Sales and operating income at many leading supermarket chains showed modest gains during the first half of the year.Industry analysts told SN they expect slightly better results in the second half. An SN survey of the top 20 supermarket chains with publicly traded equity or debt showed sales increasing an average of 2.3% and operating income up an average of 1.2% during the two quarters approximating

Sales and operating income at many leading supermarket chains showed modest gains during the first half of the year.

Industry analysts told SN they expect slightly better results in the second half. An SN survey of the top 20 supermarket chains with publicly traded equity or debt showed sales increasing an average of 2.3% and operating income up an average of 1.2% during the two quarters approximating the first six months of 1995. These chains showed an average 0.8% same-store sales gain for the last of those two quarters.

Analysts said good performance momentum is likely to build for those companies already showing gains. However, those with weak results are likely to continue to be challenged by intense competition and low inflation, they said.

"Considering the low-inflation environment and the overabundance of square footage, it was a pretty good first half, with most companies pretty satisfied with the sales gains they got," said Jonathan Ziegler, an analyst with Salomon Bros., New York. "With the industry's newfound disciplines in cost reductions, we should see some pretty positive sales momentum in the second half, with positive sales gains of 2% at Albertson's, Kroger and others dropping to the bottom line and same-store sales gains of 5% or more at companies like Safeway and Winn-Dixie." Chuck Cerankosky, an analyst with Hancock Institutional Equity Services, Cleveland, said positive economic factors will help fuel sales. "The economy is in decent enough shape to keep the momentum going for companies that exhibit good execution." Ed Comeau, an analyst with Donaldson Lufkin & Jenrette, New York, said that while industry results were mixed, an improving trend is emerging.

"Some companies experienced strong trends in the half, while others experienced some weakness -- the normal mixed bag of results we've seen over the past couple of years -- but the overall results were pretty stable," he said.

"Albertson's and Stop & Shop had some sales slippage during the first half, but Safeway, Winn-Dixie and Vons continued to show steady improvement, and since the second half began, results have improved at both Albertson's and Stop & Shop, as well as at American Stores and Kroger, while A&P has gone from flat to slightly negative. "So overall, the sales picture in the second half should be better than it was in the first half, with most companies showing modest sales increases, while others, like Albertson's, Stop & Shop, Vons, Winn-Dixie and Safeway, are likely to improve sales at a rate of 4% to 5%." Debra Levin, an analyst with Morgan Stanley, New York, cautioned that the improving trend will be slowed by intense competitive factors. Levin pointed out that overall sales showed slight improvements late in the first half "as the economy picked up a bit and inflation moved from flat to 1% to 2%. "But the supermarket industry remains overstored, and while intense competition has kept it from feeling the full impact of the general sales growth that followed the end of the recession three years ago, overall sales are likely to remain sluggish and same-store sales will remain muted, averaging only 1% to 1.5%, for the foreseeable future." Gary Giblen, managing director of Smith Barney, New York, pointed to a divergence of companies in terms of performance. "Companies that have been getting better will continue to improve, and those whose performance has been poor will continue to slide." Looking separately at overall sales, same-store sales and operating income, the 20 companies surveyed showed the following results: · In overall sales, the leading gainers for the half were Hannaford Bros., up 16.7%; Ahold USA, up 10.3%, and Harris Teeter, up 8.1%. While analysts attributed most of the increases at Hannaford and Ahold to 1994 acquisitions (Hannaford's purchase of Wilsons Supermarkets, Wilmington, N.C., and Ahold's acquisition of Red Food Stores, Chattanooga, Tenn.), they said Harris Teeter's increase was due to strong performance at newly built or renovated stores. The companies whose sales showed the most slippage in the half were Grand Union, down 5.7%; American Stores, down 4.5%, and A&P, down 2.5%. · Leading the pack on same-store sales gains for the last quarter were Harris Teeter, up 4.8%; Safeway, up 3.4%, and Hannaford, up 3.2%. Showing the biggest drops in same-store sales were Smith's Food & Drug Centers, down 4.4%, and Ralphs Grocery Co., down 3.6%. · On the basis of operating income, the two chains that experienced the biggest jumps in the half were Vons Cos., up 46.6%, and A&P, up 33.1%. The biggest drops in operating income occurred at Grand Union, down 41.5%; Fred Meyer Inc., down 39.7%, and Bruno's, down 31%. Looking at some of the chains separately, analysts made the following observations about first-half results. (Same-store figures are for the latest quarter while other data are for the half).

AMERICAN STORES CO., Salt Lake City, which reported sales down 4.5%, same-store sales up 1.6% and operating income down 0.6%. Comeau said American's overall sales fell because of the sale of 45 Acme Markets units in the Philadelphia area to Penn Traffic Co. and the sale of Star Market Co., Quincy, Mass., to the division's president. He said the increase in same-store sales came primarily from gains in American's drug-store division, whose second-quarter comps rose 5.5%, compared with gains of only 0.2% and 0.3%, respectively, in American's Eastern and Western food operations.

According to Ziegler, American's operating income was negatively impacted by the $20 million the company is spending to consolidate buying, accounting and other administrative functions in Salt Lake City -- an expense that will not disappear until late 1996, he said.

