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    A&P Posts 'Solid' Q3

    During the quarter the grocer completed the integration of Pathmark integration and made progress on its goal of synergy realization.

    Despite the challenging economic climate, the Great Atlantic & Pacific Tea Co., Inc. turned in a "solid performance" for its fiscal 2008 third quarter ended Nov. 29, in the words of president and c.e.o. Eric Claus. A&P's achievements during the quarter included completing the integration of former rival Pathmark a year after acquisition, and further progress toward its aim of synergy realization.

    Sales for the quarter were $2.1 billion vs. $1.3 billion in the year-ago period. Comps grew 1.9 percent for A&P and decreased 0.5 percent for Pathmark, when measured during the same period.

    Adjusted EBITDA for the quarter, excluding non-operating items, was $78.0 million vs. $20.5 million last year. Adjusted income from operations was $17.4 million, compared with an adjusted loss from operations of $12.1 million in last year’s third quarter. The current quarter results include $30 million of integration synergies.

    Reported loss from continuing operations for the quarter was $3.0 million, vs. income of $73.1 million last year, which included a $106.1 million gain from the sale of shares of the company's former Canadian division, Metro, Inc. Prior year's results exclude the results of Pathmark before its acquisition date.

    "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," noted Claus. "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 during the quarter, as we completed the integration and transition of this business. At the end of the quarter, our annual synergy run rate totaled $140 million, and we expect to achieve the $150 million target by year end."

    In a conference call yesterday, Claus went on to point out the grocer's private label achievements during the quarter. "We put considerable effort into rebranding, packaging, and consolidating our private label portfolio, driving our overall company penetration to over 17.5 percent as we speak, which is roughly a 200-basis-point improvement over a year ago," he observed. "Our private label program has now been harmonized between Pathmark and our other A&P formats, with the lion's share of our assortment sporting the Americas Choice and Smart Price labels, and this is where we have put our efforts, given the economic impact we are feeling."

    Sales for the 40 weeks year to date were $7.2 billion, vs. $4.2 billion in 2007. Comps rose 2.7 percent for A&P and 2.0 percent for Pathmark, when measured during the same period.

    For the year to date, excluding non-operating items, adjusted EBITDA was $241.2 million, vs. $87.2 million last year. Adjusted income from operations was $39.9 million, compared with an adjusted loss from operations of $26.8 million last year. The current year-to-date results include $77.6 million of integration synergies.

    Reported loss from continuing operations for the year to date was $2.8 million, vs. income of $131.5 million for 2007, which included a gain of $184.5 million from the sale of Metro shares. Prior year’s results exclude the results of Pathmark before its acquisition.

    In yesterday's conference call, c.f.o. Brenda Galgano spoke about the company's full slate of third-quarter store conversions. "During the quarter we completed the conversion of seven Super Fresh stores to the Pathmark Price Impact format in the Philadelphia market, and converted one Food Emporium store to A&P Fresh," she said, adding that A&P expected fourth-quarter capital expenditures to be about $30 million, with fiscal 2009 spending preliminarily slated to be in the "$130 million range."

    On the subject of the Super Fresh conversions, Claus was particularly enthusiastic. "The entire Philadelphia conversion refresh strategy should be complete by year end, giving us a strong Price Impact presence in that market," he said, later noting, "We are also in the planning stage for more store conversions to [the Discount] format, as well as new sites in urban markets."

    "Clearly the U.S. retail market is facing one of the most difficult years in 2009," said executive chairman Christian Haub. "Our strong strategic position in the Northeast and our successful format strategy prepare us for the challenges ahead."

    A&P, which is celebrating its 150th anniversary this year, operates 444 stores in eight states and the District of Columbia under the following banners: A&P, Waldbaum's, Pathmark, Best Cellars, The Food Emporium, Super Foodmart, Super Fresh, and Food Basics.

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