SYRACUSE, N.Y. -- Penn Traffic Co. here said last week it anticipates declines in cash flow and same-store sales for the second quarter ending July 29, but vowed to take steps to lower operating expenses and stay competitive in its highly promotional upstate New York market.
Gary D. Hirsch, Penn Traffic chairman, said the company will undertake "an aggressive program to moderate operating expenses over the next 12 months to accelerate the return of our earnings and cash flow performance to acceptable levels."
Moreover, he stressed, "We will continue to meet competitor promotional and price initiatives to maintain our market shares."
Hirsch attributed the poor results anticipated in the quarter to "lower consumer spending and increased promotional activity, particularly in New York state." According to Debra Levin, a securities analyst with Morgan Stanley, New York, the competitive pressures on Penn Traffic in upstate New York emanate from Tops Markets, Buffalo, and Wegmans Food Markets, Rochester, which have both increased their promotional programs. The chain's expectations of lower-than-anticipated results in the second quarter are not due to any shortcomings by Penn Traffic management, Levin added. "The numbers are the result of an unanticipated competitive situation that don't reflect on management's abilities," she said. In disclosing preliminary second-quarter results last week, Hirsch said cash flow will be down from the $64.4 million level the company reported in last year's second quarter. While Hirsch did not pinpoint the drop, Levin told SN she estimates cash flow of approximately $60.5 million, representing a drop of 6%. News of the anticipated cash-flow results pushed the price of Penn Traffic stock to an all-time
low of 26-5/8 last Monday -- a 20% drop from the 52-week low of 30-1/2 set on April 21. Levin said she doubted the stock would drop further. Hirsch indicated that second-quarter revenues are running 7% ahead of last year -- which would give Penn Traffic sales for the quarter of approximately $894.3 million, compared with $835.8 million a year ago. However, same-store sales will be down for the quarter, Hirsch said -- probably by about 0.7%, according to Levin -- compared with a drop of 1.6% during last year's second quarter. Penn Traffic is expected to release full second-quarter results in late August. On the subject of cost control, Hirsch said, "While each of our business units has historically done a good job of expense control, we believe that incremental cost-savings opportunities exist through corporate-wide initiatives involving standardization and consolidation of activities, which will supplement current programs to reduce net working capital and related distribution expenses."
Although noting that the company's consolidated performance is weaker than anticipated, Hirsch said the 34 former Acme Markets it is retaining (out of the 45 it acquired in January) "are meeting our cash-flow expectations." Penn Traffic operates 271 supermarkets in Pennsylvania, upstate New York, Ohio and northern West Virginia.