MONTVALE, N.J. — A skittish market punished A&P for what analysts termed a “noisy” and “poorly communicated” quarterly earnings report — but not an altogether bad one.
Stock in the retailer plummeted by more than 25% after A&P reported a greater net loss and lower EBITDA than analysts had expected, and acknowledged making a $5 million glitch in transitioning merchandising functions from Pathmark to A&P. Those items appeared to obscure the fact that sales improved by 3.2% overall and that 3.1% comparable-store sales at Pathmark were that chain's strongest performance since 2001.
Investors — who by the time A&P reported on July 18 may already have seen Safeway and Delhaize issue distressing news — sold in droves. Karen Short, an analyst with Friedman, Billings, Ramsey & Co., New York, blamed A&P management for failing to tell its story clearly.
“The competitive environment may have intensified slightly … but the market overreacted to management's commentary,” Short said in a research note. “In an already extremely skittish market, the company should have appreciated how psychology plays into stock performance.”
John Heinbockel, an analyst at Goldman Sachs, added that the quarter was “noisy,” with integration issues obscuring positive developments in sales and earning trends.
“Operating results were solid, especially considering the challenging macroeconomic environment and the potential for Pathmark-related distractions,” Heinbockel said in a research note.
Brenda Galgano, chief financial officer, said A&P will allocate more of its capital to Pathmark remodels, saying the company expects higher returns than with all other projects. The company has already said it will convert the majority of its SuperFresh stores in Philadelphia to Pathmark's “price impact” format.
She acknowledged that SuperFresh “has been a challenge for us,” and that the fresh remodels at that banner have not met with the same success as similar projects at A&P and Waldbaum's stores in the New York area.
Eric Claus, chief executive officer, added that the company is likely to convert more A&P conventional stores to the Pathmark banner than had originally been anticipated. These projects, which emphasize value and volume sales, require lower capital investment and stand to benefit from a renewed consumer price focus.
While Claus said the integration of Pathmark, acquired by A&P late last year, was mainly complete, the company “left $5 million on the table” as the result of “missed vendor allowances” during the quarter.
“We didn't write some of the contracts on ad merchandise that should have been written,” Claus said, adding that the company will try to recoup the figure in subsequent quarters. “If this is the worst [of integration difficulties] that we got, I'd say it's a pretty inexpensive bill for an integration of this size,” he said.
A&P reported net income of $2.2 million — and a loss from continuing operations of 48 cents per share — on sales of $2.9 billion for the 16-week quarter, which ended June 14.
Analysts had expected a loss of 41 cents and higher EBITDA than the $96 million A&P posted for the quarter.
