Thank you. Good morning, everyone, and welcome to the Ingles Markets Fiscal 2013 First Quarter Conference Call.

With me today are Robert Ingle II, Chief Executive Officer; Jim Lanning, President; and Tom Outlaw, Vice President of Sales and Marketing.

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 expressed on this call. Ingles Markets does not undertake 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 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 public filings.

This morning, I'll provide you with a summary of our first quarter results, followed by additional comments. 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.

We plan to file our 10-Q later this week. It will be available on our website as well.

Net income totaled $11.6 million for the quarter ended December 29, 2012, compared with $10.6 million for the comparable quarter ended December 24, 2011.

The net income increase was driven by increased sales, increased gross profit and expense management.

Partially offsetting these positive factors was a higher effective tax rate.

Net sales totaled $932.8 million for the quarter ended December 29, 2012, compared with $918.2 million for the comparable quarter ended December 24, 2011.

That represents a 1.6% increase in total consolidated sales.

For the comparable December 2012 and 2011 quarters and excluding gasoline sales, grocery segment comparable store sales increased 1.5%, weekly customer visits increased 1.4% and the average transaction amount was essentially unchanged.

Retail gasoline prices increased and the number of gallons sold decreased slightly.

Our fluid dairy segment continues to be affected by higher milk prices and lower milk consumption nationwide.

We're pleased with our sales growth during the first quarter, which included the Thanksgiving and Christmas holidays.

Our long-term objective remains focused on driving top line sales and maintaining customer loyalty through product offerings, customer satisfactory -- satisfaction and expanded store offerings.

Gross profit for the 3-month period ended December 29, 2012, increased $6.2 million to $207.9 million or 22.3% of sales compared with $201.7 million or 22% of sales for the 3-month period ended December 24, 2011.

It was a very competitive holiday quarter with higher promotions and tighter margins in our market area.

The total operating expenses were $174.8 million for the first quarter of fiscal 2013 compared with $171.8 million for the comparable fiscal 2012 quarter.

The total dollar growth in operating expenses was comprised primarily of increased payroll and insurance, partially offset by savings and store depreciation and maintenance expenses.

Excluding gasoline sales and associated operating expenses, operating and administrative expenses as a percentage of sales were 21.7% and 21.6% for the 3 months ended December 29, 2012 and December 24, 2011, respectively.

Net rental income, gains and losses on asset disposals, and other income totaled approximately $1.0 million and $1.4 million for the December 2012 and 2011 quarters, respectively.

There were no individually significant trends or transactions for either first fiscal quarter.

Interest expense increased $0.6 million for the 3-month period ended December 29, 2012 to $15.6 million from $15 million for the 3-month period ended December 24, 2011.

Total debt at December 29, 2012, was $877 million compared with $882.5 million at December 24, 2011.

Interest on the bonds that funded construction of our new distribution facility that opened in mid-2012 was capitalized during the December 2011 quarter but expensed during the 2012 quarter.

The company currently has lines of credit totaling $175 million, with $84.8 million borrowed and $9.5 million of unused letters of credit issued at December 29, 2012.

The company's $575 million of senior notes with a yield of 9.5% become callable at a price of 104.438% of par on May 15, 2013. We are monitoring market conditions to determine the best mix of debt arrangements to fund our current operations and future growth.

Income tax expense as a percentage of pretax income was 37.4% in the December 2012 quarter compared to 35.2% in the December 2011 quarter.

The lower tax rate for the December 2011 quarter benefited from certain tax incentives related to hiring and investing during the recent economic downturn, but it expired for this year's first fiscal quarter.

Net income for the December 2012 quarter increased 9.2% to $11.6 million compared with net income of $10.6 million for the December 2011 quarter.

Basic and diluted earnings per share for the company's publicly traded Class A common stock were $0.50 and $0.48 per share, respectively, for the December 2012 quarter compared with $0.45 and $0.43 per share, respectively, for the December 2011 quarter.

Capital expenditures totaled $28.1 million for the first quarter of fiscal year 2013.

Most of these capital expenditures were related to remodeling projects in a number of the company's stores and new store construction.

Capital expenditures last year totaled $63.7 million for the 3-month period ended December 24, 2011, much of which was dedicated to the construction of the new distribution facility which opened in mid-2012. The company's capital expenditure plans for fiscal 2013 include investments of approximately $100 million to $130 million.

We currently plan to complete 2 or more new stores or major remodeling projects, as well as continue our program to remodel multiple stores.

To summarize, we're off to a good start for fiscal 2013 and look forward to the 50th anniversary of the first Ingles store in March of 2013.

We will now take your questions.

I was wondering, in the press release and also in your comments, you all talked about how competition intensified in the calendar fourth quarter.

I was wondering how was it different from the previous quarter? Is there any way you can give us some descriptors?

Well, the stakes are higher when you have a quarter that includes Thanksgiving and Christmas because those are big quarters for our industry. And so because of that, the competition heated up on a lot more fronts.

