A&P Q1 Comps Rise; Losses Grow on Noncore Divestments

MONTVALE, N.J. -- The Great Atlantic & Pacific Tea Co., Inc. Friday reported first-quarter sales in its core Northeast operations of $1.68 billion vs. $1.65 billion last year, with comparable-store sales rising 1.0 percent. Total company sales for the first quarter were $2.0 billion, vs. $2.0 billion in last year's first quarter.

Total company net loss for the quarter was $43 million, or $1.03 per share, compared with a loss of $6 million, or 15 cents per share, last year. The quarter's net loss of $43 million includes a loss of $125 million attributable to noncore operations in the Midwest and New Orleans, offset by a gain of $78 million from the sale of Metro, Inc. shares.

Although in a conference call Friday, c.f.o. Brenda Galgano said she was "disappointed" by the increased utility costs seen in the quarter (they rose by $7 million), she expressed confidence in the company's energy management initiative, which consists of stores’ conserving energy by turning down lights and air conditioning, to ameliorate the problem.

According to Galgano, there were five major Fresh store renovations during the quarter.

"A&P's strategic transformation continued on all key fronts in the first quarter," said A&P chairman Christian Haub in a statement. "Top- and bottom-line results in our core business were further improved, our strategy to concentrate our retail activities in the Northeast by divesting noncore operations moved forward, and the closing process of the proposed Pathmark transaction is proceeding as planned."

Added president and c.e.o. Eric Claus: "Although total company sales for the quarter were impacted by the winding down of our since-closed Midwest operations, we are pleased with our performance in the Northeast market. Our core businesses posted positive comparable-store sales and improved gross margins -- attributable to more effective merchandising, more profitable fresh product distribution, good returns from our new Fresh stores, and strong improvement in our discount Food Basics group. On the cost side, we suffered the impact of higher utility expenses, but were still able to achieve overall improved results."

During the conference call, Claus noted that "significant integration planning" was occurring as A&P geared up for its merger with Pathmark. The transition, which is being led by Galgano, includes 12 functional teams from within the organizations, as well as outside experts in the fields of logistics, integration planning, and cost of goods synergies, and, according to Claus, is so far proceeding to plan.

Claus said that A&P hoped to avoid "the arrogance trap" of presuming that all of its practices were superior to Pathmark's, and named several things he felt the Carteret, N.J.-based grocer did better -- its store systems, its sales per square footage in center store, and its identification and response to ethnic demand -- but allowed that A&P did "a much better job on fresh."

Haub added that the opportunity existed to possibly switch banners among A&P stores with Pathmark demographics (urban, more ethnic locations), and Pathmarks in A&P-type markets (suburban, more upscale).

Claus additionally said that A&P and supplier C&S Wholesale Grocers were collaborating on creating a new logistics infrastructure that would be "low-cost and sustainable." One key way this could be achieved, Claus explained later during the call, would be to have "have one solid, well-thought-out contract that incentivizes more volume [and] less cost," as well as eliminating duplication.

Claus and Haub noted in the call that the company's development of store concepts was continuing apace, with the Fresh format in particular evolving. "We never stand still," said Claus of the Fresh concept, adding that the company planned to unveil the first of its next-generation Fresh stores, in Park Ridge, N.J., this September. A total of three new fresh stores are planned for the fall, he remarked. In addition, new features, such as a muffin cart as part of program that has proved successful in newer Fresh stores, would be incorporated into existing stores, said Claus.

Also on the agenda is the growth of A&P's own brands division, jump-started by the recent appointment of Safeway veteran Doug Palmer to head the division. Claus said the company "expect[ed] a very significant increase in own brand penetration under Doug's leadership," while Haub noted that A&P's goal was to "[roll] out and [integrate] one private label banner across all banners as we bring Pathmark into the fold."

Also during the call, A&P officials noted that the company had sold 43 of its 66 Farmer Jack stores in Michigan and was in negotiations to sell the remainder, which went dark in early July. A&P is also negotiating to sell its New Orleans Sav-A-Center division, and officials said they hoped to conclude the sale process by the fall.

A&P operates 337 stores in eight states and the District of Columbia under the A&P, Waldbaum's, The Food Emporium, Super Foodmart, Super Fresh, Sav-A-Center, and Food Basics banners.
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