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    Disappointing Q3 Spurs A&P to Rethink Business Strategy

    Faced with dismal financial results during a down economy, the Great Atlantic & Pacific Tea Co., Inc. is conferring with one of its top investors, West Coast-based Yucaipa, to help it figure out how to staunch the bleeding.

    Faced with dismal financial results during a down economy, the Great Atlantic & Pacific Tea Co., Inc. is conferring with one of its top investors, West Coast-based Yucaipa, to help it figure out how to staunch the bleeding.

    For its third quarter ended Dec. 5, 2009, A&P reported sales of $2.0 billion vs. $2.1 billion last year. Comps declined 5.8 percent. Adjusted loss from operations was $20.1 million compared with adjusted income from operations of $17.4 million in last year’s third quarter. Reported loss from continuing operations was $502.4 million, including charges of $412.6 million for goodwill, trademark and long-lived asset impairment and $16 million for mark to market adjustments related to financial liabilities, while loss from continuing operations in the comparable period of the prior year came $3.8 million, including income of $23 million for mark to market adjustments related to financial liabilities.

    Sales for the 40 weeks year to date were $6.8 billion vs. $7.2 billion in 2008. Comps fell 4.2 percent. Adjusted loss from operations was $11.8 million, compared with adjusted income from operations of $39.9 million last year. Year-to-date reported loss from continuing operations was $622.9 million, including charges of $412.6 million for goodwill, trademark and long-lived asset impairment and $25 million for mark to market adjustments related to financial liabilities, vs. loss from continuing operations in year-ago period of $5.3 million, including income of $114 million for mark to market adjustments related to financial liabilities.

    “The U.S. food retail market continues to face one of the most difficult and challenging environments in many years which analysts expect will extend through the first half of 2010,” noted executive chairman of the board Christian Haub, who assumed the role of interim CEO following Eric Claus’ abrupt departure in October 2009 in the wake of a poor second quarter. “Unemployment, deflation and the resulting price competition, combined with consumers’ drastic changes in spending behavior, [have] severely impacted both our industry and our business.”

    According to Haub, a detailed assessment of A&P’s business with Los Angeles-based investment partner Yucaipa revealed that “our previous merchandising and marketing programs did not meet the consumer’s changing needs. As a result, we have been changing our go-to-market direction and implemented a number of initiatives to mitigate the negative external influences and provide our customers with better value, service and quality products.”

    Among other things, A&P is ending several marketing programs and redirecting those funds into slashing prices on commonly purchased foods, with new ads focusing on the price cuts, MarketWatch reported, adding that the company had hired the team that helped develop the pricing at Kroger’s Food4Less.

    Describing the third quarter as a transitional one during which A&P began altering its business approach in a bid to improve sales and profits, Haub said that the grocer would continue to work with Yucaipa on developing “longer-term strategies to drive sustainable success in the future.”

    Observed Haub, “These efforts, combined with our strong strategic position in the Northeast, our superior store base and our resolve to implement strategic changes, make me confident in the company’s long-term prospects.”

    Could those changes include fewer stores? In a call with analysts yesterday, Haub said that he was open to taking part in the “consolidation” of the supermarket industry, according to a published report.

    Montvale, N.J.-based A&P operates 433 stores in eight states and the District of Columbia under the following banners: A&P, Waldbaum’s, Pathmark, Pathmark Sav-a-Center, Best Cellars, The Food Emporium, Super Foodmart, Super Fresh and Food Basics.

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