HANNAFORD REPORTS SMALL SALES GAIN

SCARBOROUGH, Maine -- Hannaford Bros. Co. here said last week higher fuel prices in the Northeast , adverse weather and competition in the Southeast and a later Easter holiday resulted in a small sales gain and negative same-store sales for the first quarter ended April 1.

s associated with Hannaford's pending merger with Delhaize America, Salisbury, N.C., the company said, with net income up 12.8% to $22.6 million, including $500 million in merger costs after taxes; excluding those costs, the company said net income was up 15.4% to $23.1 million.

According to Hugh G. Farrington, president and chief executive officer, "very high heating oil and gasoline prices that affected the Northeast at the height of winter" prompted customers to trade down, while adverse weather in the Southeast and the effects of Wal-Mart Supercenter openings had a negative impact on sales.

Hannaford said it expects to complete the merger before the end of June, pending approval by the Federal Trade Commission. Delhaize America is a holding company for Food Lion and Kash n' Karry Food Stores.

Farrington said the company has determined "a number of possible divestiture scenarios that we feel would be acceptable to the FTC and are pursuing interested buyers for stores under those scenarios."

Writing in Hannaford's annual report, Farrington likened the merger to the end of one book and the beginning of a sequel.

"We may close this particular book on Hannaford with a merger with Delhaize America," Farrington wrote, "(but) the author is already hard at work on the sequel. The Hannaford that emerges is vibrant, growing and helping its sister companies to grow and prosper.

"It has access to new people, territory and technologies not available before. It has the opportunity to play in the international arena as well. Opportunity knocks."

According to Farrington, Food Lion, Kash n' Karry and Hannaford have begun the process of examining best practices "to determine how each organization can help strengthen the others and improve our combined performance.

"Because the three operating entities each has a different, successful way of attracting and retaining customers and generating profits, it will be important to adopt best practices, seek efficiencies and leverage economies of scale in a way that does not jeopardize our excellent relationships with our respective customers."

In the annual report Farrington listed four reasons for Hannaford's decision to seek a merger partner:

The quickening pace of consolidation in the food industry. "At $3.5 billion of sales, Hannaford could not grow either organically or through acquisition at a rate fast enough to be competitive," he explained.

Strong valuations for retail food stocks in the first half of 1999.

The decision by the Sobey family, holders of 25% of Hannaford stock, to give up those holdings to become a consolidator in Canada.

The continuing growth of Wal-Mart supercenters.

"Many of us still feel that Hannaford is a gem of a company," Farrington said, and the $3.35-billion price Delhaize America agreed to pay "reflected the highest multiple of earnings, before interest and taxes, paid for a supermarket company in the U.S. in recent times."

In the annual report Farrington also discussed the company's decision to seek a majority partner for its HomeRun.com business after realizing "that we had taken (it) about as far as we should. In order for it to grow, we needed more capital and the structure to bear more operating losses. Both of these requirements necessitated finding a partner."

Earlier this year Hannaford sold a majority interest in HomeRuns.com to the Cypress Group L.L.C, New York.

"We still have a minority financial interest, a board seat and a supply agreement with them," Farrington wrote, "(and) if it is the roaring success we all hope it to be, we will share in that success. At the same time, our downside risk is limited."