CARTERET, N.J. -- Pathmark Stores here said last week it has signed an agreement to acquire six Grand Union units and is committed to allocating close to 3% of sales each year to capital projects.
Frank Vitrano, executive vice president, treasurer and chief financial officer, said Pathmark signed a letter of intent with C&S Wholesale Grocers, Brattleboro, Vt., to acquire six former Grand Union stores. The transaction is expected to close in the first quarter of 2001.
According to Vitrano, three of the stores are in Long Island, N.Y., and three are in northern New Jersey, with an average size of 40,000 square feet and annual sales of approximately $120 million. "They fit nicely within our current network of stores," Vitrano said.
He said Pathmark anticipates closing the six stores "for a short period" and spending $1.5 million per location "to make necessary refurbishments to bring them up to Pathmark standards" before reopening them.
The refurbishing costs will be separate from the chain's cap-ex spending plans, which Vitrano said call for allocating "just under" 3% of sales a year.
He said Pathmark will spend $70 million this year to open four new stores and renovate 20 units, including 12 in the fourth quarter. Plans for 2001 include three new stores in the fourth quarter and 35 renovations spread throughout the year, he added.
"We're focusing spending on store renovations because we get generally solid returns on those investments, and we're beginning a five-year plan on remodels that we've postponed for years," Vitrano said. "Approximately 76% of sales have come from new and remodeled stores over the past five years, and that will increase to 95% if we spend just under 3% of sales on cap-ex."
He said Pathmark also plans to invest heavily in technology, including new category management and pricing systems and an upgrade of its financial systems. "We plan to spend $40 million over the next three years to bring Pathmark into the 21st century," he said.
Jim Donald, president and chief executive officer, said Pathmark's capital spending plan for stores and technology "gives us the choice to be reactive or proactive and to take advantage of opportunities for acquisitions of stores and-or chains."
The executives made their remarks during a conference call with securities analysts to review results for the third quarter and nine months ended Oct. 28, which showed sales up 1.3% to $937.1 million for the 13-week quarter and 1.6% to $2.8 billion for the 39-week year-to-date, while same-store sales fell 0.5% for the quarter and were flat for the nine-month period.
Pathmark said it had a net loss after extraordinary items in both periods, while operating cash flow fell 12.1% to $42 million for the quarter and 20.5% to $135 million for the 39 weeks. Operating cash flow excluded $9.2 million for the quarter and $19.2 million for the nine months related to Pathmark's financial reorganization plan.
Donald told analysts he is very optimistic about Pathmark's long-range outlook.
"For the first time in years, we're going into battle with a balance sheet that will allow us to be competitive on capital spending and to get close to the competition in technology," he said. "We're already competitive on promotions and we've rolled out a loyalty card, and for the first time since 1987 we're able to measure the true performance of our brand, our product and our people by the top line."
Donald's enthusiasm follows Pathmark's emergence from a 68-day Chapter 11 bankruptcy reorganization in mid-September that followed 13 years as a debt-constrained operator.