Pathmark Forecasts Sales Slide

"We renovated 10 stores during the first half of the year and are renovating another 10 this half," he says, adding, "each renovation costs approximately $1.5 million." Capital expenditures for the full year are approximately $105 million and include, in addition to the renovations, acquisition of the remaining 67% of a supermarket JV in Newark, NJ along with another store opening and $15.1 million in property acquired under capital leases. "There will be no store closings and no further store openings this year, and none was planned for second half," Gutman says.

On average, Pathmark renovates stores every five years, according to Gutman, who says, "that is more frequently than most in our industry." The renovations typically include "new cases, shelving, flooring, painting, and expansion of certain departments, such as organic food sections," he says.

Anticipated strong sales after Labor Day failed to materialize for the chain, which has 142 stores in New Jersey, New York, Pennsylvania and Delaware. According to the revised guidance, it now expects sales to be 1% lower or flat for fiscal 2004, compared with the previous year. That would result in a net loss of between 13 cents and 25 cents a share for the company, which trades on the Nasdaq under the call letters PTMK.

Pathmark now anticipates 2004 fiscal earnings before interest, taxes depreciation, and amortization to range between $140 million and $146 million, compared with an earlier anticipated level of between $154 million and $165 million. On October 1, the company obtained a new five-year $250-million senior secured credit facility that included $180 million in revolving credit and a $70-million term loan, which, according to Eileen Scott, CEO, lowered the company's borrowing costs.

In a statement issued with the revised guidance, Scott attributes the sales slide to "heightened competitive activity" along with increases in petroleum, which increased transportation expenses. She says, "We have adjusted our promotion and advertising programs to be better aligned with current sales expectations. In addition, we are evaluating a number of expense-reduction initiatives at both store and administrative levels. We also are reassessing our marketing strategy as well as our preliminary 2005 capital expenditure plan to ensure that they are in line with anticipated operating results." More details of 2005 plans will be reported when third-quarter financial results are reported on December 2.

At 12:45 p.m. today, Eastern time, following announcement of the revised guidance, PTMK stock was trading at $3.50 a share, down approximately 16% from $4.17 a share at the close of trading on Friday, Oct. 22.