PENN TRAFFIC TO INVEST IN TECHNOLOGY, STORES

ELLIOT ZWIEBACH

SYRACUSE, N.Y. -- Penn Traffic Co. here said last week it expects to begin investing more heavily in new and replacement stores and technology now that its existing store base has been largely upgraded.

The company said it has remodeled or refurbished 80 of its 219 stores over the past two and a half years, or approximately 43% of its square footage.

"So we're right where we want to be," Joseph V. Fisher, president and chief executive officer, said during a conference call with investors following the release of the company's results for the third quarter and 39 weeks ended Nov. 3. "We're on plan and moving forward to grow the top line while continuing to reduce costs to grow the bottom line.

"Ground-up new stores and replacement stores will generate new and incremental sales and bottom-line growth, while investments in technology will provide significant opportunities to reduce our cost structure even further. And as we grow the top line and our fixed expenses become a smaller part of the total and as technology improvements kick in, we will generate significant bottom-line growth."

Store projects include a 63,000-square-foot store under construction in the Syracuse, N.Y., suburb of Fayetteville, and three 55,000-square-foot replacement stores under construction in Corning, Rome and Pulaski, N.Y., with other new and replacement stores in the planning stage, "including some in our central Ohio market," Martin A. Fox, executive vice president and chief financial officer, said during the conference call.

Contacted after the call for comment, Burt Flickinger, managing director, Reach Marketing, Westport, Conn., told SN Penn Traffic has a better chance of success if it invests its capital in New York than in its Big Bear division in Columbus.

"Penn Traffic has done a great job rebuilding its market share across central and western New York against Ahold's Tops chain and a variety of Fleming-supported independents because it has a very good feel for the local market. It has been working with smaller, regional vendors, some of whom are not part of Ahold's global contract, rather than focussing on national brands, and that has meant a lot in an area with negative population growth.

However, he said he is concerned about the company's plans to expand its store base in Columbus because of strong competition there from Kroger, Wal-Mart, Meijer "and Giant Eagle, which has opened four stores there that have taken $200 million out of that market in the past year."

Speaking about Penn Traffic's technology plans during the conference call, Fox said the company plans to begin installing new point-of-sale systems over the next two to three years to improve customer service and labor productivity,among other features. The installation will also give Penn Traffic a common POS platform to replace three separate platforms, Fisher said.

In the results released last week, sales rose 2.3% to $598.8 million for the 13-week quarter and 2% to $1.8 billion for the 39-week period, while comparable-store sales climbed 2.3% for the quarter and 0.6% for the year to date.

Fisher said new merchandising programs are having a positive impact on sales, particularly in the stores' perishables departments. He also said the comparable sales increases were due in part to the introduction of the company's Wild Card loyalty card program, whose chainwide rollout was completed in mid-September.

Net income -- adjusted to exclude amortization of excess reorganization value, start-up costs for the loyalty card program in the current and prior years, start-up costs and operating losses at 10 New England stores, and lease income from those stores in the prior year -- rose 803.5% to $2.3 million for the quarter and 295.5% to $7.8 million for the first three quarters.