MONTVALE, N.J. ¡- Officials at A&P here last week recapped a transformational fiscal year and touted momentum in the new one.
"We are really focused on growing this company and not shrinking it anymore," Eric Claus, chief executive officer, said in remarks to analysts during a conference call reviewing financial results for the year. Claus said fiscal 2005 - during which A&P sold its Canadian division; streamlined the organization through store closures, hundreds of layoffs and new management; and finalized a strategy to build behind three new store formats - has positioned the company financially and operationally to recapture sales and earnings after years of losses.
While the company reported a 6% overall sales decline and a $39.1 million loss during the quarter, which ended Feb. 25, EBITDA increased by 12% to $127 million, and comparable-store sales grew by 1.4%. Officials said the comps were tracking at a similar rate through the first quarter, boosted by strong sales in New Orleans, where A&P lost some competitors as the result of Hurricane Katrina, and in its Northeast base where some converted fresh stores have become the most successful in the chain.
These gains were offset some by comparable-store declines at the Farmer Jack division in Michigan, which A&P pared down and unsuccessfully attempted to sell last year. Dark stores from this division were a drag on earnings during the quarter.
The company this month said it would try and regain momentum in Michigan through a lower pricing strategy and accompanying marketing program reviving the "Savings Time" slogan of years ago, Claus said.
Consumer pricing perception remains an issue companywide, Claus acknowledged, but A&P has worked to lower its cost of goods through auctions for commodity items and reducing corporate expenses, and is passing those savings onto consumers in lower prices. New store formats focused on creating more a profitable sales mix, along with new ad strategies, are also helping, he said.
"We are not trying to take the market to a place that's unnatural or create a market that is a problem," Claus said. "We were overpriced, and consequently had the lowest sales per square foot of many of the retailers in the East. We're making real progress and will continue to chip at this a week at a time."
The windfall from the sale of the Canadian properties last summer will allow for capital expenditures of around $200 million this fiscal year, with 95% marked for store conversions. These include 75 fresh store remodels, 10 Food Basics discount conversions - including some dark conventional stores pegged to re-open under the Food Basics banner - and a new format, a gourmet store at A&P's Bridgemarket Food Emporium location in Manhattan.
Claus said the Food Emporium makeover will be overseen by an unnamed merchant who created similar gourmet concepts for Harrod's in London and Globus in Switzerland. The conversion will be complete this fall. "I can assure you this will be the best in fine foods that America has to offer. Stay tuned. It will be exciting," Claus said.
Claus said he was confident that the revamped fresh and Food Basics concepts opened recently - the former in Midland Park, N.J., and the latter in a dark location in Glassboro, N.J. - are the models the company will use for all future conventional store conversions. Midland Park has become the best-performing store in the entire chain - "customers are driving past our own stores to shop there," Claus said - and the new Food Basics has overcome execution problems that doomed the first generation of such stores in the chain.
"Everything from the parking lot to the cart corrals to the merchandising is clean, professional and bright," Claus explained. "The problem with the stores we had before was that, to be candid, you felt poor shopping there. The parking lots were dirty, the carts had broken wheels, and you'd come in and see cracked floors. It was trying to put lipstick on a not very clean store."
Christian Haub, A&P's executive chairman, said he was "more confident than ever" that A&P could lead consolidation among Northeast retailers, a topic of much speculation among industry observers. Haub said A&P is looking to buy other retailers because "strong leading market share is the best formula for superior financial performance."
Though industry speculation has been focused on a potential merger between A&P and regional rival Pathmark, much of A&P's current momentum is coming at the expense of the latter, Burt P. Flickinger III, managing director of the Strategic Resource Group, New York, told SN.
"As Pathmark struggles operationally it makes less and less sense for A&P to make a huge capital investment to buy a wounded competitor that A&P is shifting sales, shoppers and market shares from," Flickinger said. A regional competitor such as King's, recently sold to private investors, or Safeway's Genuardi stores in Philadelphia, are other acquisition possibilities, he speculated.
A&P posted overall sales of $1.6 billion in the quarter, down 6%, and a loss of $39.1 million vs. a $5.7 million loss a year ago. For the fiscal year, A&P reported $8.7 billion in sales and profits of $392 million.