A&P Moves into Black in Q3, Promises New Fresh Prototype

MONTVALE, N.J. -- In a graphic demonstration that its financial and business development strategies are working, the Great Atlantic & Pacific Tea Co., Inc. said it has experienced "a return to net profitability" in its fiscal third quarter of 2006, placing the company on track to achieve sustainable profitability for fiscal 2007, noted A&P executive chairman Christian Haub at a conference call yesterday.

The company attributed the financial progress of the latest quarter to such factors as 11 conversions to its new fresh format, with 26 conversions year to date generating strong double-digit sales lift; the successful launch of its reformatted Food Basics discount format; the rollout of its revamped Food Emporium concept in Manhattan this past November; the acquisition of six Clemens Markets, increasing A&P's market presence in the Philadelphia area; and the continued benefits of previous cost reduction measures and ongoing controls.

Net income for the quarter ending Dec. 2, 2006 was $41 million, or 97 cents per diluted share, this year, compared with a loss of $71 million, or $1.74 per share, last year. U.S. sales for the quarter were $1.54 billion, vs. $1.58 billion in the year-ago period, however, and U.S. comparable-store sales declined 3 percent from last year, chiefly because of the sales lift following Hurricane Katrina in the company's New Orleans stores, and a challenging economic climate in its Midwest market. Comparable-store sales in its core Northeast operations were flat in the quarter.

For the 40 weeks year to date, net income for year to date 2006 was $34 million, or 81 cents per share, as opposed to $431.7 million, or $10.62 last year, which included the gain on the sale of A&P Canada.

For the same time period, U.S. sales came to $5.2 billion, vs. $5.4 billion in 2005. Total sales of $7.1 billion for last year included sales of $1.7 billion in connection with A&P Canada, which was sold in August 2005.

U.S. total comparable store sales declined 0.2 percent on a year-to-date basis and were similarly affected by conditions in the New Orleans and Midwest operations. Comparable-store sales for the Northeast grew 0.7 percent.

Said Haub in a statement: "While our sales performance was impacted by difficult comparisons to prior year results, we made solid progress in our core Northeast market. We made significant investments during the quarter in accordance with our strategy, and these actions will contribute to sales and earnings growth in future periods. We achieved our sixth consecutive quarter of improved earnings, due in good measure to our merchandising evolution, our operating discipline, and our ongoing expense controls. We remain focused on our turn-around strategy, as well as the transformational consolidation opportunities that exist in our core Northeast markets."

During the conference call, Haub declined to say anything more about "consolidation opportunities, other than the statement that the company "wants to be actively participating in consolidation...for whatever transaction makes sense."

President and c.e.o. Eric Claus noted that the company would have a "soft and careful launch" in the fourth quarter of three reformatted hybrid stores in its troubled Michigan market. The price-point-focused stores will stock mainly value-pack items on warehouse racking, but will still offer service areas as well.

Other planned store openings include two additional fine food or gourmet store renovations slated for the first half of fiscal 2007, and a "new and even more exciting fresh prototype" set to make its debut during the first quarter of fiscal 2007. Claus promised a "constant state of evolution" in developing the fresh concept.

According to s.v.p. and c.f.o. Brenda Galgano, total openings in 2007 will be: 20 fresh remodels, five new fresh stores, three to five gourmet stores, and three to five Food Basics discount stores, with a bigger shift from "defensive" to "offensive" openings.

Claus said the new gourmet format has been successful. He added, however, that its flagship, the store in Manhattan located under 59th Street Bridge that opened in November, is not expected to reach its projected sales levels for a full nine months. He also said the company has had to tweak its product assortments since the opening; it initially had "cut too deeply into center store grocery," he explained.

All other gourmet format stores will benefit from such fixes, added Claus.

A&P operates 410 stores in nine states and the District of Columbia under the A&P, Waldbaum's, The Food Emporium, Super Foodmart, Super Fresh, Farmer Jack, Sav-A-Center, and Food Basics banners.
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