MEGAFOODS REPORTS LOSS FOR YEAR

ELLIOT ZWIEBACH

MESA, Ariz. -- Megafoods Stores here reported a loss for the year and fourth quarter ended Jan. 1.

The loss, which the company attributed to expenses associated with adding 24 net new stores in 1993, totaled $19.5 million for the year and $16.5 million for the quarter.

Sales increased 39.7% for the year to $409.2 million and 43.2% for the quarter to $130.6 million. Same-store sales rose 3% for the year and 6% for the 13-week fourth quarter.

Megafoods also said same-store sales for the first 10 weeks of 1994 have increased 1%.

At the end of fiscal 1993, which had one week less than 53-week fiscal 1992, Megafoods operated 46 stores. It opened 10 new stores, acquired 15 from Kroger Co. in San Antonio, and closed one store in Temecula, Calif., in 1993.

Dean Miller, chairman and chief executive officer, said the loss resulted "from the preopening expense and postopening margin impact of Megafoods' store expansion, compounded by the heavy costs associated with establishing the company's new stores in San Antonio."

He estimated operating losses for the Texas division in the third and fourth quarters totaled $15.3 million before interest charges.

Miller said 1993 should prove to be "a pivotal year" for Megafoods.

"Upon first impression, the San Antonio acquisition might appear to have been a mistake," he said. "Nevertheless, I believe the high cost of getting into business in a growth market like San Antonio will eventually be judged as money properly spent."

Miller said Megafoods' plan to convert the San Antonio units to conventional supermarkets has stopped the heavy operating losses incurred in the third and fourth quarters. The addition of 21 Handy Andy stores, which Megafoods acquired in the first quarter of 1994, further spreads operating expenses and establishes Megafoods as a serious competitor to H-E-B stores and Albertson's in San Antonio, he said.

Of the 10 new stores Megafoods opened last year, seven opened late in the fourth quarter, Miller said. This gave the company little time to generate sales to balance both the pre-opening expenses and the lower margins associated with initial operations.

The company estimated operating losses for those stores at $9.5 million before interest charges.

Brooks O'Neil, a securities analyst with Piper Jaffray, Minneapolis, said Megafoods seems to be doing well in its established markets in Arizona, Las Vegas and southern California. "But Texas is still the big question mark," he said. "The company believes it has substantially reduced the magnitude of its losses there during the first quarter by eliminating hot specials, but the jury is still out. It depends on how H-E-B responds to [Megafoods'] new high-low, double-coupon policy in San Antonio.

"Megafoods hopes what it's doing will not arouse the ire of H-E-B, but I find it hard to believe that H-E-B will ignore a 36-unit competitor."

YEAR-END RESULTS

Qtr. Ended 1/1/94 1/2/93

Sales $130.6 million $91.25 million

Change 43.2%

Same-store 6%

Net Income ($16.5 million) $225,000

Inc/Share ($1.94) 4 cents

Year 1993 1992

Sales $409.2 million $292.9 million

Change 39.7%

Same-store 3%

Net Income ($19.5 million) 337,000

Inc/Share ($2.30) 7 cents