LANDOVER, Md. -- Giant Food here said lower gross margins continued to pressure earnings in the second quarter ended Aug. 13.
"Earnings remain impacted by lower gross margins and increased selling expenses, principally in union health and welfare benefits, and payrolls," Giant said.
Giant said if the effect of cannibalization by new stores on existing locations is excluded, same-store sales would have increased 2.3% in the quarter. The company said it "looks upon the increases in both the overall and same-store sales very positively."
Debra Levin, a securities analyst with Morgan Stanley, New York, said gross margins on a first-in, first-out method dropped 48 basis points to 29.45% of sales as a result of the competitive environment and Giant's efforts to boost sales with more aggressive promotions.
"Giant does not like to lose market share, and it's doing an excellent job maintaining it, though at the expense of gross margin," she said.
Levin said she anticipates some margin increases going forward, "but competition isn't going to let up, so Giant's earnings will be pressured through the rest of the year."
Giant said sales at its first Super G store in Delaware, which opened in March, are running above projections. However, unexpected site problems have caused construction of Giant's second Super G in Delaware to proceed "more slowly than anticipated." Its opening is now projected for the summer of 1995 instead of earlier in the year.