With its third CEO in place in less than a year, A&P is making moves that are designed to strengthen the company for the long term. However, many analysts and trade observers openly wonder if “long-term” will extend beyond the next 12 months.
Of primary interest is A&P liquidity. For the first quarter ended June 19, A&P reported a loss of $122.6 million, or $4.83 a share, compared with a prior year loss of $65.2 million, or $3.64 a share. Revenue decreased 8 percent to $2.56 billion, and same-store sales fell 7.2 percent. A&P also shifted to a working-capital deficit, where current assets of $846 million are less than current liabilities of $897 million. Those dismal numbers followed even worse fourth quarter results where the chain lost $781 million and posted ID sales of negative 4.8 percent. A&P has lost money in 33 of the past 40 operating periods, one of the worst performances in recent supermarket history. With only $171 million in free cash as of June 19 and a debt of approximately $1.5 billion, there’s real concern as to whether the 151 year old supermarket chain can survive in its current form beyond 2011.
However, new chief executive Sam Martin and stalwart executive chairman Christian Haub (whose family-owned enterprise, The Tengelmann Group controls 41.2 percent of the company), are fielding yet another executive team while pruning the store base to eliminate the worst performing units.
During the past month, the Montvale, NJ based chain announced that it would be closing 25 stores by the end of October. Those store locations are: Lansdale, PA; Towson, MD (Dulaney Valley Rd.); Wheaton, MD (Aspen Hill Rd.); Willow Grove, PA (all Super Fresh units);
Lodi, NJ; E. Brunswick, NJ; Woodbridge, NJ; Maplewood, NJ; Yorktown Heights, NY (all A&Ps); Belleville, NJ Bristol, PA Broomall, PA N. Bergen, NJ; N. Brunswick, NJ; S. Plainfield, NJ; W. Paterson, NJ; Fort Lee, NJ; Marlboro, NJ; Union, NJ; Millville, NJ; Garden City Park, NY; Monsey, NY (all Pathmark stores); Centereach, NY Levittown, NY (both Waldbaum’s) and a Foodmart store in Berlin, CT.
After dispatching Ron Marshall in late July, A&P named former Office Max COO Sam Martin as its new chief executive (Martin has a connection with A&P’s other major investor Yucaipa, which controls 27.6 percent of the chain. He was a VP of Fred Meyer when the private equity company owned that West Coast chain – it was sold to Kroger in 1999).
Martin quickly reformed his own management team, of which several members have ties to him during his stint with Fred Meyer. Paul Hertz has been named executive VP-operations replacing Mark Kramer (a Ron Marshall hire – both previously worked at Pathmark). Hertz will supervise all field operations for the Tea Company. He worked with Martin at Fred Meyer, Wild Oats and most recently Office Max, where he was executive VP of retail stores.
Also coming from Office Max is Carter Knox, A&P’s new senior VP-human resources and communications. In his new post, Knox will also oversee labor relations and public relations.
Other new executives without links to Fred Meyer are Tom O’Boyle and Frederick “Jake” Brace. O’Boyle has been named executive VP-merchandising, marketing, supply & logistics. He will attempt to create a cohesive synergy between those functions. Most recently O’Boyle served as senior VP-food and drug for Sears, but spent most of his career with Jewel and Albertson’s. Brace has been named A&P’s chief administrative officer (CAO) where he will supervise finance, accounting, real estate and IT functions. He was with United Airlines for 20 years retiring in 2008 as executive VP and CFO.
And if the negative industry speculation isn’t bad enough, Christian Haub’s brother, Karl-Erivan Haub, who runs Tengelmann’s European operations, was quoted in several publications on August 26 saying “we believe that the company (A&P) needs to be combined with another, bigger company. Sales are too low.”
That brought an immediate response from Christian Haub who noted: “Recent press reports on comments from Tengelmann about the future of A&P were taken out of context and may have created a misleading impression about the company’s strategic direction. A&P is taking the steps necessary to make the company stronger and more efficient. Since appointing Sam Martin as president and CEO one month ago and announcing our turnaround strategy, we have moved quickly to assemble an impressive and experienced management team, which process was completed with yesterday’s announcement of Tom O’Boyle joining the company. Our team is now focused on executing against the turnaround and strengthening the operating foundation of our company. Our executive team, the A&P board and our major shareholders, Tengelmann and Yucaipa, remain fully and intensely focused on achieving an effective turnaround at A&P.”
A week later, The Wall Street Journal ran a story about the possibility of A&P selling its 17 unit upscale Food Emporium operation “as part of a broader effort to rid itself of some assets and boost its liquidity, according to people familiar with the matter.”
As we went to press on September 10, A&P shares closed at $3.18 per share, slightly up from its 52 week low of $2.50 per share reached on July 26.