Pathmark Posts First Profit in Three Years

JON SPRINGER

CARTERET, N.J. — In results that should come as welcome news to A&P, Pathmark Stores here last week reported a quarterly profit for the first time in three years.

Cost reductions and improvements in merchandising helped Pathmark post a $1.7 million profit in the 14-week fiscal fourth quarter, which ended Feb. 3. Pathmark lost $14.6 million in the 13-week fourth quarter a year ago, and had not turned a quarterly profit since the fourth quarter of fiscal 2003.

A&P, Montvale, N.J., last month said it would acquire Pathmark for $1.3 billion. The deal includes equity that will provide Pathmark's current management with a stake in the combined company, and should motivate the retailer to perform until the deal closes later this year, according to analysts.

“We believe Pathmark's management is motivated to show solid performance and assist with integration to help A&P's stock price and, ultimately, its payout,” Karen Short, an analyst at Friedman Billings Ramsey, New York, said in a research note last week.

Pathmark said it planned to spend $80 million in capital during fiscal 2007 and complete 13 store renovations. Pathmark completed 14 store renovations behind $71.8 million in capital expenditures in fiscal 2006.

A&P is expected to report its fourth-quarter results this week. Pathmark and A&P will file a joint proxy statement and prospectus with additional details on their deal shortly, Pathmark said.

Pathmark's sales for the quarter were $1.08 billion, compared with $993.3 million a year ago, and were up by 0.6% when adjusted for the extra week. Same-store sales increased by 1.2%.

EBITDA was $50 million, compared with $25.9 million a year ago. Adjusted for the extra week, the $18.5 million improvement in EBITDA was generated by a $12 million gross profit increase due to merchandising changes; $6.5 million in reduced costs; and a decrease in shrink, Pathmark said.

Sales for the 53-week fiscal year were $4.06 billion, flat compared with fiscal 2005's $3.93 billion when adjusted for 52 weeks. Same-store sales increased by 0.4% for the year. EBITDA for the year climbed to $138.6 million from $111.2 million. Adjusted for the extra week, the $21.8 million improvement in EBITDA reflected higher gross profits and reduced shrink, offset by higher expenses for utilities, worker's compensation, general liabilities and real estate costs.

The company's annual loss of $18.3 million, or 35 cents per share, was down from a $40.1 million loss in fiscal 2006.