WAYNE, N.J. -- Grand Union Co. here laid out a six-point strategy last week that it hopes will make it "one of the most successful food retailers in the Northeast," said J. Wayne Harris, chairman and chief executive officer.
The strategy calls for Grand Union to build sales; make intelligent capital investments; increase the store base; develop a corporate culture focused on reducing expenses; use technology effectively; and achieve bottom-line results that build shareholder value, Harris said.
He made his remarks during a conference call with securities analysts reviewing the company's financial results for the second quarter and first half ended Oct. 10, which showed higher operating cash flow and flat sales.
Sales rose 0.1% to $519.5 million for the 12-week quarter and fell 1.3% to $1.2 billion for the 28-week half, while comparable-store sales rose 0.6% for the quarter and 0.5% for the half.
The company said all three operating divisions reported positive comps, with the sales trend "especially encouraging" during the last four weeks of the quarter.
Earnings before interest, taxes, depreciation, amortization, unusual and extraordinary items rose 102.7% to $27.3 million for the quarter and 152.8% to $58.4 million for the half -- the result, the company said, of stronger sales, improved gross margins and a significant reduction in operating and administrative expenses.
The company said it had a net loss of $26.8 million for the quarter and $81.1 million for the half before unusual and extraordinary items. Including those items, the company said, it had net income of $233.1 million for the quarter and $170.2 million for the half, compared with losses in the prior periods. The items included an unusual charge for restructuring and an extraordinary gain from early extinguishment of debt.
According to Harris, "Our continued progress in expense reduction has enabled the company to invest in marketing and promotional programs that are successfully driving customer traffic and total sales.
"Grand Union associates throughout the organization have responded enthusiastically to our initiatives to improve service, enhance perishables excellence and operate the business more efficiently, and we are in a strong position to build on this momentum as we begin implementation of an aggressive capital program with investments in new stores, remodels and improved technology."
Harris told analysts the company plans to invest $290 million in capital projects over the next five years. He said Grand Union has 13 remodeling projects under way, "and we expect to invest capital in 50 more stores in the next two years."
He also said Grand Union expects to open up to 30 new stores over the next four and a half years, including one and possibly two before the end of the fiscal year in March and six to eight each year thereafter. New stores and remodels will feature a more contemporary design, with enhanced perishables and expanded space for high-margin categories, he said.
Jeffrey Freimark, executive vice president and chief financial officer, said Grand Union spent $5.5 million to $6 million on capital expenditures in the second quarter after spending about $3 million during the first. He said he was not sure how much more would be spent during the balance of the fiscal year.
The company is moving ahead slowly on investing its money, Freimark explained. "We're spending a lot of time carefully reviewing each project because we want to be sure we're satisfying our intended rate of return," he said, "so the dollar level we spend at is reflective of the scrutiny each project goes through and not of the number or quality of the projects we're looking at."
According to Harris, Grand Union is developing a corporate culture "dedicated to driving expenses down and being more efficient, and we've done a good job moving toward that goal."
With managers and store-level employees involved in enhancing expense-control efforts, "there's a definite culture here now, rather than a group of people trying to get things done week to week," Harris said. "And we see a big upside yet to come from technology investments that will allow us to operate more efficiently."
With an eye toward reducing expenses further, the company is looking forward to the paybacks that will follow investments in technology, said Jack Partridge, vice chairman and chief administrative officer. "What we've done so far to reduce expenses has been accomplished without investments in new technology -- without computer-assisted labor scheduling or time-and-attendance systems.
"But once we can implement those systems and others, there will be significant opportunities to reduce costs further," he said.
Grand Union sees other cost-saving opportunities ahead, Harris added, noting that as the chain opens more stores, it will be able to spread out the expense "of a high-cost work force" by using more part-time employees.
According to Gary Philbin, president and chief merchandising officer, the company will also benefit from ongoing improvements in buying and the ability to make better deals. "And we're targeting spending more wisely, putting the right items and right prices in our ads and consolidating price zones," he said.
Better buying has enabled Grand Union to increase sales at a higher rate than the company's overall same-store sales gains, with double-digit sales growth in some major categories, Philbin added, and those improvements should be enhanced as Grand Union expands private label beyond the current level of 10%, he said.
Among other comments during the conference call with analysts:
* Grand Union is getting better terms and items going into the holiday season this year, Philbin said. "Vendors are not so itchy this year [as they were while the company was restructuring a year ago], so we're getting better terms," he noted.
* The company is spending anywhere from $500,000 to $2 million per store on remodelings and getting sales increases of 15% to 20% per store due to the physical changes as well as "a distinct improvement in the product mix," Harris said, with expanded frozen foods, dairy and other perishables and the addition of natural-food departments within the same-sized box, "which gives us a good payback in a short period of time."
* Grand Union prefers to build combination stores of 55,000 to 60,000 square feet, Harris said, "with a lot of emphasis on food. But we have three or four different prototypes, and there are a lot of great locations that are just 35,000 to 40,000 square feet, and we're prepared to adapt to the locations that are available."
He said the chain's new store design is aimed at broadening Grand Union's customer base. "Like most older companies, we have an older, very loyal clientele. But we're trying to attract younger families with our more contemporary design and our marketing plan."