VONS CONTINUES IMPROVEMENT IN PROFIT AND SAME-STORE SALES

ELLIOT ZWIEBACH

ARCADIA, Calif. -- After repositioning its cost and marketing programs over the past year, Vons Cos. here said it is continuing to experience a turnaround in its financial performance.

The company last week released second-quarter financial results that showed strong gains in net income and same-store sales, even as analysts pointed out that local competitive activity may heat up in the second half. Lawrence A. Del Santo, chairman and chief executive officer, said the company is moving toward new opportunities.

"We have made many difficult changes over the past year to achieve a new cost structure, and we have fine-tuned our marketing efforts," he said.

"Now we are focused on future growth opportunities. We expect the momentum that we have enjoyed in the first half of the year to continue with the opening of eight new stores and the completion of 30 store remodel projects during the third quarter."

Analysts said Del Santo acknowledged during a conference call that the southern California

marketplace could become more competitive in the next few months as Ralphs Grocery Co., Compton, Calif., completes the consolidation of Alpha Beta, Boys and Viva under the Ralphs and Food 4 Less banners.

Debra Levin, an analyst with Morgan Stanley, New York, said the California economy "remains somewhat downtrodden, and a possible toughening of the competitive environment is likely to impact sales and earnings [of Vons and other California operators].

"With the conversion of the Alpha Beta stores to Ralphs [scheduled to be] completed in September, we suspect the second half of 1995 will undergo a pickup in competitive activity."

Jonathan Ziegler, a securities analyst with Salomon Bros., New York, said aggressive pricing activity may emanate from Lucky, "since it's being severely impacted by Safeway in northern California."

Through the first half of the year, however, Vons enjoyed mostly positive results, with earnings and same-store sales increasing for the second quarter and first half ended June 18.

Net income for the 12-week quarter rose 222.2% to $14.5 million and 111.1% for the half to $28.5 million -- due to weak comparisons a year ago, Ziegler told SN.

Operating 18 fewer stores than a year earlier, total sales fell 1.8% for the quarter to $1.1 billion and 1% for the half to $2.28 billion, the company reported. However, same-store sales increased 1.8% for the quarter -- the seventh consecutive period of improving trends, it said -- while same-store sales for the half were up 1.7%.

According to Del Santo, "The year-ago quarter was a period of repositioning that included expense restructuring, dramatic price reductions and promotions to stimulate our sales recovery.

"Our continuing improvement in same-store sales trends assures us that our repositioning program is effective. The elimination of unproductive stores and improved customer service levels continue to have a positive impact on earnings."

According to Levin, same-store sales are trending above 2% for the third quarter. Helping those numbers move upward, she said, are increases in average transaction size, "[which are] benefiting in part from the 'Vons Value Club' frequent shopper program."

She said Vons is about to introduce improved information systems at store level "to help support neighborhood marketing programs, develop more focused promotional campaigns and enhance decision-making by store managers through daily scanning data complemented by a four-year history."

The second phase of the program involves rolling the store-level information to the corporate level to enhance the productivity of category managers, Levin said. "Longer term, this system will provide a platform to move to computer-assisted ordering," she added.

Although selling square footage decreased 5.5% from the year-ago quarter, Levin said the closure of the 18 unproductive Vons stores boosted sales per average selling square foot by 4.5%. She said she anticipates a slight increase of 0.6% in selling square footage this year and an annual square footage growth of 5% to 6% per year in 1996 and beyond.

Ziegler cited several factors that are contributing to Vons' improved results, including the following:

The consolidation of produce from its San Diego warehouse to a facility here -- "and there's room for additional improvement when groceries and general merchandise from San Diego are consolidated later this year," Ziegler added.

A boost to margins resulting from a 4% increase in private-label sales, bringing private label up to 17% of total sales and keeping it on target to reach the goal of 20% by year's end.

Implementation of Efficient Consumer Response practices, which have improved Vons' ability to buy "and to buy what consumers want," Ziegler said.

Vons operates 326 Vons and Pavilions stores in southern California and the Las Vegas area. During the second quarter it opened three stores, closed two and completed seven remodel projects.

2ND-QUARTER RESULTS

Qtr Ended 6/18/95 6/19/94

Sales $1.14 billion $1.16 billion

Change - 1.8%

Same-store 1.8%

Net Income $14.5 million $4.5 million

Change 222.2%

Inc/Share 33 cents 10 cents

24 Weeks 1995 1994

Sales $2.28 billion $2.3 billion

Change - 1%

Same-store 1.7%

Net Income $28.5 million $13.5 million

Change 111.1%

Inc/Share65 cents31 cents