Giant earnings increased less than 1% in quarter

August 31, 1994|By Timothy J. Mullaney | Timothy J. Mullaney,Sun Staff Writer

Giant Food Inc. reported a small second-quarter earnings gain yesterday, hurt by an economy that continued to force the Landover-based supermarket chain to discount sharply to maintain sales growth and market share.

Giant said it earned $14.7 million, or 25 cents a share, during the 12 weeks that ended Aug. 13. That represented an increase of less than 1 percent compared with a year earlier, when the company earned $14.6 million, or 24 cents a share. Analysts on average had expected Giant to earn 27 cents a share in the most recent quarter.

"It's not enough to make us sell this stock," said Tom Thomson, an analyst at Wheat First Butcher Singer Inc. in Richmond, Va. who is neutral on Giant shares. "It's real predictable and not spectacular."

The good news for Giant was that its same-store sales, which measure results at units open at least a year, were up 1.4 percent in the second

quarter. That topped analysts' estimates of 1 percent and reversed a slight decline in the first quarter, when profits fell 23 percent compared with the year-ago period.

Despite the sales gains, heavy sales promotions during the latest period kept the higher revenue from falling to the bottom line.

"In the more realistic environment of today, consumers are less willing to pay up for food," said Ferris Baker Watts Inc. analyst Kurt Funderburg. He said Giant, which has a 29 percent share of the Baltimore food market, is also approaching saturation in the area.

"In the 1970s and 1980s, generating growth was easy," Mr. Funderburg said. "They weren't overstored."

Giant Senior Vice President for Finance David B. Sykes said the company also was hit by a major increase in employee benefits costs Jan. 1. Giant's payments to its workers' union welfare fund, which the United Food and Commercial Workers' Union uses to pay for its own health insurance and other benefits, rose about $1 million a month, or 15 percent.

Mr. Sykes agreed that discounting, along with higher benefit costs, drove profit gains down.

Mr. Funderburg said other major supermarket chains have also struggled as the economy held prices and profits down. "Nobody is really reporting bang-up numbers," he said.

Vons Cos., Southern California's biggest grocery chain, said second-quarter profits fell 75 percent as price cuts failed to prevent a 3.2 percent same-store sales drop. American Stores Co. said its quarterly profits rose 15 percent, but sales were up only 0.3 percent. Winn-Dixie Corp. said its earnings fell 20 percent in the quarter that ended in June.

Locally, Mr. Funderburg said Giant has held its market share over the last year in Baltimore and Washington. The only major change in the Baltimore picture has been the continued gains of Super Rite Foods Inc., the Harrisburg, Pa.-based owner of Metro Food Market, at the expense of smaller competitors. Super Rite has the second-biggest local market share at 9.5 percent, according to a survey by Food World, a Columbia-based trade paper.

Giant Food Inc. .. .. .. .. .. .. Ticker .. .. .. .Yesterday's

Landover .. ... .. .. .. .. .. .. Symbol .. .. .. Cls... .. Chg.

.. .. .. .. .. .. .. .. .. .. ... GFS/A .. .. ... 21 1/8 .. ... + 3/8

Period ended

8/13/94 .. .. .. .. .. .. .. .. . 2nd qtr. .. . Year ago . Chg.

Revenue .. .. .. .. .. .. .. .. $826,400 .. . $795,841 . .+3.8%

Net Income .. .. .. .. .. .. .. . $14,671 .. .. $14,604 . +0.5%

Primary EPS .. .. .. .. .. .. ... . $0.25 .. .. . $0.24 . +4.2%

.. .. .. .. .. .. .. .. .. .. .. 6 mos. .. ... Year ago . Chg.

Revenue .. .. .. .. .. .. .. .. . $1,656,097 . $1,609,307 +2.9%

Net Income .. .. .. .. .. .. .. ... $35,085 .. $41,212* ..-14.9%

Primary EPS .. .. .. .. .. .. ... . $0.59 .. ..$0.69* .. .-14.5%

* Includes gain of $4 million, or 7 cents a share, stemming from an accounting change.

Figures in thousands (except per share data.)

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