WAYNE, N.J. -- Grand Union Co. here said last week it would conduct "a store-by-store" review of its supermarkets in the wake of disappointing financial results for the 12-week fourth quarter ended April 1.
Gary M. Philbin, Grand Union president and chief executive officer, said in a conference call with analysts that the company will focus more on remodeling and expanding existing units rather than building new ones.
The company will also reverse direction and convert all GU Fresh Market stores, a banner Grand Union introduced only last year, to regular Grand Union stores.
Analysts told SN the store-by-store approach was probably the best strategy for the company, but improved results were probably still several quarters away.
Grand Union also did not promise an immediate turnaround. Jeffrey Freimark, executive vice president, chief financial officer and chief administrative officer, said during the conference call, "We are on the road back. I regret that it is and will be a bumpy ride for a little while."
During the conference call, Philbin explained, "We clearly expect our sales to trend behind until we get all our initiatives in place" in the third or fourth quarter of fiscal 2001.
The company said sales, operating earnings and operating cash flow "were all significantly lower" in the quarter.
The company attributed the results in part to $19.6 million it spent in one-time charges to cover corporate restructuring, staff reductions and the closing of 16 stores.
Grand Union further explained that the decline in operating cash flow -- to $1 million in fourth-quarter 2000 from $30.1 million in fourth-quarter 1999 -- reflected competitive sales pressure in all markets, delays in completing new and remodeled stores, and what the company termed "the initial disruptive effects of February's major management change," when J. Wayne Harris was removed as chairman and chief executive office, and two other senior executives along with 34 staff positions were terminated.
Then, in April, one of the terminated senior executives, Don Vallaincourt, corporate vice president for corporate affairs, was arrested for allegedly embezzling more than $2 million from the company.
In the conference call, Freimark said Grand Union "continues to cooperate with federal authorities" investigating Vallaincourt. Freimark added Grand Union expects it would be reimbursed by its insurance company for the money Vallaincourt allegedly misappropriated and the alleged misconduct "does not extend beyond Vallaincourt."
The company also said it has been informed that, effective June 26, Grand Union's stock will be delisted from the Nasdaq National Market and listed instead, the company expects, on Nasdaq's Small Cap Market the same day.
Looking forward, Philbin said during the conference call, "Our dedicated focus must be to make the most of our existing store base. Our additional effort will be to rebuild volume and EBITDA on a store-by-store basis."
Chuck Cerankosky, equity analyst for McDonald & Co., Cleveland, said the store-by-store approach "is the proper strategy."
However, he cautioned that Grand Union's "management turmoil has been very disruptive. "The company faces serious risks, but I don't think the challenges are insurmountable," he said.
Another analyst, who requested anonymity, said that while the company's management turmoil is behind it, "the effects of the turmoil are not behind them yet."
He also said he did not think last week's announcements were the prelude to a sale of the company. "The company's in turmoil," he noted. "They have to show they can make things happen, and they're years away from that at least."