EAGLE TO FOCUS ON DEVELOPING STORE BASE

MILAN, Ill. -- Eagle Food Centers here said last week it plans to concentrate on growing its store base even though it entertained offers from potential buyers earlier in the year.It also said earnings rose but sales declined for the second quarter and first half ended Aug. 2, with sales trends continuing to be off during the first few weeks of the third quarter. Eagle executives made their remarks

MILAN, Ill. -- Eagle Food Centers here said last week it plans to concentrate on growing its store base even though it entertained offers from potential buyers earlier in the year.

It also said earnings rose but sales declined for the second quarter and first half ended Aug. 2, with sales trends continuing to be off during the first few weeks of the third quarter. Eagle executives made their remarks last week during a phone conference with securities analysts to discuss second-quarter results. The company's other comments during the conference included the following:

Eagle expects to launch a major image-building advertising campaign beginning in early October.

Competitive openings over the past 18 months have hurt individual store sales anywhere from 2% to 25%.

Installation of new management information systems is on schedule, with a new grocery merchandising system set to roll out Sept. 15.

Additional employee cutbacks are scheduled to coincide with additional systems installations.

In response to an analyst's question, Robert J. Kelly, Eagle president and chief executive officer, said the company is not currently soliciting offers for sale. "But earlier this year Odyssey Partners [Eagle's New York-based parent company] made a decision to dissolve its partnership, and one goal was to sell off all its assets and equity positions," he explained.

"We did entertain the idea of selling, and we actually talked with a couple of companies, but we never came close enough to go to the altar, and our goal now is to grow the company." Herb Dotterer, senior vice president and chief financial officer, told SN Odyssey continues to own the majority of Eagle's stock and has no immediate plans to try to convert that equity into cash. Representatives of Odyssey could not be reached for comment last week. Howard Goldberg, a high-yield securities analyst with Smith Barney, New York, told SN the selling process "enabled the owners to determine they would not be able to get an attractive price for Eagle, and the announcement Eagle will open four stores in Chicago indicates to me that the company is no longer for sale.

"However, Eagle has been managing its resources as if it were preparing for a sale -- with efforts to improve margins and upgrade systems while not opening any new stores or making acquisitions -- and it now realizes it has to grow the company to create value [in the future] for either a sale or a major acquisition."

Regarding its expansion plans, Kelly said Eagle expects to complete a total of two expansions, eight major remodelings and 12 minor remodelings by year's end, "which will mean we've cleaned up about 22% of the chain this year and 80% over the last five years, so we can concentrate on new-store growth in 1998."

He said Eagle has secured three of four sites it has been pursuing in the Chicago area and hopes to secure the fourth by the end of August. Kelly also said he hopes all four stores will be open by next June or possibly sooner.

Eagle said earnings for the 13-week second quarter rose 16.7% to $1.4 million and 45.5% to $3.2 million for the half. However, sales for the quarter declined 4.8% to $245.4 million and 4% to $485.3 million for the half, while same-store sales were down 6.1% for the quarter and 5.1% for the half.

The company also said stores not affected by new competition showed same-store sales declines of 2.4% for the quarter and 1.6% for the half.

"Sales were disappointing, and the trend is disappointing," Kelly said, noting that third-quarter sales "have not showed any uptick from where they were" at the end of the second quarter.

Of Eagle's 91 stores, approximately 42, or just under half, have been affected by competitive openings over the last 18 months, Kelly said, "and while we continue to promote heavily vs. new stores, we are being hurt anywhere from 2% to 5% up to 25% at some locations."

On the positive side, he said, is the fact that gross margins in the quarter were up 36 basis points to 25.68% "due to better buying practices, better vendor support, better inventory turns and the use of more diverting."

2ND-QUARTER RESULTS

Qtr Ended 8/2/97 8/3/96

Sales $245.4 million $257.6 million

Change - 4.8%

Same-store - 6.1%

Net Income $1.4 million $1.2 million

Change + 16.7%

Inc/share 12 cents 10 cents

26 Weeks 1997 1996

Sales $485.3 million $505.8 million

Change - 4%

Same-store - 5.1%

Net Income $3.2 million $2.2 million

Change + 45.5%

Inc/Share 27 cents 19 cents