VONS SAID TO BE TRIMMING 1994 CAPITAL BUDGET AGAIN

NEW YORK -- For the second time this year, Vons Cos. is trimming its capital-expenditures budget in an effort to concentrate on improving its current store base, according to securities analysts who attended a closed presentation by the retailer's executives here.The budget, originally set for $270 million, was cut back to $215 million earlier this year. While acknowledging that further reductions

NEW YORK -- For the second time this year, Vons Cos. is trimming its capital-expenditures budget in an effort to concentrate on improving its current store base, according to securities analysts who attended a closed presentation by the retailer's executives here.

The budget, originally set for $270 million, was cut back to $215 million earlier this year. While acknowledging that further reductions are expected, the analysts said Vons officials did not say at the presentation late last month how much further the budget would be cut.

Larry Del Santo, vice chairman and chief executive officer of the Arcadia, Calif.-based chain, made the presentations at breakfast and luncheon meetings here with securities analysts. It was part of Vons' effort to introduce Del Santo to the financial community following his appointment in late April. Because the sessions were closed to the press, SN spoke with several analysts who attended.

According to analysts who were at the meeting, Del Santo revealed the following information about Vons:

· Despite improving trends, Vons' earnings will continue to be pressured throughout the year.

· Customer counts have picked up in the last month, although same-store sales remain negative.

· Vons may reduce warehouse inventories as part of an effort to increase its distribution productivity.

Analysts said Vons expects square-footage growth will be minimal this year compared with last year -- up less than 2%, Debra Levin, an analyst with Morgan Stanley in New York, told SN.

Gary Vineberg, an analyst with Merrill Lynch in New York, pointed out that Vons' decision to pare back its capital-expenditures budget follows "the same pattern Safeway pursued -- cutting back on new-store growth while focusing on reducing expenses and improving sales at existing stores.

"Growth at Vons will be a non-issue this year, and possibly next year as well," Vineberg said. "The goal is to stabilize same-store sales, get costs down and get pricing in line. And if that means Vons has to close some unproductive stores, then that's what it will do."

Levin said she expects Vons will open only 10 stores this year -- on the low end of the 10 to 15 new stores Vons had expected, she noted. By year's end, Vons will probably operate 341 stores, Levin added -- two less than it operated last year.

Many of its new stores are aimed at highly dense areas, she noted -- "more urban environments where there's less risk of cannibalization," Levin said.

According to Jonathan Ziegler, an analyst with Salomon Bros. in New York, "Vons talked about consolidating its assets, saying if it has three stores in an area, it might close a couple and expand the third."

Vons disclosed plans last year for 11 store closings in 1994, Ziegler noted. "Six of those have already closed, and it was my impression that the number might be bumped up somewhat, based on Del Santo's comments that Vons is evaluating its whole expansion strategy."

In a discussion following the meeting, Ziegler said that Roger E. Stangeland, Vons chairman, told him the southern California market remains overstored, although new-store growth has been slowing down.

Vons is also constrained, Ziegler quoted Stangeland as saying, by a standstill agreement with the Federal Trade Commission that followed its acquisition of Safeway's southern California stores in 1988.

Because of that agreement, Ziegler said, Vons was unable to bid on any of the Big Bear stores in San Diego, several of which were acquired by Albertson's. Vons' standstill will run another four years, Ziegler noted.

According to Vineberg, Vons expects second-quarter results to be weak. "They said 1994 will be a rebuilding, repositioning year, which is typical during a period of top-management change," Vineberg said. "So 1994 will be a mess for Vons, with no rebound likely before the fourth quarter.

"However, though same-store sales remain negative, Del Santo said customer counts have turned positive in three of the last four weeks, and that usually bodes well for sales," Vineberg added.

Vons did not attach any cause to the upswing in customer counts, he said. "But it's a good sign for a turnaround in same-store sales, which are still negative, though decreasingly negative," Vineberg pointed out.

Levin said the short-term prospects look tough for Vons, "but the longer-term view is more positive because the company is more focused on how to regain market share. And it's taken a while to achieve the benefits of the price-reduction programs."

According to Levin, Del Santo told the meeting that benefits from those programs saved the company $6 million in the first quarter, which would have reduced costs by about $26 million on an annualized basis this year.

However, as more reductions take hold, Del Santo said the savings should accelerate to an annualized rate of $46 million this year, Levin indicated.

According to Ziegler, "Del Santo said all of the savings will be plowed back into prices, promotions and service."

While the three analysts contacted by SN all quoted Del Santo as saying that Vons wants to keep its prices within 3% to 5% of low-price leaders Lucky and Albertson's, each came away from the meeting with different opinions on whether Vons plans further price cuts.

"Del Santo said Vons does not plan to be an everyday-low-price operator, but will be content to compete on prices with Ralphs and Hughes," Ziegler said.

While Ziegler had the impression Vons does not plan any further price reductions, Vineberg said his sense is "that Vons feels its prices are probably not all the way where they need to be."

Levin said she believes Vons has reached the pricing levels it wants to achieve. "But if there are new developments in the market, then Vons would definitely move down further to meet competition," she said.

According to Ziegler, Del Santo said Vons contemplates a rationalization of its distribution systems this year, including a possible inventory reduction. "It may take one of its three distribution centers and move slow-moving goods there, then bring higher-volume items into another center," Ziegler said.

Levin said Vons hopes to become more efficient by working with vendors to reduce the amount of stock in its warehouses.