QFC TARGETS CONTROLLED EXPANSION AFTER LIGHTNING GROWTH LAST YEAR

BELLEVUE, Wash. (FNS) -- Quality Food Centers here still has $56 million left in its kitty after its merger with Olson's Food Stores, Mountlake Terrace, Wash., but company executives plan to slow the spending spree that boosted square footage by 46% last year.At the chain's annual meeting here, they said growth would be "controlled, profitable and a long-term value for QFC shareholders."In mid-1995,

BELLEVUE, Wash. (FNS) -- Quality Food Centers here still has $56 million left in its kitty after its merger with Olson's Food Stores, Mountlake Terrace, Wash., but company executives plan to slow the spending spree that boosted square footage by 46% last year.

At the chain's annual meeting here, they said growth would be "controlled, profitable and a long-term value for QFC shareholders."

In mid-1995, Chicago investor Sam Zell's Zell/Chilmark Fund L.P. invested about $100 million in QFC for a 27% stake in the company and two seats on its board. QFC entered into a $220 million credit facility, of which $56 million remains to be spent. Stuart M. Sloan, chief executive officer -- whose sale of 2.9 million shares of common stock to Zell/Chilmark for $77.4 million was completed in mid-January -- said QFC would enter a new market provided that it could capture "important market share," had opportunity for additional expansion and consumers would consider its high-end format as value-added. For the right deal, QFC's major investors are willing to ante up more capital, Marc Evanger, chief financial officer, said, adding that QFC also could issue a secondary stock offering.

Though not detailing expansion plans at the meeting, QFC executives have previously said the chain is looking for opportunities in new markets, in contiguous areas and among the 130 independent operators in the Puget Sound area.

"QFC is being very careful," said analyst Diane Daggatt of Pacific Crest Securities, Seattle, who attended the meeting. "I think the Johnny's [Food Center, Kent, Wash., 1994] acquisition took longer to turn around than they thought and, as a result, they are being very careful to make sure their next market is the right market. They expect all their acquisitions to be accretive to earnings from the first."

Comparable-store sales for 1995 dipped 1.7% because of store openings and remodels by competitors and a sluggish local economy, QFC executives said at the annual meeting. However, Evanger noted that the chain lapped competitors in this year's first quarter, lifting its comp-store sales 1% vs. prior-year levels. Sales in the first quarter jumped 27% to $176 million compared with the year-ago period, and strong cash flow sliced interest costs.

This year, QFC plans to open two replacement stores in Seattle: a 41,000-square-foot unit that replaces a 14,000-square-foot store and a 66,000-square-foot unit that replaces a 31,000-square-foot store. A new 45,000-square-foot store also is under construction in Seattle, and nearly a dozen stores are being remodeled.

The 62-store chain also is tinkering with its format, adding more private-label products, organic produce and take-home meal choices. In mid-July, QFC is scheduled to roll out its own brand of endorsed products plus a lower-priced Heritage product line. QFC also plans to lease space in some stores to the Cinnabon cinnamon roll chain and to the Noah's New York Bagels bagel chain. In addition, the chain is upgrading information systems to bolster inventory-management efficiency, but Evanger declined to provide details.