CARTERET, N.J. -- Pathmark Stores here said last week the sluggish economy and heightened competition had resulted in flat sales and declining comps for the 13-week first quarter ended May 4.
During a conference call with analysts following the release of the quarterly results, Jim Donald, Pathmark's president and chief executive officer, said, "We're a regional company in a very tight region. Higher unemployment and a weak economy have impacted our sales."
The results, which Donald called "very disappointing," came in below the company's previously announced expectations and led Pathmark to lower its guidance for its 2002 numbers.
In April, when Pathmark reported its year-end and fourth-quarter results, the company said it expected flat same-store sales and diluted earnings per share of between 13 and 17 cents. Instead, same-store sales declined 1.2% and earnings per share were 9 cents.
In April, the company said it anticipated full-year, same-store sales growth of 1.5% to 2%, and diluted earnings per share of $1 to $1.05. Pathmark said it now expects same-store sales for the year to be flat, and earnings per share of 73 to 83 cents.
Along with the sluggish regional economy, Pathmark cited several other reasons sales have not grown faster, including:
Competitive activity. Although Donald said the overall competitive environment was "similar to last year," he cited a "deep continuity discount program over the month of April" at Shop-Rite -- the banner under which members of the Wakefern Food Corp., Elizabeth, N.J., operate stores -- as hurting Pathmark's results. Referring to the Shop-Rite program, Frank Vitrano, Pathmark's chief financial officer, said an expected "strengthening in April sales was weakened by an uptick in promotional activity."
Alternative channels. Donald noted that Pathmark is competing not only against mass merchandisers, but also drug stores, limited assortment stores, convenience stores, gas stations and category killers -- all offering at least some supermarket market items, often at "deep discounts." He said all of the Top 10 supermarkets in his region have experienced "channel leakage," according to market research.
Increases in shrink. Donald said the economic environment has "created a boldness in shoplifting," worsening a perennial challenge for Pathmark. He noted that "the major area of opportunity is in nonfoods," adding that he is confident the company's program will be able to rein it in and restore 10 to 20 basis points to its sales.
Despite these challenges, Donald said he saw "strong signs of progress" in the company's performance in several areas, including improved customer service, increased use of loyalty cards (by 70% of customers and accounting for 85% of sales), better in-store sanitation and heightened perception of the company's produce offerings. Sales for the quarter were flat at $976.8 million, and net income was $2.8 million (or 9 cents per share), compared with a net loss of $61.4 million (or $2.05 per share) in last year's first quarter.