The Great Atlantic & Pacific Tea Company, Inc. (GAP)
F1Q10 (Qtr End 06/19/2010) Earnings Call
July 23, 2010, 11:00 am ET
Krystyna Lack - VP, Treasury Services
Christian Haub - Executive Chairman of the Board
Brenda Galgano - SVP, CFO and Treasurer
Karen Short - BMO Capital
Bryan Hunt - Wells Fargo Securities
Susan Anderson - Citi
Carla Casella - JPMorgan
Colleen Burns - Oppenheimer
Mark Williams - Janney Montgomery Scott
Doug Thomas - JET Investment Research
Previous Statements by GAP
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Good morning and welcome to the Great Atlantic and Pacific Tea Company's conference call. (Operator Instructions) For your information, a webcast is available on A&P's website at www.aptea.com.
Chairing today's call will be Christian Haub, Executive Chairman. Also participating on today's call will be Brenda Galgano, Senior Vice President, Chief Financial Officer and Treasurer.
I would now like to introduce Krystyna Lack, Vice President of Treasury Services, who will read A&P's Safe Harbor disclaimer.
Thank you and good morning. Today's presentation may contain forward-looking statements about the future performance of company and is based on management's assumptions and beliefs in light of information currently available. The company assumes no obligation to update this information.
The risks and uncertainties related to such statements are detailed in our SEC filings which are available on A&P's website.
I will now turn the call over to our Executive Chairman, Christian Haub.
Thank you, Krystyna. Hello everyone and welcome to our first quarter conference call. With me today is Brenda Galgano, our CFO.
This morning I'll discuss our new leadership, review the main elements of our comprehensive turnaround strategy and briefly summarize some key developments during the quarter. Brenda will then cover the first quarter results in detail and discuss our financial position and financing activities. And before we take your questions, I will provide a brief summary. Let me begin with the management change.
The Board and I worked very closely over the last several months with our major shareholders to develop a comprehensive turnaround strategy for A&P. As we move to the implementation and execution stage of the turnaround, Ron Burkle and I in conjunction with the Board determined that the company needed a leader at the helm with the skill set that Sam Martin brings to the company.
I am pleased that Sam has agreed to join the company as our President and CEO. Sam is a proven talented executive who has successfully executed operational and revenue-driven turnarounds like this one before. He has a vast array of management experience that encompasses operations, supply chain and merchandizing. These experiences will be extremely valuable to the company.
We are confident that Sam will quickly and successfully implement our turnaround. I'm sure that you will be hearing more from Sam in the upcoming weeks and months.
We are clearly disappointed with our first quarter results, but we are confident that we now have the right leadership in place to drive our comprehensive operational and revenue-driven turnaround to enhance the company's competitive position.
The turnaround is designed to generate sustained profitability and cash flow, drive sales growth, restore competitive margins to the business and strengthen the foundation of the company for the long term.
The four key elements of the turnaround effort are: Now, that we have made our pricing competitive again, we will continue to improve our customer value proposition through more effective merchandizing. We will enhance our customer shopping experience and drive clear brand identity across the key formats.
We will lower structural and operating costs significantly, and we will implement new financing initiatives that augment our first quarter liquidity position of $253 million to address future maturities and the need of our business.
We are putting in place a number of major initiatives to achieve these goals and to make A&P a great company again.
Sam has recently spent time looking at our operations and visiting our stores. He has reviewed our turnaround strategy and strongly agrees with the approach we are taking. As we execute on the turnaround, we expect that he will bring additional valuable insights that enable us to further enhance the customer shopping experience and improve our value proposition and strengthen our merchandizing operations.
As we move forward over coming weeks and months, we will provide an update on our planned progress to all our stakeholders.
And finally, Tengelmann and Yucaipa endorse our strategy and have been and will remain actively involved in our efforts to improve the company's performance. I appreciate their involvement and I'm encouraged by their continued belief in the long-term value of their investment in A&P.
Before talking about our outlook for the remainder of the year and turning the call over to Brenda to review our financials, I'll briefly summarize the first quarter from my perspective.
The 7% decline in first quarter ID sales was below our expectations and was driven primarily by a decline in customer count. Although deflation has mitigated, we don't see signs of any meaningful inflation. Our gross margin decline during the quarter was all driven by the pricing investments we made in our legacy A&P business as well as in Pathmark. Adjusted EBITDA was $19 million, down from $81 million in the year-ago period, reflecting lower sales and our pricing investments.
However, aside from the numbers, I believe we did make some progress over the quarter. The new lower price project in A&P has been fully implemented in all key center store categories. We're seeing some very positive results and we're fine-tuning the program to increase its effectiveness. The next phase of the lower price project has been now launched in the perishable departments.