A&P tops expectations in quarter

Chain Drug Review, Feb 2, 2009

MONTVALE, N.J. -- A&P listed a loss from continuing operations for the third quarter of fiscal 2008, in contrast to a profit in the year-earlier quarter, when the sale of its stake in Metro Inc. helped lift the bottom line. But with the adjusted after-tax loss coming in well below what analysts expected, A&P's share price leapt nearly 26% on the day the results were issued.

The grocery and combination store retailer recorded a loss from continuing operations of $2.99 million, or $1.35 per diluted share, for the 12 weeks ended November 29, contrasted to income of $73.1 million, or $1.73 per share, in the fiscal 2007 period, when the company booked a $106.1 million pretax gain on the sale of its stake in the Canadian supermarketer. Including losses from discontinued lines of $10.6 million in the most recent quarter and $15.8 million in the prior-year quarter, the bottom line swung to a loss of $13.6 million, or $1.61 per share, from income of $57.3 million, or $1.35 per share.

Backing out the charges and other special items, A&P would have reported a loss of about 26 cents per share for the fiscal 2008 period--well below the 37-cent consensus deficit projected by analysts surveyed by FactSet Research.

The top line, meanwhile, benefited from A&P's December 2007 acquisition of Pathmark Stores Inc., as sales vaulted 69.5% to $2.12 billion from $1.25 billion. Comparable-store results improved 1.9% at A&P, although the Pathmark outlets experienced a 0.5% decrease.

The surge in sales, plus $30 million in integration synergies, combined to boost adjusted EBITDA (earnings before interest, taxes, depreciation and amortization, LIFO, costs associated with the Pathmark acquisition, and a variety of other special items) from ongoing operations to $78 million, or 3.7% of sales, from $20.5 million, or 1.6% of sales, a year earlier.

Including results from Pathmark in the 2007 period, the 2008 figure was still 73.3% above the pro forma $45 million that would have been generated by the combined companies in the preceding year.

"I am pleased with the company's solid performance in the quarter," says president and chief executive officer Eric Claus. "Changes in our merchandising, pricing and promotional strategies have been successful in meeting the financially strained budgets of our customers in these difficult economic times.

"Our distinct formats continue to succeed, as evidenced by the strong performance of our fresh, gourmet and discount businesses and the improved performance of Price Impact (Pathmark) during the quarter, as we completed the integration and transition of this business."

Gross margin for the quarter expanded 63 basis points to 31.14%, while store operating, general and administrative expense contracted 163 basis points to 30.57% of sales, helped by the expanded sales leverage.