A group of Lehman's retail analysts met with Eric Claus, A&P's new chief executive officer as of late last year, and toured the company's new Fresh Store concept in Midland Park, NJ. The prototype has expanded offerings in perishable and prepared foods as well as upscale non-food products than other A&P stores, the report notes.

A&P management told Lehman that it could remodel 140 of its 400 units into Fresh Stores within the next two years, up from the four it has currently revamped. Stores in higher-income areas will take precedence the portfolio's remodel.

Another chain that management focused on in the meeting was the 11-unit Food Basics USA. Next month the company is opening a new prototype in Glassboro, NJ for that chain, which has so far underperformed, A&P management told Lehman analysts. The new stores, 24 of which are planned to open this year, will have about one-third of the products found in a conventional supermarket and focus on private-label brands and local ethnic offerings.

Some A&P stores will be converted in Food Basics, which will average 35,000 sf, and executives are reportedly in discussions with TJX Cos. and other retailers to lease the remaining space. A&P may also convert 60 closed stores in its portfolio to Food Basics, the report says.

In Manhattan, A&P is will open two to three new gourmet-concept stores and plans to add elements of the new chain to it existing Food Emporium stores in the borough. The company currently operates 33 Food Emporiums in New York and New Jersey.

But even with all of these improvements, the Lehman report stresses that the company's financial turnaround will not happen over night. During the firm's third quarter, which ended Dec. 3, it lost $71 million and sales were $1.58 billion, down from $1.67 billion during the same year-ago period.