SPRINGFIELD, Mass. -- A&P believes its new store-development program is a major key to improving sales and profit performance over the next few years, Christian Haub, president and chief executive officer, told shareholders last week at the company's annual meeting here.
The company, based in Montvale, N.J., also said it has purchased five Vitale Foodtown stores in northern New Jersey for $12.25 million and reported declines in sales and earnings for the first quarter ended June 20.
"As we continue to close older, outmoded stores and replace them with new, modern, state-of-the-art superstores, we not only enhance the overall image of our company but we also achieve overall greater operations and merchandising efficiencies and improve our cost leverage," Haub said.
"The performance of the new-generation stores we have opened during the last three years continues to confirm our new store strategy. These new stores have consistently shown solid sales increases through their second and third year of operation, and their growth in profit far exceeds that of their surrounding base stores.
"As the share of business from new stores increases in future years, we expect that their growing earnings momentum will contribute to overall improved sales and profits for A&P."
Haub said A&P's ability to refinance its balance sheet last year will reduce interest expense by more than $7 million this year, "and we now have a safe and relatively inexpensive capital structure that will allow us to implement our aggressive capital plan and grow our company."
He said A&P will spend $300 million this year to modernize its store base, encompassing 45 new stores and more than 80 remodeling projects.
Haub told shareholders the company plans to open seven new A&P stores, three Food Emporiums and five Waldbaum's in the New York metropolitan area this year; seven Farmer Jack units in its Michigan division; four Super Fresh stores in Philadelphia and four in the Mid-Atlantic region, and an undisclosed number of new units in Canada, New Orleans, Atlanta, Wisconsin and New England.
Haub said A&P's average store size has grown to 35,000 square feet, "and we expect to achieve an average store size of 40,000 square feet by the end of the year 2000, which would put A&P above the supermarket industry average.
"We are also starting to benefit from the success of our new store merchandising concepts, which we are able to transfer to our existing store base."
Haub told shareholders he expects A&P's earnings for the year to be higher than the $1.66 per share reported in 1997, "though we knew coming out of a difficult second half of last year that the first two quarters of 1998 would likely be below prior-year results."
The company said net income for the 16-week first quarter dropped 15.9% to $19.1 million, or 50 cents per share, while sales fell 0.8% to $3.08 billion, although A&P said sales rose 0.6% after excluding the Carolina division stores that were sold last year and discounting the effect of Canadian exchange rates.
Same-store sales fell 0.5% -- an improvement from last year's trend, the company noted, due to strong results in Canada and positive trends in metropolitan New York, Michigan and the South:
Metro New York, "[where] the new stores we've opened over the last three years are all performing very well," Haub said. "So it is no coincidence that our new marketing thrust in 1998 is built around our great new stores."
He said Food Emporium "continued to gain strong customer support in the more affluent trade areas of metropolitan New York, [while] Waldbaum's in Long Island experienced a declining performance. However, we saw better results during the first quarter of 1998, and with five new stores expected to open this year, we have a solid marketing thrust under way."
Haub said the acquisition of the Vitale Foodtown stores will greatly enhance the chain's already strong presence in northern New Jersey.
Those stores became available after their owner, Martin Vitale, filed for Chapter 11 protection late last year. The stores -- in Old Tappan, Washington Township, Dumont, Hoboken and Belleville -- range in size from 25,000 to 40,000 square feet.
Company officials told SN they are uncertain when those stores will reopen under the A&P banner.
Michigan, where Farmer Jack delivered a record year in sales and profits, Haub said, "and we anticipate another record-breaking performance in 1998."
Canada, where Dominion in metropolitan Toronto and A&P outside Toronto continued to show growth in sales and profits, Haub said, due in large part to the company's Air Miles loyalty program that was introduced in the second half of 1997.
He said same-store sales increases at Food Basics, A&P's 60-unit limited assortment chain in Canada, are running in the double digits.
The South, where the Sav-A-Center stores A&P has been building in New Orleans "have been producing excellent sales and profits," Haub said. "In 1997 we had our most successful year, and we expect 1998 to be even better."
He also said business in Atlanta improved steadily last year.
Looking at other divisions, Haub said Kohl's in Wisconsin showed some growth and Super Fresh stores in the Mid-Atlantic region also showed improvements, despite operating in a very competitive area.
Although Haub said the Super Fresh stores in Philadelphia "struggled" in 1997, he noted "we are remerchandising all 70 stores and initiated new marketing and promotional programs during the first quarter."
He also said A&P's New England store group "is making progress" by opening stores under the Super Foodmart banner.
Haub told shareholders the chain has developed a new strategic plan called Great Actions and Priorities, "and when we achieve each of the Great A&P's, we will fulfill the promise of our mission statement of becoming the supermarket of choice."
Some of those objectives are to have a marketing plan that ensures sales growth; an aggressive capital development plan; improving results at under-performing stores; and to review all expenses to reduce and eliminate costs.
