AMERICAN STEPPING UP RE-ENGINEERING EFFORT

ELLIOT ZWIEBACH

SALT LAKE CITY -- Benefits from re-engineering programs at American Stores Co. here are offsetting the costs of those programs, prompting the chain to accelerate its re-engineering efforts, Victor L. Lund, president and chief executive officer, said last week.

Lund made his remarks in a report disclosing American's results for the fiscal year and fourth quarter ended Jan. 28, which showed sales on continuing operations down slightly, while a one-time gain from the sale of 45 Acme Markets stores helped boost earnings.

American operates 1,597 stores in 26 states.

American's re-engineering programs -- referred to internally as the Delta project -- consist of efforts to develop common systems, business processes and technologies for its operating segments that will enable the chain to consolidate several aspects of supply-chain management.

According to Lund, re-engineering had cost the company about $5 million during the fourth quarter. However, he said those costs had been matched by corresponding cost-savings measures

from the re-engineering during the quarter.

"The Delta project, particularly the integration of the supply-chain functions, is critical to the future success of the company," Lund said. "The very visible and tangible benefits that will result from the Delta project convince us that we should accelerate this effort."

While American is maintaining its deadline of mid-1997 to complete its re-engineering efforts, an American Stores spokeswoman told SN the chain expects to reach certain goals in the program in an earlier time frame. However, she declined to be specific about what projects might be pursued sooner than had been anticipated. Chuck Cerankosky, a securities analyst with Hancock Institutional Equity Services, Cleveland, said American has completed about one-third of its re-engineering projects. Still ahead, he said, is the need for the chain to coordinate information systems among all divisions and the central operation so they can communicate with each other.

American said net income rose 39.7% for the year to $345.2 million and 28.1% for the 13-week quarter to $130.3 million. Results included a one-time gain of $38.3 million, or 17 cents per share, during the quarter relating primarily to the sale of 45 Acmes to Penn Traffic Co., Syracuse, N.Y.

Total sales (including 33 Star Market stores, Cambridge, Mass., sold in the third quarter and the 45 Acmes) fell 2.2% for the year to $18.4 billion, while sales from continuing operations fell 0.3% to $17.5 billion. For the quarter, total sales fell 4.6% to $4.7 billion, while sales from continuing operations fell 0.1% to $4.6 billion.

The company said comparable store sales, excluding its 11 price-impact stores in California, increased 0.5% for the year and 0.2% for the quarter.

The price-impact stores were originally called Price Advantage and then Food Price Advantage. However, following a threatened lawsuit by Price/Costco, the name on the 11 stores is being changed to Super Saver.

The introduction of the price-impact stores last fall cost American Stores about 4 cents a share, Gary Giblen, managing director of Smith Barney, New York, told SN.

Lund said American plans to implement "specific programs [at the Super Savers] that are designed to accelerate sales in these stores and improve their performance."

Analysts said those programs will include grand reopenings under the new name, scheduled for later this month.

American Stores also said it plans to spend more than $700 million on overall capital expenditures in 1995, with plans for about 75 new and replacement stores, 80 major remodels and 70 minor remodels, as well as the completion of a new perishables warehouse in northern California.

American Stores said sales on a division basis broke down as follows:

Sales in the Eastern food division (including Acme Markets, Malvern, Pa., and Jewel Food Stores, Melrose Park, Ill.) fell 1.6% for the year to $6 billion and 2.02% for the quarter to $1.5 billion. Same-store sales for the quarter fell 1.5%.

Sales in the Western food division (including Lucky Stores in northern and southern California, Jewel Osco in New Mexico and the 11 Super Savers) fell 2.52% for the year to $7 billion and 1.2% for the quarter to $1.8 billion. Same-store sales fell 1.4% for the quarter.

Giblen said American plans "a major new program to deal with its weaknesses in northern California," though he said the company declined to release details of the program. He said the program is expected to begin shortly.

Drug store sales (at Osco Drug in the Midwest and Sav-on in California) rose 5.2% for the year to $4.5 billion and 3.9% for the quarter to $1.3 billion. Same-store sales rose 3.6% for the quarter.

4TH-QUARTER RESULTS

Qtr Ended 1/28/95 1/29/94

Sales $4.6 billion $4.9 billion

Change -4.6%

Same-store 0.2%

Net Income $130 million $101 million

Change 28.1%

Inc/Share 87 cents 69 cents

52 Weeks 1994 1993

Sales $18.4 billion $18.8 billion

Change 12.2%

Same-store 0.5%

Net Income $345.2 million $247.1 million

Change 39.7%

Inc/Share $2.33 $1.69