GRAND UNION TO SHED STORES

ELLIOT ZWIEBACH

WAYNE, N.J. -- Following a downturn in sales and operating cash flow, Grand Union Co. said last week it will close or sell up to about 25 underperforming units by April 1.

The company will also restructure its debt by Jan. 15 to fund cash interest payments. In addition, Grand Union is re-examining its capital expenditure programs and has reduced its forward-buy inventory -- actions that "could have adverse impacts over time but are necessary during the restructuring process in order to maintain liquidity," said Gary Hirsch, chairman of Grand Union Holdings Corp., the chain's indirect parent company.

Grand Union said last week that for the 12-week second quarter ended Oct. 15 its sales fell 0.6%

to $556.7 million, while same-store sales dropped 3.6% and operating cash flow declined 10.2% to $38.7 million. According to Hirsch, the chain plans to sell or close "fewer than 10%" of its 246 stores before the end of its fiscal year April 1. The closed units will represent less than 5% of total revenues, the company said. Four stores in the Albany, N.Y., area already have closed. The stores targeted for sale or closings will be smaller units -- in the 20,000- to 25,000-square-foot range -- primarily in upstate New York. Grand Union does not contemplate extensive layoffs in connection with the store closings, Hirsch said. Bob Lupo, a securities analyst with PaineWebber, New York, said three or four of the roughly 25 store closings may be in the metropolitan New York region, "and there are probably another 10 to 15 stores in upstate New York, besides the ones that will close, that are underperforming." Concerning the restructuring, Hirsch said Grand Union is in compliance with all of its debt agreements, "and we expect to remain in compliance at least until Jan. 15, 1995, by which time we intend to propose a restructuring plan." The restructuring became necessary, he explained, because cash from operations after committed capital expenditures "will not be sufficient to fund cash interest payments due in early calendar 1995, and asset sales that can be arranged by the time such interest payments are due are not likely to generate an amount of net proceeds which, together with cash from operations, will be adequate to fund the interest payments. "We intend to move quickly in our discussions with our debtholders, but we will endorse only a restructuring plan that provides for continuing full and prompt payment to all of our trade creditors." Hirsch said he anticipates Grand Union will be able to obtain required interim waivers from its bank lenders prior to Jan. 15. Ken Bann, a securities analyst with Lehman Bros., New York, said the decrease in Grand Union's cash flow came as a surprise to most Wall Street observers, "and with the earnings situation getting worse during the quarter, it appears the company wants to get a restructuring going as quickly as possible." According to Bann, Grand Union had hoped its capital spending program, combined with more aggressive promotions and an improving economy, would turn the company's financial situation around, which would have made it easier to keep up with the interest payments on its bonds. "Gary Hirsch has said bondholders will now have to accept lower values, but the bondholders have been frustrated about not receiving much information in the past, and given the company's complicated capital structure, one can assume negotiations will be contentious," Bann said. Lupo said bond prices have been declining since July, when first-quarter results showed double-digit declines in same-store sales in upstate New York -- "somewhere in the teens," Lupo said -- "because of negative consumer perceptions in the area concerning Grand Union's pricing and service."

2nd-QUARTER RESULTS

Qtr Ended 10/15/94 10/16/93

Sales $556.7 million $559.8 million

Change -0.6%

Same-store -3.6%

Net Income ($29.5 million) ($16.5 million)

28 Weeks 1994 1993

Sales $1.30 billion $1.32 billion

Change -1.3%

Same-store -4.7%

Net Income ($54.4 million) ($75.3 million)