FLEMING TO BE 'NEW COMPANY' BY 2000

OKLAHOMA CITY (FNS) -- Fleming Cos. will be "on track" by the year 2000 -- and will be a "completely new company," said Robert E. Stauth, chief executive officer, at the company's annual meeting here.The company outlined growth strategies that center on corporate retail, re-engineered distribution and financial support for independents. It also released results for the 16-week first quarter that showed

OKLAHOMA CITY (FNS) -- Fleming Cos. will be "on track" by the year 2000 -- and will be a "completely new company," said Robert E. Stauth, chief executive officer, at the company's annual meeting here.

The company outlined growth strategies that center on corporate retail, re-engineered distribution and financial support for independents. It also released results for the 16-week first quarter that showed adjusted earnings jumped 52% to $14.3 million, or 38 cents per share from $9.4 million, or 25 cents per share, in the year-ago quarter.

But Stauth, speaking to more than 500 shareholders, faced a few pointed questions.

One shareholder claimed Fleming had not kept up with its peers in sales and earnings and requested a time frame for the firm's recovery.

Stauth conceded that "there were some mistakes made in an incredibly changing market." But he and other company officials contend that recovery has already started, as evidenced by a first-quarter increase of 52% in adjusted earnings.

An adjustment of $19.2 million was recorded in the first quarter this year for settlement of litigation with David's Supermarkets, Grandview, Texas. A $7.1 million charge related to the same litigation was recorded in the first quarter last year, but was substantially reversed in the second quarter of 1996.

Net earnings, however, were down 11% to $5.3 million, or 14 cents a share, compared with $5.9 million, or 16 cents a share, for the year-earlier period. Sales declined 8.1% to $4.8 billion vs. $5.2 billion.

Stauth emphasized that the firm's corporate stores posted operating earnings of $26 million in the first quarter, a gain of 73.3% from last year's $15 million. Same-store sales though, declined 2.3%, due primarily to stiff competition in three markets and the timing of Easter this year, Stauth said.

The company, exclusively a wholesaler until a few years ago, is now shifting into corporate retail in a big way. For example, more than half of the 1997 capital budget of $145 million is earmarked for new stores, remodels and technology in what the company calls its Retail Group.

"After reviewing where we should deploy our capital to get the best return, we decided to double the amount of our 1996 investment in new corporate stores," shareholders were told.

Company-owned stores now comprise almost 25% of total sales, originally a goal for the year 2000. The ratio "could go up" when the company develops a five-year plan at the turn of the century, Stauth told SN after the meeting.

But he promised shareholders that "capital will still be available to support the new-generation independent retailers who have solid growth plans. Chains continue to aggressively out-invest independents -- and the market share of independent retailers continues to slip. That's a concern. But we are confident there's a long-term future for independent retailers who take progressive steps to stay competitive."

Re-engineering, a concept designed to aid independents' profitability through unbundling of wholesaler services, will be completed by the end of this year, William J. Dowd, president, said. Components of re-engineering will be in all 35 divisions by that time.

Dowd said that to push sales in the firm's six general merchandise divisions, Fleming will create new specialty foods and seasonal merchandise programs. Fleming will move from being a regional supplier to a national supplier of specialty foods by doubling geographic coverage and adding more than 1,400 new products.

Shareholders have become increasingly restive at recent meetings as the company grapples with sales and earnings declines, litigation and the re-engineering effort. Steve Fleming, a member of the founding family and owner of three stores in Texas, took the floor to comment that "the new program is a disaster. It is cheaper to buy from other wholesalers."

He told Stauth "you need to put the company in a different set of hands to run it."

The CEO replied; "There are an awful lot of substantial customers across the United States who are satisfied. Some retailers are making more money than they ever did."

Fleming said it divested 62 underperforming or nonstrategic company-owned stores in 1996. It also improved gross margins, lowered net interest expenses and continued to rein in operating expenses and labor costs, all of which had a positive effect on the bottom line.

1ST-QUARTER RESULTS

Qtr Ended 4/19/97 4/20/96

Sales $4.8 billion $5.2 billion

Change - 8.1%

Same-store -2.3%

Net Income $5.3 million $5.9 million

Change - 11%

Inc/Share 14 cents 16 cents