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PATHMARK: INITIATIVES TO PROTECT STORES FROM WEAKENED ECONOMY

CARTERET, N.J. -- Pathmark Stores here said last week it expects the execution of its store-level initiatives to insulate it from any weaknesses in the economy."That's why we're calling 2002 'The Year of the Store,"' Jim Donald, chairman, president and chief executive officer, told securities analysts in a conference call. "We intend to focus on flawless execution, and we have sales programs in place

CARTERET, N.J. -- Pathmark Stores here said last week it expects the execution of its store-level initiatives to insulate it from any weaknesses in the economy.

"That's why we're calling 2002 'The Year of the Store,"' Jim Donald, chairman, president and chief executive officer, told securities analysts in a conference call. "We intend to focus on flawless execution, and we have sales programs in place to grow our top line and provide increased throughput for manufacturers that we believe will mitigate the effects of a weaker economy.

"We can't control the national economy, but we can control our own destiny, and we will grow stronger in this weak economy."

Asked to discuss the initiatives the company plans, Donald said Pathmark will increase its promotional advertising, "though I'm not prepared to talk about that."

However, he did mention two store-level initiatives, scheduled to begin in March, involving the rollout of new front-end, point-of-sale systems at all 141 stores and a simultaneous installation of self-service checkstands at all stores. Donald said he expects the new POS systems to boost productivity by 7% to 12%.

In other remarks during the conference call:

Frank Vitrano, executive vice president and chief financial officer, said Pathmark is keeping its eye on negotiations between Big V Supermarkets, Florida, N.Y., and its supplier, Wakefern Food Corp., Elizabeth, N.J.

"Big V signed a term sheet to sell the company to Wakefern, and while we believe the acquisition of Big V's 31 stores would be right for Pathmark, it now seems less likely we will be successful," he said. "But we will monitor the situation as Big V negotiates with Wakefern and other creditors."

Donald said Pathmark is fortifying its store operations organization by increasing the number of district managers from eight to 14, "so that each district manager will cover $300 million in annual sales instead of $500 million."

Donald and Vitrano made their remarks following the release last week of financial results for the third quarter and 39 weeks ended Nov. 3.

Sales were up 5.2% to $985.9 million for the quarter and 6.3% to $3 billion for the year to date, while comparable-store sales jumped 3.3% for the quarter and the 39-week period. Net income, excluding reorganization expenses in the prior year and other onetime costs, rose to $5.5 million from $700,000 in last year's third quarter -- which marked the company's emergence from Chapter 11 bankruptcy protection; for the year to date net income was $15.7 million, compared with a loss in the prior year.

Donald said sales were stronger in the early part of the fall, "but beginning in early November food dollars began shifting to other channels of distribution as consumers sought to take advantage of offers of 30% off or more in those channels."

He said Pathmark's sales were also affected by warm weather in the Northeast. "Ads were written a few weeks before they appeared, and they concentrated on center-of-the-plate and cooking items, so we saw a slight decline in those categories," he noted.

Looking at partial fourth-quarter results, Donald said some in-store departments had record sales during Thanksgiving week, "with some stores doing as much in one day as the average supermarket does in a week."

Heading into the Christmas holidays, "we're not seeing evidence of increasing unemployment or low consumer confidence," Donald said, "though it's still too early to say if this is a short-term occurrence or not."