Pathmark Posts Higher Q1 Sales, and Loss

CARTERET, N.J. -- Pathmark Stores, Inc. here yesterday reported sales for the latest quarter of $1 billion, a rise of 1.3 percent from $990.1 million in the year-ago period.

Same-store sales rose 0.1 percent in the quarter. However, the Northeast regional grocer also posted a net loss of $2.1 million, or seven cents per diluted share, in the first quarter of fiscal 2005, vs. a net loss of $1.8 million, or six cents per diluted share, in fiscal 2004's first quarter.

The results for the latest quarter included pretax expenses of $0.9 million, or two cents per diluted share, connected with Pathmark's review of strategic alternatives, which was announced last December. Excluding this item, the net loss in the first quarter would have been $1.6 million, or five cents per diluted share. The results in the prior-year period included a $1.2 million pretax gain from the sale of real estate, or two cents per diluted share. Excluding this item, the net loss in the first quarter of fiscal 2004 would have been $2.5 million, or eight cents per diluted share.

C.e.o. Eileen Scott noted in a statement, "We are encouraged by improved sales in the quarter relative to our prior run rate. We also saw an improvement in gross profit, which was offset by costs related to higher oil prices. Looking forward, we remain focused on driving sales and profitability through effective marketing programs and controlling costs through expense-reduction initiatives."

In a conference call yesterday, Scott attributed the company's better sales to a more effective promotional program concentrating on such center store staples as carbonated beverages, water, bread, and frozen foods, "categories that drive customer traffic and increase basket size." She also pointed to Pathmark's Baby Club, which "coupled with increased merchandising emphasis, drove share increases in the baby category, and slowed the decline in diaper sales due to channel shifting to club and mass merchants."

Sales were particularly strong in Hispanic foods, which increased more than 8 percent, and meat sales, the latter growth the result of more effective marketing, according to Scott. Other categories, such as pharmacy and HBC, performed less well. Although GM sales were down overall, Scott said that the company had plans to expand two successful new concepts: the Corporate Express home office section, which resulted in double-digit increases in the stationery and home office categories in the 19 stores featuring it, and a dollar store section, currently in 25 stores.

She went on to detail four key components of the company's marketing approach: a greater focus on health, diet, and nutrition, including natural and organic foods, a bigger emphasis on the Pathmark store brand, improved advertising and merchandising to Hispanics, and a recognition of consumers' need for more convenience, as shown by the grocer's "It's About Time" rebranding campaign, launched in February.

Scott further noted that Pathmark had been able to significantly lower its health care and pension cost increases through "a series of initiatives, implemented Jan. 1, 2005, for our nonunion groups, including mandatory coordination of benefits and a change in copays and associate contributions," and working with its union partners during recent contract negotiations to reduce the magnitude of increases seen in the past.

She also scotched rumors that Pathmark planned to exit or subcontract out its pharmacy division, describing it as "absolutely…a core business for us."

Cash capital investments in the first quarter of fiscal 2005 came to $6.7 million. During that period, Pathmark remodeled one store and closed one store. During the rest of the current fiscal year, the company intends invest $67 million to open two new stores, close one store, and finish seven store remodels.

The grocer additionally noted a special June 9 meeting in which its stockholders will vote on the previously announced proposed sale of common stock to certain investment funds affiliated with the Yucaipa Cos., which is prepared to provide a cash injection of $150 million into Pathmark. The transaction expected to close shortly after the meeting. Scott said during the conference call that the company "look[ed] forward to putting together an aggressive investment plan to grow Pathmark's business and maximize long-term shareholder value."

Pathmark operates 142 supermarkets, most of them in the New York-New Jersey and Philadelphia metro areas.
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