Giant Food's earnings down from a year ago Chain challenged by strike, competitors


September 05, 1997|By Liz Bowie | Liz Bowie,SUN STAFF

A humbled Pete Manos stood before Giant Food Inc. shareholders yesterday to explain the company's rough past year -- a year that saw the company face a strike, encroaching competition and an unexpected drop in earnings.

The chairman and chief executive called it "the most challenging year I have experienced in our organization's history." Also, he didn't give much hope that his job would get easier.

A year ago, Manos had reported that the Landover-based supermarket chain was the unchallenged market leader in the Baltimore-Washington region. For the most recent 12-week period at that time, it had posted a 30.4 percent earnings increase over the year before.

But a year later, the company's financial results are far different. A five-week Teamsters strike triggered three consecutive quarters of lower earnings; net income plunged 67 percent to 13 cents a share -- half what analysts expected -- in its latest period ended Aug. 9. And rumors circulated that J. Sainsbury PLC, a British company that owns 20 percent of Giant, might be ready to sell out to a Dutch grocery store company.

Even with the less than stellar results, Giant is still the dominant -- chain in the region and Manos reported it is moving quickly to try to keep that position. The company says its drop in earnings is the result of a strategy to boost its lagging sales growth by luring customers in with big sales items.

The strategy is working, Manos said. Sales in its latest quarter were up 6.9 percent, the best percentage increase of the past five years. Sales in stores open at least a year -- a key indicator of a retailer's financial health -- were up 2.44 percent, the best in five years except for two quarters during which snowfalls helped bring more customers into stores.

Manos also announced the chain is close to an agreement with a local bank, which he did not identify, to put small offices in Giant supermarkets in Baltimore and Washington, an innovation that has appeared in some competitors' stores.

And in July, the company began testing the latest in grocery store shopping: meals that customers can take home and warm up -- a refinement of grocery chains' expanding lines of rotisserie chicken and other ready-to-eat foods aimed at competing with carry-out restaurants such as Boston Market.

Giant, however, faces another year of an uncertain labor relations with 1,000 warehouse workers, members of Teamsters Local 730. Their contract is set to expire in November and many of them were alienated when they were laid off during the five-week Teamster truck driver strike in December and early January.

But perhaps the more difficult problems will come for the company as both low-cost chains such as Food Lion and high-end chains like U Krops and Harris Teeter begin moving in from the south.

In Baltimore, Giant faces a growing challenge from Metro Food Markets, which plans significantly expansion in the next 2 years. Safeway, too, appears ready to put more pressure in Baltimore.

"I would be delighted to tell you that the weeks and months ahead will be easy ones for Giant," Manos said. "Despite our obvious strengths and plans for improvement, they will not be easy. Every location presents tough competition."

At the same time, Manos reported that Giant's own push into the Philadelphia area has not gone as well as hoped. "Quite frankly, the growth curve for these stores was generally somewhat slower than we desire," he said.

With the future difficult, David Sainsbury, chairman of J. Sainsbury PLC and a member of Giant's board, was asked whether the company was interested in expanding its role or selling its stake.

"We are extremely pleased with our working relationship with Giant and we expect that to continue," he said, adding later in interviews with reporters that "we are very interested in American expansion."

Giant also announced yesterday that it had reached into a regional specialty food chain to hire a new chief financial officer.

Mark H. Berey, formerly president, chief executive officer and chairman of Bethesda-based Sutton Place Gourmet, was named Giant senior vice president and treasurer as well as CFO.

Berey replaced David B. Sykes, who retired from Giant last year after 41 years with the company.

Giant A shares closed yesterday at $32.50, up 44 cents.

Pub Date: 9/05/97

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