MONTVALE, N.J. -- A&P here indicated that it could retain the Farmer Jack chain now that the potential buyer has withdrawn its interest.
In a conference call with analysts discussing the company's second-quarter results, Eric Claus, the recently named president and chief executive officer of A&P, said the company might decide to invest in and retain the 67-unit chain, which is based in Detroit.
"We either have to fix Michigan or get rid of Michigan, one of the two," he said. "It hasn't been managed the way it should have been managed over the past year."
The company said earnings before interest, taxes, depreciation and amortization at Farmer Jack are "very, very close" to break-even, and suggested that the company could make changes that would make the division cash-flow positive. Comparable-store sales at the banner were down about 3% in the second quarter that ended Sept. 10.
In May, A&P said it planned to seek a buyer for Farmer Jack, and was thought to be in negotiations with Spartan Stores, Grand Rapids, Mich., until that company recently said the acquisition it had been contemplating carried too much risk.
In the conference call last week, A&P said it was in talks with United Food & Commercial Workers Union Local 876, to which its Farmer Jack workers belong, about their contract. Workers had previously agreed to a 10% wage cut if the chain was sold.
A&P also said it was planning to make changes in its Fresh Market and Food Basics formats in the next few months. Claus, who for the past three years had headed A&P's Canadian division, where the Food Basics banner originated, said he didn't think Food Basics had been executed correctly in the U.S.
Claus also said the company, which recently began outsourcing its distribution operations to C&S, was becoming more aggressive in its buying as it seeks to reduce costs, an initiative Claus said the company was attacking "with a vengeance."
"We have an aggressive target, and we believe we overpay for much of our cost of goods," he said. "Everything, and I mean everything, is up for negotiation. There are no sacred cows, no sacred relationships that will escape the cost reduction initiative. The initial success rates in these early stages is staggering."
He said the company would move closer to a dead-net pricing system by next year and that it was setting up what it called a "joint-bidding auction house" with C&S to obtain better deals on commodity items and improve the chain's price perception in the market.
Flush with cash from the recent sale of its Canadian division, A&P also said it was optimistic that it could look at acquisition opportunities in the Northeast.
In the second quarter, A&P reported net income of about $592 million, which included a gain of $919 million from the Canada sale. Revenues were down about 13%, to $2.17 billion.
2nd-QUARTER RESULTS
Qtr Ended: 9/10/05; 9/11/04
Sales: $2.17 billion; $2.49 million
Change: -13%
Comp-store: -1.1%*
Net income: $592 million; ($64.2 million)**
Change: N/A
Inc/Share: $14.40; $1.67
28 Weeks: 2005; 2004
Sales: $5.55 billion; $5.77 billion
Change: -3.8%
Comp-store: -0.7%*
Net Income: $502.7 million; ($107 million)**
Change: N/A
Inc/share: $12.47; $2.78
* Excludes New Orleans market.
** Includes gain of $919 million on the sale of the Canadian stores and charges of $71 million related to costs of exiting certain Farmer Jack locations, $29 million for early debt retirement, $25 million in restructuring costs, $12 million related to a Canadian hedging agreement, $10 million for impairment charges and $5 million for damages due to Hurricane Katrina.
