Poor Pathmark Performance Hurts A&P Financial Results

5/27/2009 - Pathmark recorded lower sales, profits and store traffic during the fiscal fourth quarter resulting in a $111.1 Million loss for A&P. As a consequence analysts downgrades led to a stock sell-off by shareholders. The traditional value based reputation held by Pathmark as a price leader was acknowledged to have been hard hit as prices were allowed to drift higher during a recessionary period when shoppers are much more price conscious.

"The reason Pathmark went so rapidly off the rails in terms of sales is that with this economic situation, you can't live on perception anymore," said Eric Claus, A&P CEO. He told analysts that Pathmark also suffered from structural issues including high warehousing and transportation costs as well as low labor productivity.

A&P completed its acquisition of Pathmark 15 months ago and touted cost saving synergies of $150 Million. Pathmark comprises 45% of A&P's revenues. However, Pathmark store sales declined 3% and its earnings before interest, taxes, depreciation and amortization declined a whopping 50%. "We believe that the Pathmark banner has been out-maneuvered by some competitors," said John Heinbockel, an analyst for Goldman Sachs.

Another analyst, Simeon Gutman of Canaccord Adams indicated in a research note that, "The impact from new merchandising initiatives, structural price investments, stepped-up advertising...and intense management focus should help stabilize the top line in the near term."

Details for this article first appeared in Supermarket News by Jon Springer