MEGAFOODS AIMS TO BOOST BOTTOM LINE

ELLIOT ZWIEBACH

LA JOLLA, Calif. -- Megafoods Stores, Mesa, Ariz., plans to focus in the next two years on raising sales by 5% to 7% a year and improving earnings, rather than seeking acquisitions or further expansion, Dean Miller, chairman, president and chief executive officer, told the company's annual meeting here.

That announcement follows two major acquisitions in Texas within the past year and a failed attempt last year to purchase Furr's Supermarkets, Albuquerque, N.M.

Miller had said in a 1992 interview that Megafoods planned an aggressive expansion program into northern California in 1994 and the Pacific Northwest sometime thereafter, but those plans apparently have been curtailed by the company's new focus on improving same-store sales and earnings.

"The mind-set of management is to focus on improving the top line in terms of same-store sales and improving bottom-line earnings to move from red to black," Miller said at the annual meeting.

"Our focus is not on growth, as it once was. With 72 stores, we have critical mass now and a good cost of goods in the areas in which we compete. Since the fourth quarter of last year we've acquired 21 stores [Handy Andy units in San Antonio], and it will require time to digest those stores."

Megafoods reported a net loss of $19.5 million for the year ended Jan. 1, including a loss of $16.5 million in the fourth quarter -- losses the company attributed to expenses associated with adding

new stores.

Miller told shareholders that same-store comparisons are soft in California and improving in Arizona and Nevada. The company hasn't operated in Texas long enough to make comparisons there, he added.

Following the 21-unit Handy Andy acquisition in San Antonio in April, Megafoods converted its 15 existing stores there to the Handy Andy banner. Those units were acquired last fall from Kroger Co. Megafoods plans to spend $2 million in Texas over the next year, Jack J. Walker, senior vice president and chief financial officer, told the meeting -- initially to clean up and paint the Handy Andy stores and add new freezer cases, and then, after looking at the results, to add deli and bakery square footage, he noted.

Miller said the company anticipates significant growth in San Antonio because of a number of factors. "San Antonio is No. 1 in housing starts, and being so close to the Mexican border, it will benefit from the North American Free Trade Agreement," he said.

"And it's the 10th largest city in the U.S., with only three major competitors, so there are a lot of positives on the horizon, and we expect those factors to be assets."

Megafoods added two new stores in southern California last week, both of which were acquired from San Diego-based Big Bear, Walker told SN following the meeting.

The company has four stores under construction -- one in California, one in Las Vegas and two in Phoenix, he told shareholders.

He also said Megafoods expects to open five stores in Tucson, Ariz., next year, with three additional parcels of land likely to result in new stores next year.

Walker said the company also plans to dispose of $40 million worth of real estate before the end of the year "at cost or a slight profit, providing significant liquidity."

Megafoods had signed a letter of intent to acquire Furr's in April 1993. The deal eventually fell through over the terms.