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QUALITY MARKETS' PARENT REPORTS LARGE LOSS, LOWER SALES

Lower prices and an aggressive advertising campaign notwithstanding, The Penn Traffic Co. is not attracting additional customers to its supermarket chains, including area Quality Markets.

The drought of customers is evidenced by the Syracuse-based company's just-released earnings report that shows the company's revenues dipped 7.9 percent to $750.6 million.

Penn Traffic lost $11.2 million in its fourth quarter, or $1.04 per share for the period ended Jan. 31, 1998.

The company, which operates 11 Quality Markets in Erie and Niagara counties, lost $6.3 million, or 58 cents per share, in the prior year's fourth quarter.

Equally distressing, Penn Traffic's fourth-quarter same-store sales fell 7.3 percent, compared with the same period of 1996. The company's same-store sales have shown year-to-year declines for 23 consecutive months.

Same-store sales are considered a key barometer for retailers as they indicate if customers are returning to shop at specific stores.

The company's full 1997 fiscal results were equally poor, with a loss of $48.4 million, or $4.49 per share, compared to a net loss of $41.4 million, or $3.81 per share, for fiscal 1996. In 1995, Penn Traffic lost $79 million.

Total sales for 1997 were $3 billion, down from $3.2 billion in 1996.

Phillip E. Hawkins, Penn Traffic's president and chief executive officer, admitted disappointment with the 1997 results.

"Our sales and operating results for the fourth quarter were below our original expectations," Hawkins said. "We have taken the appropriate steps to address the internal executive issues, primarily our meat merchandising effort, which led to financial results being below our expectations."

Since making the changes and kicking off a new phase of the marketing program last month, the stores have seen an improvement in sales trends, according to Hawkins.

In the past year, Penn Traffic has made sweeping changes in its management team, highlighted by Hawkins' hiring last March. The company also sliced 325 employees, including Randall Sweeney, the head of its Western New York division, and 17 other staffers at its Jamestown divisional headquarters.

"They are attempting to stem the tide of negative same-store sales," said Ted Bernstein, an analyst who follows Penn Traffic for Grantchester Securities.

"The lower price campaign started in the fall, but thus far we haven't seen any sales momentum derived from that. That's not good because that means you've reduced prices and yet aren't generating the customer traffic you hoped for," Bernstein said.

"Which means you're giving away the margin in the meantime," he said. "Whether it works remains to be seen."

Michael Kirkpatrick, who follows Penn Traffic for BNY Capital Markets, also questioned how long the company can withstand the combination of lower prices and eroding sales.

"At some point, they have got to generate same-store sales growth, otherwise the economics of lowering (grocery) prices doesn't make sense," Kirkpatrick said.

While conceding the food company is so far failing to meet a stated goal of achieving demonstrable improvements in sales trends by June of this year, Hawkins said he is trying to return to a timetable.

"Although we had a setback in December and January, we have taken steps to return the company to that timetable through the efforts of our employees, our lower prices and the targeted marketing programs now in place," he said.

Penn Traffic operates 263 supermarkets in New York, Pennsylvania, Ohio and West Virginia under the names Quality Markets, Big Bear, Big Bear Plus, Bi-Lo Foods, P&C Foods and Riverside Markets.

The company also operates a wholesale food distribution business serving 108 licensed franchises and 92 independent grocers.
The Associated Press contributed to this report.

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