PARK RIDGE, N.J. -- A&P Chairman and Chief Executive Officer James Wood sees light at the end of the tunnel for the company after a string of quarters with declining operating earnings.
Wood told shareholders at last week's annual meeting here that A&P is starting to effectively tackle its big trouble spots, in particular the Ontario and Atlanta markets. He said these moves will lead to an improved performance picture for the Montvale, N.J.-based company, which posted net earnings of $3.9 million last year on sales of $10.4 billion.
He addressed an audience of more than 200, including some shareholders who pressed him on the company's turnaround capabilities and a few financial analysts. In interviews following the meeting, some analysts expressed reservations
about parts of the company's outlook. (See story below.)
In supporting his optimistic outlook for A&P's problem areas, Wood pointed to the successful negotiations of two favorable labor agreements in Canada following a damaging strike and the careful melding of the Atlanta A&P operation with Big Star units acquired last year from Grand Union Co., Wayne, N.J.
"In the short term, these situations [Atlanta and Canada] detract from our earnings," Wood commented in answer to one of numerous shareholder questions. "But I see the end of our problems in Atlanta within two years. And I think in Canada we should be back on the road within a year. And I think then we'll start looking at some good numbers."
A&P had pointed to the Canada and Atlanta operations when it earlier this month announced lower sales and earnings for the first quarter ended June 18.
Wood refused to be pinned down on exactly how fast the company's overall earnings would grow, although he did say an initial goal is to reach the $2-per-share level, and following that to move toward higher figures more characteristic of the late 1980s than the 1990s. The company earned 10 cents per share in the fiscal year ended Feb. 26; it posted a loss of $4.96 a share in the 1992 fiscal year.
Wood stressed that the problem markets detract from better trends in the majority of A&P's businesses, including metropolitan New York, the Mid-Atlantic states, New England and the Midwest.
"Most of our business is already producing better than that level [the $2 a share], but certain parts of the company are dragging us down. So the question is, how fast can we solve that?" he said.
"We would expect to be positive this year," he added. "We would expect to be much more positive next year when we start to get some momentum in our Canadian business. We've had problems with earnings, but given a little time, we should come back."
Christian Haub, who was named president and chief operating officer of A&P last December, did not speak at the meeting, but told SN afterwards that the company is clearly on the comeback trail.
"Two years ago we had many more problem areas than we have today," he said. "We have been hurt by one-time events like the labor situation in Canada, but we'll be focusing on the businesses and building it back."
Haub said he is confident A&P has developed the right formula for its new stores and will continue to press ahead with square-footage growth. He emphasized that improved customer service will be paramount in the company's plans, and stressed that it's an area he is personally focused on.
"I believe if we excel in customer service, it's going to be a big ingredient in bringing the company back to the position we deserve -- as a leader in the industry."
In addressing A&P's overall strategies at the meeting, Wood told shareholders that the company will grow in markets where it can be dominant, a plan underlined in A&P's capital improvement program.
"A key element of our new-store development plan is to ensure that most of our capital investment is made in our strongest markets -- like New York, New Jersey and the Mid-Atlantic states and Detroit," Wood said. "For example, in 1994, of the $149 million being spent on new stores alone, $135 million is being invested in those most profitable markets."
The desire to become dominant in its markets was a key factor in the chain's recently devised strategy for the Atlanta area as well, Wood said. At the time of the Big Star acquisition, "neither company [A&P nor Big Star] had a profitable presence in Atlanta, and the belief was that each had enough stores to jointly form a viable nucleus."
Wood said A&P had planned to "pull out of Atlanta, especially with Publix moving in and Winn-Dixie becoming more aggressive. But we went the other way. We decided it's the fastest growing market in the U.S., so it didn't seem right to pull out of a market when we had the opportunity to put two companies together and try to make something of it.
"That's cost a lot of money. But in Atlanta, we're probably the only chain showing positive sales results on a same-store basis. I personally think we'll make it there."
The company integrated the Big Star operations into A&P by converting all continuing stores to A&P. A total of 27 Atlanta stores were closed in the past year, and an additional seven to eight units are still slated for closure.
"At that point, a core of approximately 50 stores will remain as a base to build for the future, with about 25 of them ex-Big Star stores out of the original 48 purchased," Wood said. "This is about in line with where we expected to be -- our original bid was for 20 stores."
The Atlanta program will be fueled by a recently launched "aggressive new marketing program in Atlanta," featuring a frequent-shopper card program based on new front-end technology, Wood added.
In Canada, Wood said the conclusion of new labor agreements for the Miracle Food Mart group of stores and -- more recently -- for 102 A&P stores throughout Ontario will put the company on a good course. A&P will convert some 25 A&P stores to formats with a lower-cost labor contract similar to the pact for the company's Super Fresh operation in Canada.
"On an overall basis, our Canadian company is now well placed to compete and a substantial number of our stores will now convert to the Super Fresh-type operation and contract, which has proved so successful for our company and our employees," Wood said.
"Investment in technology as well as facilities has been heavy in recent years, and consequently A&P-Canada, under its various banners, leads in electronic marketing in the Ontario marketplace."
Turning to the company's other operating areas, Wood said same-store sales in the metropolitan New York and Mid-Atlantic banners -- which include A&P, Food Emporium, Waldbaum's and Super Fresh -- are "substantially ahead of a year ago."
Wood didn't break out regional same-store sales. The company's first-quarter report said overall U.S. same-store sales rose 1.1% after an adjustment.
The company's Metro group and the Waldbaum's chain have returned to prerecession levels and are posting good performances, and "Super Fresh in the Delaware Valley continues with strong sales growth," Wood said.
In New England, Wood noted the company has now consolidated all management and administrative functions for the A&P and Waldbaum's Food Mart banners, "and we are beginning to see better sales trends as new marketing programs start to take hold."
A&P also is starting to see returns from the Midwest stores, and it expects the group to be a strong contributor to earnings in 1994, Wood said.
"Same-store sales in Michigan have been strongly positive and continue to grow," he said. "Most stores in Michigan are now operating under the Farmer Jack banner, and our overall business there has shown consistent improvement.
"We have also managed to negotiate recently a more competitive labor agreement for stores outside the Metro Detroit area. This will provide us with additional growth opportunities and an enhanced competitive position.
"Our Kohl's subsidiary in Wisconsin has maintained its strong upscale franchise, despite the majority of the market being dominated by low-priced warehouse stores, and Kohl's has earned the reputation within A&P of being our most consistent top-line and bottom-line performer."
On the merchandising front, Wood noted that private label has now grown to 20% of the company's grocery sales, with America's Choice the newest program. That label replaces store brands across A&P's network of banners to provide for a more unified private-label approach.
"Within the year, all U.S. stores in the A&P family will be able to offer 1,400 stockkeeping units bearing the America's Choice label," he said. "These products will replace over 3,500 duplicated store-name items previously stocked in our warehouses . . . 700 items have already been introduced, and the program has been an unqualified success."
