Giant profit down 35% with discount strategy Push to rebuild sales results in $12 million net for third quarter

Food retailing

November 19, 1997|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

Its campaign to build sales and regain market share after a five-week Teamsters strike last winter continues to take a toll on Giant Food Inc., which reported yesterday that its third-quarter earnings fell 35 percent.

Net income for the 12 weeks that ended Nov. 1 was $12.2 million, compared with $18.9 million for the same period a year ago, and was the grocery chain's third consecutive quarter of lower income.

The impact of the campaign continues to be greater than analysts expected. Giant's per-share earnings were 20 cents, down from 32 cents last year and below a mean estimate of 24 cents.

"While the earnings announcement was disappointing, it nonetheless suggests to me they are on the road to recovery," said Kenneth M. Gassman, retail analyst with Davenport & Co. "But it's going to be slow" because stores in Pennsylvania, Delaware and New Jersey remain unprofitable and price promotions kept gross margins below those of last year's third quarter, he said.

Still, Giant officials said, their strategy was paying off.

"Most importantly, our trending over the last few quarters is up," in both sales and margins as compared with last quarter, said Mark Berey, Giant's chief financial officer. "We're in a mode of building profitability in the last couple of quarters, despite the fact that the numbers vs. a year ago are still lower."

Sales for the period rose 5.2 percent, to $943.9 million from $897 million during the third quarter of 1996. Sales at stores open at least a year increased 2.15 percent.

"That's telling us we're in a market-share building trend," Berey said.

Giant, the area's largest supermarket chain, had launched an aggressive campaign of broad-based sales to recoup market share lost during the strike, which the Landover-based company and its drivers settled in January.

The cost of such promotions -- half-price sales, no-clip coupon promotions and buy-one-get-one-free offers -- was reflected in Giant's second-quarter earnings, which fell 67 percent, Berey said.

Recently, the chain has tried to focus promotions more narrowly, targeting certain products.

"The result was that we didn't give away as much profit margin because those promotions were more targeted," Berey said.

For the nine months, net income was $34.8 million, or 58 cents a share, compared with $67.8 million, or $1.14 a share, in the same period of 1996. Sales were $2.8 billion, up from $2.7 billion a year earlier.

Giant anticipates an improved end of the year, partly because the company was able to negotiate a labor contract with its more than 1,000 warehouse workers during the third quarter, Berey said.

"We're going into the fourth quarter with labor peace and a bunch of good trends, up against a fourth quarter last year where we had a strike," he said.

Giant operates 173 supermarkets and three free-standing drugstores.

Pub Date: 11/19/97

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