GRAND UNION EXITS CHAPTER 11; CEO SEES 'A BRIGHT FUTURE'

ELLIOT ZWIEBACH

WAYNE, N.J. -- Grand Union Co. here is "a new company with a bright future and a clear strategic vision," J. Wayne Harris, chairman and chief executive officer, declared last week as the company completed its capital restructuring program and emerged from Chapter 11 bankruptcy protection.

"The company is financially stronger than at any time in the past 10 years," Harris said, "and with the reorganization behind us, we can focus 100% of our energies on new initiatives."

Those initiatives include substantial investment in new store development, the remodeling of existing stores, investments in new technologies to increase efficiency and improve customer service, and more targeted merchandising programs, he said.

"The successful completion of our capital restructuring paves the way for an exciting future for Grand Union. Grand Union now has a vastly improved financial structure, an experienced and creative management team and a solid business plan focused on building sales, profits and shareholder value," Harris said.

In a series of developments last week:

Grand Union said operating cash flow more than tripled during the first quarter ended July 18, although sales were down slightly.

The company said it has closed on its new $300 million credit facility underwritten by three financial institutions, which will enable it to open six to eight new stores a year in the next couple of years and to remodel 15 to 17 units annually.

Grand Union said it also plans to spend about $10 million a year on information systems and other technologies.

The company said it hired Randy L. Wiegand as vice president for store brands, a new position, to help develop a stronger, more consistent private-label program. Wiegand, formerly vice president of marketing for Supervalu, Minneapolis, reports to Gary Philbin, president and chief merchandising officer.

Grand Union said its new common stock, under the symbol GUCOV, will be listed at some future point on the OTC Market, although it has an application pending for listing on the NASDAQ National Market.

Grand Union operates 222 stores in Connecticut, New Hampshire, New Jersey, New York, Pennsylvania and Vermont.

According to Harris, the company plans to "immediately embark on a major capital development program," including new stores, renovations, store expansions "and customizing store offerings to better serve the needs of local customers."

Speaking with securities analysts last week in a conference call monitored by SN, Philbin said Grand Union plans to open six to eight new stores a year going forward, "although we'll probably only have one or two stores in the ground by the end of the year, and we won't see the full benefits [of the expansion] till next year.

"But we can handle remodelings more quickly, and we expect to see some benefits by the end of the year."

He said Grand Union also anticipates completing 15 to 17 remodelings this year.

Jack Partridge, vice chairman and chief administrative officer, told analysts Grand Union "wants to hit the ground running," with several new store deals ready to go and various remodeling projects already identified. "At the end of our first five-year plan, more than 80% of our square footage will be touched by our new capital program," Partridge said. Jeffrey Freimark, chief financial officer, said in the conference call that Grand Union will spend $65 million to $68 million on capital expenses during each of the next two years, with about $10 million of each year's total going to information systems and technology. Harris said Grand Union is pursuing "more aggressive merchandising programs in every area in which we operate, [and] we are already experiencing the positive impact of those programs, with an improving overall sales trend in the latter part of the first quarter that is continuing into the second quarter."

With two fewer stores than a year ago, the company said sales for the 16-week quarter fell 2.3% to $691.9 million, while comparable-store sales were down 1.4%.

The company said it attributed .... the drop in same-store sales "primarily [to] the adverse effect of unusual weather conditions" in New Hampshire and Vermont, where rain early in the quarter slowed down the start of vacation season, "although we've seen more positive momentum since then and the numbers are now positive," Harris said in the conference call.

He said sales in the company's other operating areas have continued to show positive comps through the first quarter and into the second.

Grand Union said it had a net loss for the quarter of $62.9 million, including an unusual charge of $4.5 million for bankruptcy-related expenses; an extraordinary charge of $1.7 million related to prepaid expenses on refinanced debt; and an accrual of $2.3 million for preferred stock dividends.

Harris said he was particularly encouraged by operating cash flow during the quarter, which more than tripled to $31.1 million from $9.6 million a year ago -- due primarily to a drop in expenses of $6 million, or 0.2% of sales, and a gross-margin increase of 289 basis points to 29.65%, the company said.

Freimark told analysts the threefold increase in operating cash flow "was driven completely by store operations, while the prior year's total was achieved primarily through nonrecurring items."

According to Partridge, despite the drop in selling, general and administrative costs, "we're far from satisfied. However, with the distractions of the restructuring behind us, we are now looking at all aspects of the business to eliminate additional areas of expense." Partridge also noted that Grand Union's first-quarter results "were produced without the benefit of any new or remodeled stores over the past year, and we're now more prepared to move forward aggressively with investments in new stores, remodelings, enlargements where that's appropriate, and technology to build on the momentum of the last few quarters."

He said technology, particularly information systems, is a high priority. "We've been underfunded in the past, so there are many opportunities to enhance our operations," Partridge said.

He said Grand Union's first priority will be store-level systems, to enable the company to operate more efficiently and to improve customer service.

In the conference call, Philbin said sales momentum picked up in the second half of last year, "and that momentum has carried over through the first quarter -- and momentum means everything on the sales line.

"As we move forward, we feel we can continue to improve our fresh offerings and enhance meat and deli, with a special emphasis on home-meal replacement, and develop a consistent private-label line," Philbin said.

He also said Grand Union will work on developing store-specific merchandising programs. "We want to be first, fast and fullest with the right product at the right time, to differentiate ourselves from the competition store by store," he said.

The restructuring under a voluntary prepackaged Chapter 11 enabled Grand Union to improve its financial structure by eliminating approximately $600 million in high-cost debt from its balance sheet, the company said.

1ST-QUARTER RESULTS

Qtr Ended 7/18/98 7/19/97

Sales $691.9 million $708 million

Change - 2.3%

Same-store - 1.4%

Net Income ($62.9 million) ($81.3 million)

Inc/Share ($6.17) ($8.13)