Penn Traffic Loses $12.4M in Q1

SYRACUSE, N.Y. — Four-dollar gas and a triple helping of supercenter competition combined to wallop Penn Traffic during the fiscal first quarter, the retailer here said last week.

Penn Traffic posted a loss of $12.4 million for the fiscal first quarter that ended May 3 — compared with a $7.4 million loss in the same period a year ago. Sales were down by 3.6%, to $287.1 million, and comparable-store sales fell by 1.4%. Gross profits as a percentage of sales also dipped, to 26.1% from 26.6% a year ago.

Gregory J. Young, president and chief executive officer, said rising gas prices — which affected both consumer spending and Penn Traffic's cost of sales — along with three new Wal-Mart Supercenters opening in Penn Traffic's market areas during the quarter amplified the challenges the company faced as it attempts to make a turnaround.

“Four-dollar-per-gallon gas is now a reality, and it's still moving up, with some analysts predicting $5 by the Fourth of July holiday,” Young said. “Not surprisingly, you see the grocery industry being significantly impacted, and consumers consolidating their shopping trips and looking for value. We believe these issues may have impacted Penn Traffic's sales volume.”

Penn Traffic, he said, would continue to invest in its top-performing and highest- potential stores while cutting expenses and reducing store count if necessary — a strategy announced earlier this year as a means to stabilize the company after a lengthy run in bankruptcy court. The centerpiece of the effort is a marketing campaign — “Big Smiles. Fresh Food. Low Prices” — focusing on better service and better everyday values in all of Penn Traffic's corporate P&C, Quality Food and Bi-Lo stores.

The company closed six stores during the first quarter, incurring a one-time charge of $2.6 million.

Officials said Penn Traffic's capital spending increased by 23.1% in the quarter to $700,000, but they declined to cite a spending figure for the fiscal year when asked by an analyst in the conference call.

Sales in Penn Traffic's wholesale segment grew by 5.6% to $53.5 million in the quarter, mainly because of new customers, including two stores that were sold by Penn Traffic to independent operators who continued using Penn Traffic as a wholesaler.

The company also said it had reached a tentative agreement with the labor union representing roughly two-thirds of the company's workforce. The deal provides for annual wage increases of 3% and would introduce health insurance co-pays for new employees beginning in 2009. It was subject to ratification by United Food and Commercial Workers Local One, Utica, N.Y.