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CARTERET, N.J. - Improved performance of its produce, floral, nonfoods, and pharmacy departments enabled Pathmark Stores, Inc. here to report second quarter sales of $1.3 billion, a bump of 0.2 percent compared to $1.1 billion in the year-ago period, and same-store sales growth of 0.5 percent.
However, citing a decrease in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), partly offset by lower interest expense, the Mid-Atlantic regional grocer posted a net loss of $8.8 million, or 17 cents per diluted share for the ended July 29, vs. a net loss of $5.1 million, or 12 cents, for the year ago period.
The company's adjusted EBITDA was $26.9 million in the second quarter, compared with $31.7 million last year. Pathmark attributed the $4.8 million decrease to lower gross profit of $1.0 million, mainly as a result of lower pharmacy gross margin associated with the recently implemented Medicare Part D program, and higher costs for utilities of $2.3 million, self-insured workers' compensation and general liability claims of $2.2 million, medical and pension of $1.9 million, and supplies of $0.6 million, partly offset by breakage income related to gift cards of $3.2 million.
According to the company, produce sales were up 3 percent, a result of the department being "the furthest along in the turnaround process," while categories such as seafood, service deli, and bakery, which are not as developed, turned in disappointing performances.
Pathmark c.e.o. John Standley said in a statement: "We are encouraged by the sales trend in the second quarter. As our merchandising initiatives continue to gain traction with consumers, we expect to see improvements in gross margin due to sales mix and lower shrink as the fiscal year progresses. On the cost side, we expect our various initiatives will help mitigate expected expense increases during the remainder of the fiscal year."
In a conference call yesterday, Standley admitted that the company was "a little behind on [its] objectives from an earning perspective," but noted that Pathmark was "making good progress" in "freshening up [its] brands"; turning around its nonfoods and pharmacy businesses despite a softer-than-expected margin in the latter department, which the retailer has developed a plan to address; instituting new merchandising strategies, particularly in regard to perishables; and eliminating clutter from stores.
Standley also noted during the call that the company's prototype program, which will feature expanded perishables departments, was "well underway."
Also during the call, co-president and chief marketing and merchandising officer Ken Martindale said that the company, which has made merchandising improvements based on consumer research, was in the process of expanding its baby and bath and body offerings, has been working on improving the size and grade of produce selections, and was providing additional training to associates to increase their product knowledge and ability to interact with customers.
The company's cap ex during the first six months of fiscal 2006 came to $34.7 million, and total capital expenditures for fiscal 2006 are expected to be about $70 million. Pathmark renovated three stores during the first six months of fiscal 2006 and plans to remodel 10 locations during the third quarter and one during the fourth quarter.
According to Martindale, the renovated stores, which have seen "substantial improvement in their perishables sales mix," have enhanced produce sections, service pastry cases, expanded delis, and service floral counters, with some locations offering expanded baby and pet sections. He expected the company to "fully implement the new design and concepts" in renovated stores set to open in early 2007.
Martindale also noted that Pathmark was developing a loyalty program that would leverage the grocer's vast database amassed over the past six years.
Frank Vitrano, the c.f.o., said during the call that the company had formed a new subsidiary during the quarter to handle all gift cards and certificates, and had transferred all liabilities related to them to the subsidiary.
Additionally, company officials noted that although private label's performance was currently "reasonably flat" or even "slightly behind," Pathmark was in the process of revamping its product lines and would roll out some item introductions by the end of the year.
Pathmark operates 141 supermarkets mostly in the New York-New Jersey and Philadelphia metropolitan areas.