PATHMARK 1Q LOSSES INCREASE

CARTERET, N.J. - A remerchandising initiative at Pathmark Stores here last year did not generate the results the company would have liked, the chain's chief executive officer said in a conference call with analysts last week."Certainly we thought it would benefit sales more than it did," said John Standley, CEO, Pathmark. "It didn't get the bang we were hoping for."Standley made his remarks in discussing

CARTERET, N.J. - A remerchandising initiative at Pathmark Stores here last year did not generate the results the company would have liked, the chain's chief executive officer said in a conference call with analysts last week.

"Certainly we thought it would benefit sales more than it did," said John Standley, CEO, Pathmark. "It didn't get the bang we were hoping for."

Standley made his remarks in discussing results from the first quarter in which the chain's sales were basically flat and its losses increased.

He said the company may not have been focused enough in its approach to the remerchandising effort.

"We made a lot of changes across the store in a lot of different departments all at one time, and it probably wasn't that easy for the consumer," he said. "The second part of it was we probably didn't do a good enough job making sure that we have the right tools in place to help stores execute this strategy.

"I think what we learned is that probably instead of using the shotgun approach on this thing, to probably use more the rifle approach to focusing on key areas of the business where we can make a real difference - have a program that we can support from all aspects of the business, whether it's promotion, quality of the product, training in the store, etc., and then really make sure we properly educate the consumer about what it is."

The company said sales for the 13-week quarter that ended April 29 were down 0.4%, to $998.5 million, compared with year-ago results. Same-store sales fell 0.1%. The loss for the first quarter totaled $5.4 million, vs. a loss of $2.1 million a year ago.

Standley said grocery sales were "good" in the quarter, but meat sales were "a little soft," some of which he said could be attributed to deflation in the poultry and dairy categories.

He said gross margin improved 60 basis points in the quarter, to 29%, vs. 28.4% in the first quarter of last year, and noted that shrink was level with the year-ago quarter but better than it had been in the third and fourth quarters.

The company experienced higher energy costs as well as increases in medical and pension expenses and higher real estate taxes. It also had higher fuel costs, although it said logistics expenses were flat.

The company was working on several "key initiatives" to boost performance, he said, including making some changes to its club-card program as part of an improved value offering. Pathmark is also improving its fresh offering and "scaling its merchandising to meet the needs of the communities in which it operates," Standley said.

The improvements to the fresh offering are being rolled out and will be reinforced in the chain's new ads, he said.

The company also said its capital spending would likely increase in the fourth quarter or next year as it weighs the effectiveness of a new prototype.

Capital expenditures during the first quarter of fiscal 2006 were $12.1 million. Total capital expenditures for fiscal 2006 are expected to be approximately $70 million. The company expects to complete 16 store renovations during fiscal 2006.

1ST-QUARTER RESULTS

Qtr Ended: 4/29/06; 4/30/05

Sales: $998.5 million; $1 billion

Change: -0.4%

Comp-store: -0.1%

Net Income (Loss): ($5.4 million); ($2.1 million)

Change: NA

Inc (Loss)/Share: (10 cents); (7 cents)