SAFEWAY, Oakland, Calif., which had a 4% sales gain, a 3.4% jump in same-store sales and a 20.8% spurt in operating income. Ziegler said Safeway's sales are up "because management under [President and Chief Executive Officer] Steve Burd has taken a much more active role in remodeling stores, changing the price structure, driving private-label sales, rationalizing the business, working to emphasize improvements in customer service and generally winning back the market share the chain had lost in the previous 10 years." Giblen said same-store sales rose despite a nine-day strike in northern California, "without which comps would have been up an additional 1% to 1.5% -- in the 5% range -- reflecting Safeway's ability to do 100 things 1% better. "In addition, the Safeway Select private-label program has been a grand slam, and better performance of the basics -- more competitive pricing, better store conditions, better store service -- shows that Safeway is executing superbly." Giblen and Cerankosky also said several Safeway divisions have begun to turn around, taking share away from competition in Arizona; Denver; Washington, D.C., and Canada.

ALBERTSON'S, Boise, Idaho, which reported sales up 5.2%, same-store sales down 0.7% and operating income up 11.2%. Giblen said Albertson's same-store sales results in the half were "a blip downward during an uncharacteristically soft period," which he attributed to the chain's heavy geographic overlap with Safeway, "which has taken the world by storm. But Albertson's comp sales have now fully recovered [in the third quarter], and they are up in the 2% area." Cerankosky said he attributed the drop in Albertson's comps to its strict adherence to everyday low prices, "which allowed consumers to become distracted by competitive promotions. But same-store sales have recovered quickly now that Albertson's has stepped back and decided to promote more in some markets, including northern California, the Pacific Northwest and Denver." · A&P, Montvale, N.J., which reported off 2.5%, same-store sales down 0.5% and operating income up 33.1%. Cerankosky said the drop in A&P's sales is due to closure of about 100 underperforming stores over a 12-month period. "However, the accompanying increase in operating income shows its more productive stores are delivering better earnings results. And the company has seen a nice turnaround in Canada, where it went from red ink to black following a long-term strike and a subsequent period of heavy expenditures to rebuild sales." Levin said the decline in A&P's total sales is due in part to the tough economies in which some of its divisions operate, its weak store base and its continuing struggles in Canada, where 20% of its stores are located, "though it seems to have turned the corner there," she pointed out.

RALPHS GROCERY CO., Compton, Calif., which reported pro-forma sales up 4% and pro-forma same-store sales down 3.6% (including Food 4 Less, where merged with Ralphs in June). Howard Goldberg, a high-yield analyst with Smith Barney, New York, said the same-store sales drop "is probably attributable primarily to the former Food 4 Less operation, which had seen sales declining for several quarters, while Ralphs probably grew a tick during the first part of the year." While Ralphs has attributed its same-store sales declines to the sluggish southern California economy, several analysts told SN they question why Vons Cos., in the same area, has seen comps increase while same-store results at both Ralphs and Food 4 Less as separate entities have been declining.

VONS COS., Arcadia, Calif., which saw sales fall 1%, same-store sales rise 1.8% and operating income rise 46.6%. Cerankosky said the gains in Vons' operating income "show that the chain is continuing to benefit from the new merchandising strategies and cost disciplines that [Chairman and CEO] Larry Del Santo and his management team have introduced, which resulted in a very strong performance as the company has tried to get some sales momentum and improve profitability." Changes in pricing levels and a reduction in the number of formats Vons operates "have resulted in surprisingly strong increases in the pace of its business, as demonstrated by its strong same-store sales results after several quarters of negative results," Cerankosky added.

According to Levin, Vons is going up against exceptionally easy comparisons, "but it has mastered a turnaround from last year, when it was changing strategies, closing stores and really reshaping its image."

STOP & SHOP SUPERMARKETS, Quincy, Mass., which had a decline in same-store sales of 0.5% despite a 4.4% gain in overall sales and an increase in operating income of 6%. Giblen said same-store sales comparisons at Stop & Shop have suffered "following a deep structural change in southern New England, where competition has gone from nonexistent to fairly vigorous, with Edwards, Shaw's and Star getting significantly better in the past year." Another analyst said Stop & Shop "let competitors get away with making improvements in their operations without any response because it may have been a bit too complacent."

PENN TRAFFIC CO., Syracuse, N.Y., which saw sales rise 6%, same-store sales drop 1% and operating income fall 11.7%. Goldberg said operating income was down "because of competitive conditions in upstate New York, principally involving couponing activity with Tops and Wegmans. And same-store sales were down because of the still difficult economic conditions in upstate New York and an increased number of competitive openings." He said most of Penn Traffic's sales gains for the half resulted from the chain's acquisition of the 45 Acmes in the Philadelphia area and its purchase of the Insalaco chain a year earlier.

BRUNO'S, Birmingham, Ala., with sales up 0.4%, same-store sales up 2% and operating income off 31%. Giblen said intense competition in the Southeast -- both from traditional competitors in Atlanta and from supercenters elsewhere -- hurt operating income. Another analyst said the strong impact of Winn-Dixie in Alabama also hurt Bruno's.

How the Big Five Fared

Many of the top U.S. supermarket chains showed higher sales and operating profits in the first two quarters of 1995. Among the five biggest-volume chains, Safeway reported the half's largest operating earnings gain and Winn-Dixie posted the top sales increase. American Stores, which sold 45 Acme Markets units and the Star Market Co. operation, reported the only volume drop.

Percentage Change in First-Half Results

1995 vs. 1994


Company Sales 3.7%

Operating Net 10.2%


Company Sales -4.5%

Operating Net -0.6%


Company Sales 4.0%

Operating Net 20.8%


Company Sales 5.2%

Operating Net 11.2%


Company Sales 8.1%

Operating Net -8.5%