FOOD LION NET INCOME JUMPS 18.4% IN QUARTER

ELLIOT ZWIEBACH

SALISBURY, N.C. -- Food Lion here said the closing of 84 unprofitable stores helped the company improve earnings in the third quarter ended Sept. 10.

Net income rose 18.4% in the 12-week quarter to $36.6 million. The company said its net-margin rate of 1.98% puts it among "the top ranks of grocery chains nationwide."

Sales rose 2.35% to $1.85 billion and same-store sales increased 3.2% in the quarter.

Tom Smith, chairman, president and chief executive officer, said the improved bottom line is the "best evidence" that Food Lion's growth plan is moving the company forward.

"During the first and second quarters, we closed 84 unprofitable stores, making the third quarter the first real demonstration of the impact of the closings," he said. "Despite the fact we averaged 52 less stores than a year ago, sales showed a solid 2.35% improvement from this smaller, more profitable store base."

Four new stores and nine renovations were completed during the third quarter. Construction delays, however, are expected to push the openings of 10 new stores planned for 1994 "into early 1995," Food Lion said. As a result, the chain expects to open 50 new stores next year and remodel between 100 and 120 units.

Debra Levin, a securities analyst at Morgan Stanley, New York, said Food Lion's same-store sales increased at or near double-digits rates in the Southwest and were solid in North Carolina and Virginia. In Florida -- where Food Lion offered double-coupon redemptions a year ago -- same-store sales declined and they were flat in South Carolina, which is overstored and very competitive, Levin said.

Food Lion also reported stronger gross margins in the third quarter, which improved 31 basis points to 20.29% of sales.

Gary Giblen, a securities analyst with PaineWebber, New York, said the giveaway-type promotions that Food Lion used to bring back business after a negative 1992 television news report about the chain pressured gross margins through last year's third quarter.

"Now that Food Lion's quite protracted period of recovery is over, some large question marks remain concerning where the company is headed," he said. "The issue now is formats and the energetic effort Food Lion is making to build on its large base of smaller stores and upgrade its perishables and service departments."

3rd-QUARTER RESULTS

Qtr Ended 9/10/94 9/11/93

Sales $1.85 billion $1.81 billion

Change 2.3%

Same-store 3.2%

Net Income $36.6 million $30.9 million

Change 18.4%

Inc/Share 8 cents 5 cents

36 Weeks 1994 1993

Sales $5.48 billion $5.21 billion

Change 5%

Net Income $102.5 million $77.3 million

Change 32.6%