GRAND UNION OPERATING RESULTS OFF

ELLIOT ZWIEBACH

WAYNE, N.J. -- Grand Union Holdings Corp., the indirect parent of Grand Union Co. here, said reductions in vendor promotional allowances after it disclosed plans late last year for a capital restructuring resulted in lower operating results for the third quarter and 40 weeks ended Jan. 7. Sales and operating cash flow were down for both periods, while the company's net losses accelerated. To effect the restructuring plan, Grand Union Co. filed a voluntary Chapter 11 petition with the U.S. Bankruptcy Court for the District of Delaware on Jan. 25 and filed a subsequent plan of reorganization and a related disclosure statement with the court on Feb. 6.

In subsequent actions, both Grand Union Holdings, the operating company's sole stockholder, and GU Capital Corp., a wholly owned subsidiary of Holdings, filed voluntary Chapter 11 petitions in the same court on Feb. 16. The action by the capital subsidiary came in response to the entry of an order for relief filed by the company's zero coupon bondholders, who felt they had been left out of consideration in the proposed reorganization plan. Grand Union's third-quarter results demonstrated the company's plight as it moves through the Chapter 11 process. Sales dropped 3.5% to $563.3 million for the 12-week quarter and 1.9% to $1.87 billion for the 40 weeks, while same-store sales declined 3.2% for the quarter and 4.2% for the year to date. Approximately $7.5 million of the sales decline resulted from the closure of 11 stores and sale of three stores during the quarter, the company noted. It said it expects to complete its store closure program with three more shutdowns in the fourth quarter. The company attributed the sales declines to competitive openings, weak economic conditions and an increased emphasis on value-oriented products in its Northern region, which it said were partially offset by increased sales from new or renovated stores. Operating cash flow for the quarter declined to $21.8 million, or 3.9% of sales, compared with $43.5 million, or 7.5% of sales, a year ago. For the 40 weeks, operating cash flow fell to $120.7 million, or 6.5% of sales, compared with $137.7 million, or 7.2% of sales, a year earlier. Grand Union officials said the company has lowered its estimates on operating cash flow for the year ending April 1 to approximately $140 million, compared with an earlier estimate of $150 million, "[due to] additional declines in promotional allowances and other vendor support, which had formerly been but is not currently available to Grand Union." According to the company, "Third-quarter results were significantly influenced by the reduced amount of promotional allowances and other vendor support available to the company," as well as by low investments in forward buy inventory due to liquidity constraints and by the marketing program introduced earlier in the fiscal year in the chain's Northern region, which encompasses upstate New York and Vermont. Bob Lupo, a high-yield securities analyst with PaineWebber, New York, said most of the chain's problems stem from the 54 stores Grand Union operates in the Hudson Valley region of New York -- an area in which Hannaford Bros., Price Chopper and Big V Supermarkets have been expanding and in which Wal-Mart and Kmart are planning to open supercenters. "Competitors have been ramping up with larger stores offering broader varieties, a better product mix and stronger images while Grand Union has been choked by debt and unable to respond to the competitive challenges there," Lupo said. "The New York metropolitan area and the rest of the upstate New York-Vermont region are good markets for Grand Union. Obviously, the chain will try to stabilize the Hudson Valley market while operating under Chapter 11." Grand Union operates 237 food stores in six Northeastern states. During the quarter it completed two store enlargements in Long Island; early in the fourth quarter it opened a 62,000-square-foot store on Long Island.

3RD-QUARTER RESULTS

Qtr Ended 1/7/95 1/8/94

Sales $563.3 million $583.5 million

Change -3.5%

Same-store -3.2%

Net Income ($59.5 million) ($16.9 million)

40 Weeks

Sales $1.87 billion $1.9 billion

Change -1.9%

Same-store -4.2%

Net Income ($67.2 million) ($59.4 million)