon the store involved, what we do to it can really have a significant range.

So it's not one of those things where I can say we did this with x numbers of stores and we spend y dollars on each one of them. It really is going to depend upon store to store.

Would it be safe to assume that, I mean, you all have touched every store in the last 10 years in some form or fashion?

No, that wouldn't be safe to assume.

Okay. I guess shifting gears and looking at sales for the quarter, you mentioned basket size was up.

Was basket size up on pricing or was it items? Is there any way you can delve into that?

I don't have it broken down quite to that level of detail, so I can't answer your question.

Okay. And then on the same-store sales front, and, again, if you look at baskets, is there any shift in sales?

Do you have consumers buying more prepared foods versus center of the store? And I know you all comment on individual items in your filings as well, so is there any color you can give us on that?

Yes, and that's been a trend that's been in place for a couple, 3 years now, really ever since the economy turned, where we're seeing better growth in our perishable areas than we do in the other areas. And then I think that reflects to the improvements we've made there, and the fact that people still on eating out as much as they did 4 years ago.

They're coming to our delis.

And your hot food bar in your stores as well.

Yes.

If you look at a year ago, which just said played into my next question, that was a -- it was a very mild winter. There was a nice swing in same-store sales for dining out, and the industry supermarket kind of suffered on a same-store sales front in Q4 calendar last year and Q1 of this year.

Could you talk about how the warm weather impacted you all, and whether you're anticipating a more normalized year on the same-store sales front?

Well, if you look at the last 3 years, it's kind of hard to determine what a normalized year in -- year is. I mean, last year was very mild, but 2 winters before that were harsher than the ones that we've had about a decade.

And so we certainly benefited from that, and it made the drop noticeable last year when we had a mild winter. So, gosh, you tell me what a typical winter is now given all that over the last 3 years.

We certainly -- nothing that we're seeing says it's going to be as mild this year, so we would hope that we would get some benefit from that.

Okay. So bottom line is, if we get some type of normalized weather pattern, with snow and ice and rain, you guys should benefit to some degree?

Yes.

All right. And then when I look at the 100 to 130 of CapEx, you don't want to give us new store construction.

Is there any way you can carve it up into relative baskets: this is for new store and remodel, this is for maintenance CapEx, et cetera?

Well, again, maintenance CapEx is not a concept that we ascribe to. Never have.

But again, now that the distribution center's done, we're back to a more normal for us spread on how we spend the CapEx. The majority of that's going to be in the store base.

There'll also be for some for distribution from Milkco, but the majority of that is going to be in the store base, large majority of it.

Ron, one quick follow-up. You talked about your -- the trend of more perishables being purchased, and if you look at your grocery margin, I think it's been flat for a while on a year-over-year basis.

And so -- and perishables sort of has a typically higher gross margin, so it sort of implies that the middle of the store maybe -- the gross margin is maybe lower. Is that the case?

And if so, why is that?

Well, you can look to competitive factors, you can look to the way vendors are approaching us now versus the way they may have approached it last year. It's just gotten a little tougher in that regard, both sides, from the buy side and sales side.

And your own brands, your private label, I mean, how big is that now?

It continues to grow as a percentage. And of course, we're very pleased with that, and we hope that, that trend continues.

But you don't disclose how big it is as a percent of total grocery items or sales?

No, we do not.

Okay. And is it growing faster than national brands, or is that sort of varied based on what the vendor -- national brands are doing on the promotional side?

Yes, it really varies on what the national vendors are doing in particular areas.

Okay. Well, great.

Thank you everyone for joining us today. We appreciate your time and your interest.

And we want to wish all of our customers, employees and shareholders a very happy and safe holiday season. Thank you very much.