GREAT FALLS, Mont. -- Buttrey Food & Drug Stores here plans to seek acquisitions during this year as part of its effort to increase sales, Joseph H. Fernandez, president and chief executive officer, told the chain's annual meeting here. "As a result of asset sales and cash generated by operating activities, the company has reduced long-term debt significantly, and our balance sheet is now relatively under-leveraged relative to many other companies in the food and drug retailing industry," Fernandez said. "Consequently, we are positioned to grow faster by acquisition as opportunities arise. "During 1995 we expect to engage in discussions with chain and independent operators concerning acquiring their food and/ or drug stores that may fit our network." With the sale of six stores in Washington and a distribution center in Payson, Utah, "we have rationalized our base of assets and continue to focus on cost reduction," Fernandez told the meeting. "This prepares us to realize increased profitability through incremental sales." The store acquisition program is one means of meeting what Fernandez called the chain's No. 1 priority for 1995: increasing sales. He said Buttrey has been able to strengthen its sales base by upgrading perishables offerings, redefining the role of general merchandise and improving its competitive pricing position. "By listening and reacting to the product, price and service needs of our customers, we believe we can create more value for our customers," he told the meeting. Part of its strategy is to achieve dominant positions in existing markets wherever possible, Fernandez said. Toward that end, Buttrey concentrated its capital investments during 1994 in Missoula, Mont. -- opening its third combination store there and remodeling two existing stores. "This strategy [of achieving dominant market positions] is the center of our 1995 capital plan," he noted. Buttrey has opened a second store in Butte, Mont., and is reviewing plans for a second unit in Helena, Mont., Fernandez said. He also said the company plans to remodel two stores here. The chain's financial results during 1994 included the following, Fernandez told the meeting: · A decline in comparable-store sales of 3.9%, "which represented significant progress. But we still need to make more progress." He said he expects same-store sales to decline less than 1% in the first quarter of 1995. · A decline of 10.9% in total sales to $382.1 million, due primarily to the loss of sales from the six stores that were divested last year. · A net income before extraordinary charges of $3.5 million -- compared with a loss of $100,000 in 1993 -- resulting from stabilization of sales, reduction in costs and the elimination of unproductive assets. · A drop in marketing, general and administrative expenses of approximately 15%, resulting from cost-cutting measures -- "the first time in three years that costs have declined in greater proportion than sales and the principal reason operating income increased by more than 40%." · An inventory reduction of $9 million, resulting from the introduction of new buying and ordering systems and use of new merchandising information systems. "As we have realized cost savings, we have been in a position to reduce retail prices further, thereby accelerating our achievement of a more competitive pricing position," Fernandez said. Buttrey operates 40 stores: 31 in Montana, seven in Wyoming and two in North Dakota. It sold six stores last year in Washington state after determining "that the capital and management resources these markets would have required would have delayed or prevented us from achieving our objectives in other markets," Fernandez said. The company also sold a distribution center in Payson, Utah, to Associated Food Stores, Salt Lake City, and entered into a supply agreement with Associated "[that] offers the potential to reduce our cost of goods through the combined buying power of Buttrey and Associated and by the efficiencies of higher utilization of the Payson facility," he said.