NEW ORLEANS -- A&P, Montvale, N.J., is delighted with its 1999 performance but disappointed by its first-quarter financial results, Christian Haub, president and chief executive officer, told shareholders at last week's annual meeting here.
ek quarter ended June 17] were not as strong as we anticipated," Haub said, "and even though we continued to grow our gross margins, we were not able to offset higher expense levels, reflecting the costs of renewing our store base and building a customer-focused retail organization."
The company said sales for the quarter were up 2.8% to $3.2 billion -- or 8.5% after adjusting for store closures in the prior year, including the chain's exit from the Atlanta market, Haub pointed out.
Same-store sales increased 2.4% -- the eighth consecutive quarter of positive comparisons and the sixth consecutive quarter in which the chain has outperformed the industry, Haub noted -- with growth coming from all regions.
Net income was $5.6 million, or 15 cents per share, compared with a loss in the year-ago period. The figure, however, was considerably below the 36 cents per share industry analysts had expected, as the company indicated late last month.
"We have moderated our expectations for this year based on anticipated consumer spending levels in our markets," Haub said. "Nonetheless, we expect profit comparisons to improve over the balance of the fiscal year."
Looking at the company overall, Haub told shareholders, "Our competitive profile in the marketplace remained strong as we continued to grow market share in all major operating areas, which is one of the company's key strategic objectives."
Looking at each of its four regions individually, Haub made these comments:
The Detroit region "is probably our best example of the Great Renewal strategy potential," with A&P's Farmer Jack chain there raising its market share by more than 50% since 1993 despite a slight decline in the number of stores. "But the composition of its stores has changed dramatically, with almost 40% being new state-of-the-art superstores," he said.
He also said Farmer Jack has gone from a money-losing business to "a high-performing operation generating above industry average return on capital."
The New York region has benefitted from new store development over several years, and those larger superstores "have elevated our image to that of a more contemporary, higher-quality retailer offering true one-stop shopping convenience."
Haub also said the company's Waldbaum division in Long Island achieved "a significant turnaround" last year.
The New Orleans division is smaller than it was seven years ago, Haub noted, but market share is up more than 50%. "We solidified our market position with the integration of five former Schwegmann superstores acquired late last year, though the [integration] of those stores has been somewhat slower than anticipated," he said.
A&P Canada had the company's best same-store sales results last year, exceeding 6%, following an aggressive remodeling program and strong market initiatives, Haub said.
In addition, A&P's franchised Food Basics stores in Canada "continued to be a major growth catalyst, achieving double-digit identical store sales increases," he said, noting that Food Basics is scheduled to grow to from 77 to approximately 85 stores this year through conversions of existing stores and the addition of new locations.
As part of its Great Renewal initiatives, Haub said A&P realigned its regional organization last year, reducing 10 autonomous operating groups to four "aligned and fully integrated operating regions supported on a strategy level from corporate headquarters."
Haub said a comprehensive review of its supply chain and business management infrastructure in the Great Renewal process enabled A&P to identify "significant opportunities for improvement" that it hopes to realize through Great Renewal 2 -- a four-year investment that Haub said is expected to achieve substantial cash benefits from improved margins, lower operating expenses, reduced working capital and better product availability.
"After full implementation, we expect to raise our ongoing annual operating income by at least $100 million," he noted.
Great Renewal 2, which was disclosed earlier this year, is aimed at developing a state-of-the-art supply chain and business management infrastructure, Haub told shareholders.
"Great Renewal 2 will establish industry best practices and related enabling technology needed to elevate the performance of our three key business processes -- store operations; marketing and merchandising, and supply and logistics," he said. "As a result we will achieve a level of operational excellence necessary to successfully compete and provide us the opportunity to return to merchant status, successfully attracting consumers to our stores."
Reviewing the accomplishments of Great Renewal, Haub listed the following:
The addition of a record 54 new stores, resulting in a 6.5% increase in net square footage.
A growth in average store size to more than 40,000 square feet, with the chain expecting to reach 41,200 square feet by the end of the fiscal year.
Higher average sales per transaction and higher customer counts -- resulting in an increase of 8% in sales per square foot -- following new store growth and improved merchandising practices.
Comparable store sales of 4.4%, nearly double the industry average.
An increase in operating profits of more than 50%, producing the chain's best results since 1990.
The closure and disposal of 160 underperforming stores and the consolidation of distribution centers, administrative facilities and manufacturing plants.