Was it -- were there more pages on the circulars? Or was there greater television advertising?

Or is there any way to give us a little bit more details about it?

It was mostly in pricing.

Okay. Next, when -- if I were to look at gross profit, gross profit dollars were up in around figures $6 million, or excuse me, $7 million year-over-year.

Is there any way for you to give us an idea how much of that expansion came from benefits on the distribution center expansion?

Well, we did get a pump from having a new distribution center and self-distributing those products. But depending upon how you want to do the comparison, it's really difficult to put a precise number on it.

And again, the new distribution center is a long-term investment. And this was really the first holiday season we had been through with it.

And really the first full quarter we have been through some parts of the new distribution centers such as health, beauty and cosmetics. So, yes, it was accretive to our margins.

We don't think we've realized all the benefits were going to get from the distribution center and it's going to be a great long-term investment for us.

Are you all using MDI for any distribution at all at this point?

Basically, none. We have a few things that we're still wrapping up with them, but we've pretty much brought it all in the house now.

Okay. And just a few more questions.

I mean, pharmacy, you all have a significant number of pharmacies in your stores and there's been a big generics wave, is part of the gross profit dollar improvement related to generics on the pharmacy front? Or is there any way you could segment that out for us as well?

I do not have that information in front of me. Again, we're very pleased with the progress in our pharmacies.

We've devoted some remodel dollars to making those pharmacies more efficient and look a lot better for the customers and we think that's paying off for us.

All right. And then if I were to look at your states, North Carolina, South Carolina and then Georgia, is there any region for you all that is seeing greater competitive pressures overall?

Yes. Again, we don't talk about what's going on with specific competitors.

I mean, obviously we have different competitors in different parts of our market area. And you're well aware of who those are.

So there's nothing really specific to add there.

Okay. Okay.

And then lastly on CapEx. When you look at your CapEx dollars, $100 million to $130 million, and you say you're going to -- 2 new stores or 2 major remodels.

Is there any way you can give us an idea how much are is going to be spent on those 2 projects?

We don't really break down the components of our capital expenditures. We didn't really do it last year when the distribution center took up a large portion of our CapEx, but certainly with that facility being done, what you'll for 2013 CapEx is going to be much more typical of what we've done in past years.

You're going to have some new store construction, you're going to continue to have a number of interior remodels at a lot of stores. You have a couple of new stores that are in process.

And we've got gas stations adds as well.

Can we -- just on rental income, that number coming down, $1.4 million coming down to $1 million, and then I think there's a higher onetime gain in that number as well. What's happening to your vacancy rates?

I'm assuming they're going up? And is that sort of the market?

Or is it done on purpose because you just don't want to resign certain places because you're going to build there in the near future?

Well, some of that is a little bit due to the timing of when things like annual can [ph] bills and things like that go out. So you've got some of that.

The vacancy rates have been pretty stable, once we took a drop when the recession hit. Vacancy rates have been pretty stable since then because we're not taking as much tenant space to expand stores as we used to.

And again, we've just sort of hit that bottom when we had some tenants that couldn't stand the economic downturn.

So it's not a huge discernible trend right now, either positive or negative.

And then on -- just going back to CapEx, I think you said you gave a range of $100 million to $130 million for the full year. 2 new stores or 2 remodels?

Is that how you said it?

Well, we've got a couple of things in project -- in process right now. Certainly, 1 new store is going to open this year.

The timing on a couple of the other major projects we've got going on right now could wiggle a little bit as we get a little further throughout the year and get out of the bad weather.

Okay. And when do you expect to open that 1 new store?

April, March-April, somewhere around that timeframe.

Okay. And then your senior notes, I mean, should we expect anything as they come as it become callable in March of this year at that, obviously a higher part number?

But should we expect to hear something in next couple of months from you guys in terms of what you're going to do with that debt?

Well, again, the first call date is May 15. And it's something that we've been watching for a few months now and we're continuing to get very regular updates on the high-yield market, the various other credit markets.

So we'll make that call so to speak, if that's what it ends up being, sometime in May.

Okay. And then lastly, just on Milkco.

I don't see the numbers but you said -- you said it's -- obviously, milk prices continue to be high.

And I guess there's a general decrease in demand as a result. Is that just -- so I guess the -- actually the profitability of that division has gone down in the quarter?

It's down a little bit, yes. And you'll see that when the Q is filed later on this week.

And we've been through cycles like this before. I guess it was maybe 3 or 4 years ago, we had a drought, difficult to get feed, prices went up, supply went down.

It's a little tough for a while. But we're working here for that.

And your store is at retail, do you actually -- are you still earning the same pennies per gallon of milk that you typically do? Or have you had to cut the prices?

It really varies on the type of product and the location. The competitors have a lot to do with that.

Great. Thank you for doing that.

We appreciate everyone calling in today and thank you for your time and interest. We look forward to speaking with you again probably in latter part of April, after our next quarter.

Have a great day.