Giant's earnings sink 26% Recession blamed for weak quarter

August 28, 1991|By Peter H. Frank

Giant Food Inc., using widespread price cuts to combat sluggish sales, reported a 26 percent drop in earnings during the second quarter as the Baltimore-Washington area's largest grocer felt the brunt of the nagging recession.

It was the first year-to-year quarterly drop in income for the Landover-based company in nearly five years.

For its second fiscal quarter, which ended Aug. 10, Giant said that it earned $19.1 million, or 31 cents a share, compared with earnings of $25.8 million, or 48 cents a share, during the same quarter last year.

Sales remained relatively flat during the 12-week period; revenues increased slightly more than 2 percent, to $780 million from $764 million last year.

Giant, which takes in nearly one of every three grocery dollars spent in the Baltimore area, said that its lower income was primarily fallout from the economic recession gripping the region and the resulting increase in competition.

"That's a product of the recession and the times," said David B. Sykes, senior vice president of finance at Giant. "Everybody's looking for the sales dollar and everybody's trying to get it."

The company, which operates about one-third of its 153 supermarkets in the Baltimore area, responded a month ago with an average 5 percent price cut on more than 7,000 health and beauty products. It also entered a head-to-head competition with its closest competitor, Safeway, when the two companies expanded their double-value coupon promotions -- already in effect in the Baltimore area -- to Washington.

Both moves were seen as further proof that competition in the Baltimore-Washington region has become fierce among food chains vying for the public's grocery dollar. And with already-thin profit margins, companies such as Giant have little room to absorb sudden financial pressures.

"Any negative factors have a dramatic impact on the bottom line," said Kenneth M. Gassman Jr., a consumer analyst with Davenport & Co., a brokerage firm based in Richmond, Va.

Giant said that the price cuts were intended "to improve sales volume" and that the company expected higher sales during the next six months.

Mr. Gassman said that he wasn't so sure. "Certainly, the third quarter should continue to be soft," he said. "This is not a price war. On the other hand, there is certainly a heightened price competitiveness."

However, Giant pointed to the recession as the main reason for its downturn.

"It is Giant's belief that although there has been increased competitive activity in food and drug retailing over the past months, it is the recessionary economy that has been having the greatest impact upon sales volume," the company said in its announcement yesterday.

The stock of Giant, which made the announcement soon after the stock market closed, closed at $23.875 a share, down 12 1/2 cents.

Mr. Sykes at Giant said that the last time his company's quarterly earnings fell when compared to the previous year's figures was in late 1986.

12 Weeks ended 8/10/91

.. .. .. Revenue .. .. .. Net .. .. .. Share

'91 .. 780,392,000 .. .. 19,070,000 .. 0.31

.. 763,999,000 .. .. 25,798,000 .. 0.43

change .. +2.1 .. .. .. .. 26.1 .. .. ..27.9

24 Weeks ended 8/10/91

.. .. .. Revenue .. .. .. Net .. .. .. Share

'91.. 1,564,268,000 .. 48,320,000 .. 0.81

'90.. 1,533,263,000 .. 54,265,000 .. 0.91

% change .. +2.0 .. .. .. 11.0 .. .. .. 11.0

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