THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Saturday, April 8, 1995 TAG: 9504080265
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY STEPHANIE STOUGHTON, STAFF WRITER
DATELINE: NORFOLK LENGTH: Medium: 55 lines
Farm Fresh Inc., the Norfolk-based supermarket chain, continues to cut its losses and boost cash flow - signs that this highly leveraged company could pose a bigger challenge than incoming competitors had anticipated.
Chief executive Michael E. Julian said he was ``extremely pleased'' with the results of the first quarter, which were announced Friday.
Investments in the company's Rack & Sack and Grocery Store divisions have finally paid off, Julian said.
Initially, the company had overestimated sales at Rack & Sack, the division of discount, warehouse-styled stores, he said. The Grocery Store supermarkets, introduced to the Richmond area in 1993, had to wrestle for market share with leader Ukrop's.
The quarterly performance is good news for Farm Fresh, and bad news perhaps for the new supermarket chains that will soon break into this market.
Hannaford Brothers Co. of Maine and Harris Teeter of North Carolina plan to open several grocery stores in Farm Fresh territory. Farmer Jack, a division of A&P, recently opened a supermarket in Virginia Beach and is looking for additional sites.
The newcomers smelled not only a region ripe for expansion but also the scent of a weakened giant. Privately, company officials have said that Farm Fresh's heavy debt load and steady losses played a role in their decision to open stores in the the Hampton Roads and Richmond markets.
But Julian, the head of Farm Fresh, has promised a fight over market share.
``Don't underestimate Mike Julian,'' said Kenneth M. Gassman, a retail analyst with the Richmond brokerage Davenport & Co. ``He is a pro in the industry. And he has shown that he can take a highlyleveraged company . . . and improve its results.''
Farm Fresh took on a pile of debt from its leveraged buyout by Citicorp Investments Inc. in the late '80s and its purchase of Safeway stores in Richmond in 1993.
The company, however, has begun to shrink its losses. In the first quarter ended March 25, Farm Fresh lost $3.7 million compared with a loss of $6.7 million during the same period in 1994.
Cash flow - earning before debt payments and related expenses - soared by 43 percent to $10 million in the three-month period from $7 million in the year-earlier quarter. Sales rose 6.2 percent to $208.2 million from $196 million.
Sales at stores opened a year or more - which is considered a good barometer of a retailer's performance - increased 3.2 percent in the quarter.
Farm Fresh has 65 stores in Virginia and northeastern North Carolina. by CNB