Failed Merger Hurts Penn Traffic

MARK HAMSTRA

SYRACUSE, N.Y. — Penn Traffic here recorded a loss of $4.8 million for an acquisition that did not materialize, the company said in a conference call discussing its results for the recently ended fiscal year.

Although Penn Traffic officials declined to elaborate on the failed deal, industry sources suggested that Penn Traffic was seeking to buy all or part of the Williamsville, N.Y.-based Tops Markets chain, which also operates in western New York state.

Tops was acquired from former parent Ahold last year by Morgan Stanley Private Equity.

In the conference call, Greg Young, chief executive officer, Penn Traffic, said the company “has a fiduciary responsibility” to explore mergers and acquisitions that might benefit shareholders.

Penn Traffic, with 103 locations under the Bi-Lo, P&C and Quality Markets banners, would have more than doubled in sales volume through a merger with the 71-unit Tops chain, which posted sales of about $1.7 billion last year. It operates in western New York markets contiguous with Penn Traffic's operating area.

The $4.8 million write-down was a fraction of the company's $41.7 million loss for the full fiscal year, which ended Feb. 2, as the company has sought to regain its footing in the wake of a 2003 bankruptcy filing. The company has begun rapidly catching up on past-due quarterly filings with the Securities and Exchange Commission.

Young described a new ad campaign and brand positioning effort centered around the theme: “Big smiles — Fresh food — Low prices.” The initiative includes adding more store-level workers at peak times to improve service, emphasizing store-made perishables and rolling out an array of price promotions.

For the fourth quarter, the company posted a loss of $19.8 million, vs. a loss of $15 million in the year-ago period. The full-year loss of $41.7 million compares with a loss of $28 million in the preceding year. Revenues, which include distribution sales to independent supermarkets in the region, were down slightly for the year, to $1.22 billion. The recent year included 52 weeks, vs. 53 in the preceding year.

During the year, the company shed its Penny Curtis Baking division and shuttered eight stores and one warehouse.

Same-store sales were down 0.3%, compared with a 1.7% decrease in the preceding year.

“Things are definitely heading in the right direction at Penn Traffic,” said Burt P. Flickinger III, managing director of New York-based consulting firm Strategic Resource Group. “They have very good locations in college towns and country stores … and a strong group of store managers and department managers.”

He also said the company has a “real hidden gem” in its distribution business.