WHIPPANY, N.J. -- Grand Union Co., Wayne, N.J., last week continued to trim its costs and prepare for a potential sale, Gary M. Philbin, president and chief executive officer, said at the company's annual meeting here.
Grand Union eliminated 170 positions, most at its Wayne, N.J., headquarters and at its upstate New York administrative offices. The layoffs, which Philbin said would save between $8 million and $12 million per year, came six months after Grand Union let go 34 employees following the removal of its former CEO and resignation of its chief administrative officer.
The chain earlier this summer hired Merrill Lynch to seek potential buyers, while a distressed-business specialist, Alvarez & Marsal, was contracted to prepare a new business plan for the 200-store chain.
Also last week, Grand Union said its first-quarter 2001 sales fell 4.3%, while operating cash flow decreased by 45.5%.
Philbin told shareholders that Grand Union's 2000 fiscal year, which ended April 1, was "marked by disappointing results and deep changes in the company's leadership and philosophy." Philbin became CEO in February after J. Wayne Harris was removed by the company's board of directors and Jack Partridge, chief administrative officer, resigned from his position.
Grand Union lost $307 million on sales of $2.2 billion during the year. Sales were down 3.6% from 1999 while same-store sales decreased by 0.2%. Earnings before interest, taxes, depreciation and amortization were $84.3 million, down from $106 million in 1999.
Philbin attributed the disappointing figures to "a lot of competitive pressure, delays in store openings and remodelings and a change in accounting procedure." The management shakeup in February also caused disruption, he added.
The staff reduction announced last week will allow the company to cut administrative costs by $8 million to $12 million annually and increase operating cash flow, he said.
"It goes without saying that eliminating the positions was a difficult thing to do," Philbin told shareholders. "But in our competitive marketplace there is little room for expense that doesn't translate into better quality, better selection and better service for our customers. We had to adjust our cost structure."
Alvarez & Marsal, a New York-based firm that previously assisted distressed supermarket chains Homeland Stores, Oklahoma City, and Harvest Foods, Little Rock, Ark., should have a revised business plan for review by Sept. 1, Philbin said. The plan is to address long- and short-term goals for the company. In the meantime, Philbin said, Merrill Lynch is continuing to search for a potential buyer for Grand Union.
Philbin told SN last week that the company "had to enter the fray" of heavy promotional activity among competitors in its markets but encountered trouble staying in the fight.
"Our competitors have been very aggressive, with a lot of triple-couponing and other ads and promotions," he said. "We had to get lean and mean to drive that top-line growth."
In financial results also announced last week, Grand Union said that for the 16-week first quarter ended July 22, sales dropped 4.3% to $658 million -- with 19 fewer stores than a year ago, the company pointed out -- and same-store sales declined 2.7%.
Operating cash flow fell 45.5% to $17.7 million, which the company said included a gain of approximately $6 million from the sale of the company's Deer Park, N.Y., location. The company said the net loss for the quarter was $51.7 million, which reflected the effect of $40.6 million in excess reorganization value amortization.
In addition to the sale of the Deer Park store, Grand Union said it has reached agreements for the sale of two additional stores -- in Glenbrook, Conn., and the Bronx, N.Y. The sale of those two leases would generate about $9.3 million, the company said.
In the shareholders meeting, Philbin said that performance improved in late June and early July, but added he didn't expect trends to dramatically improve during the current quarter.
"We're encouraged, but we're not kidding ourselves," he said. "We do not expect year-to-year improvements any earlier than the third quarter."