HOMELAND 'OPTIMISTIC' IN FACE OF MORE COMPETITION

ELLIOT ZWIEBACH

OKLAHOMA CITY -- Homeland Holding Corp. here said last week it is managing its way through the severe competitive pressures in its marketplace and is optimistic about its long-term prospects.

Despite nine competitive openings and the addition of 1.5 million square feet of new selling space in its operating area, David B. Clark, chairman, president and chief executive officer, said, "We are seeing improving results store by store as we cycle through last year's competitive openings, and we are optimistic about our ability to improve results as we move into fiscal 2001."

The company said last week it had increased sales and an earnings loss for the third quarter and 39 weeks ended Sept. 9.

In a conference call with securities analysts, Clark said most of the competitive openings were either Wal-Mart supercenters or Wal-Mart Neighborhood Markets. But Homeland is learning how to handle that competition, Clark noted.

"We're seeing some improvements against Neighborhood Markets, particularly in urban areas, where we've been fairly effective at minimizing the negatives using operating and merchandising tactics, particularly by employing the data base from our Homeland cards. As for supercenters, because the impact of each is spread out among several of our stores, the hit per store is less."

Clark said approximately 30% of Homeland's 86 stores compete with a supercenter or Neighborhood Market.

Homeland sales rose 8.5% to $136.5 million for the 12-week quarter and 10.3% to $415.7 million for the year to date, which the company said was due to operating nine more stores than it did a year ago. Same-store sales declined 4.2% for the quarter and 3.2% for the 39 weeks.

The company said it had a net loss of $1.8 million for the quarter and $1.4 million for the year to date, with operating cash flow (earnings before interest, taxes, depreciation and amortization, or EBITDA) dropping 40.9% to $3 million for the quarter and 11.8% to $13.7 million for the three quarters.

According to Clark, "Our net sales for the period, and our double-digit percentage increase for the first three quarters, is attributable to the increase in our store base. However, the incremental net sales from these new stores were partially offset by the reduction in same-store sales for the quarter, primarily as a result of competitive openings, which substantially accounts for the increased pressure on our profit margins for the quarter."

He said Homeland's performance was also affected by increased promotional spending at store level and decreased patronage rebates as a result of a labor dispute earlier this year between its supplier, Associated Wholesale Grocers, Kansas City, Kan., and the teamsters union.

To improve sales, Clark said Homeland is using promotions to increase traffic and sales per transaction. "We've seen improvements in sales per transaction over a year ago, but the challenge is to generate traffic into the stores in the face of growing competition. So we've done both mass marketing and direct marketing using our loyalty card data."

To improve EBITDA, Clark said Homeland is focusing on several strategies for holiday merchandising, including fine-tuning its markdown programs for traffic items; introducing initiatives to reduce shrink; instituting efforts to control payroll and productivity costs; and using computerized scheduling to improve customer service, Clark said.

The company is also reviewing underperforming stores on a weekly basis and making adjustments when necessary; testing customer service incentives in some locations to help the company demonstrate its difference with competitors; and reinstituting a secret shopper program, he added.

"Although we expect fourth quarter results to continue to reflect competitive challenges, as well as a comparison to an unusually strong fourth quarter in 1999 because of Y2K-related sales, we believe we are positioned to produce improved results during 2001," Clark said.