LANDOVER, Md. -- Giant Food here said soft same-store sales, lower gross margins and higher expenses resulted in an earnings decline of 23.3% for the first quarter ended May 21. Sales for the 12-week quarter rose 2% to $829.7 million. Same-store sales dropped 0.4%, due mainly to cannibalization by newer Giant stores, the company said. Excluding the cannibalization, same-store sales would have increased 0.3%, Giant said. Earnings, which fell to $20.4 million, were boosted $1.2 million, or 2 cents per share, by the sale of Giant's interest in its automatic teller machine operation. However, results were negatively impacted by a drop in gross margins of 0.44% and an increase in selling expenses, principally due to increases in union health and welfare benefits and payrolls, the company said. According to Debra Levin, a securities analyst with Morgan Stanley, New York, Giant's overall sales increase was due to the addition of three new stores. But the drop in same-store sales, which reversed four consecutive quarters of improvements, resulted from the tough economy and cannibalization.
Gross margins fell to 29.74% from 30.18% -- due to the negative effect of Giant's club pack program and the tough competitive environment, Levin said. "And wage benefits have been very costly, which caused Giant's operating expense ratio to rise by the same margin as grosses dropped, so Giant was squeezed in both directions," she added. During the quarter Giant opened its first store in Delaware. A second Delaware store is expected to open this winter, and the company has acquired a site in Cherry Hill, N.J., for a store set to open in 1995.
