Merger, Buyout Costs Hit Pathmark

JON SPRINGER

CARTERET, N.J. — Charges related to its pending merger with A&P contributed to a loss of $8.5 million during the first quarter for Pathmark Stores here, the retailer said Wednesday.

Pathmark reported pre-tax expenses of $5.2 million related to the proposed merger with A&P, Montvale, N.J. That deal, which was announced in March, is expected to close later this year. Pathmark also incurred expenses of $4.2 million related to labor buyouts during the 13-week period, which ended May 5.

These expenses contributed to a steeper loss than the same period a year ago when Pathmark reported a $5.4 million loss.

Sales were virtually unchanged at $999 million for the quarter, up from $998.5 million last year, Pathmark said.

Higher adjusted EBITDA of $40.4 million offset some losses during the quarter, Pathmark said. Gross profit as a percentage of sales climbed to 29.7% from 29% due to better merchandising and improved expense control, as well as the favorable resolution to a vendor dispute reversing a $3.2 million charge incurred during the fourth quarter of fiscal 2006.

Pathmark reported $14.7 million in capital expenditures during the quarter, vs. $12.1 million during the same period a year ago. Pathmark said it planned to spend approximately $80 million during the fiscal year, mainly on 13 store renovations.

Pathmark did not elaborate on its results with a conference call.

Although federal antitrust authorities have sued to stop the Whole Foods-Wild Oats merger, analysts still expect the Pathmark-A&P deal will win Federal Trade Commission approval, albeit with some mandated store sales.

That, they said, is because regulators are taking a particularly narrow view of natural/organic grocers. By contrast, A&P and Pathmark are likely to be considered among several competitors in their trade areas, including the Wakefern-ShopRite cooperative, where members are incentivized to grow volume through low prices.

John Heinbockel, an analyst with Goldman Sachs, New York, in a research note said the Long Island, N.Y., market was most vulnerable to significant store divestitures. According to his estimates, the retailers would likely be forced to surrender at least 10 of their combined 93 Waldbaum's or Pathmark stores there.