Pathmark says board exploring co. sale

NEW YORK -- Regional supermarket chain Pathmark Stores Inc. on Thursday said its board hired an adviser to explore a possible sale of the company, the same day it posted its third quarterly loss this year.

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Pathmark, in its third-quarter earnings report, said it retained investment bank Dresdner Kleinwort Wasserstein to help review "strategic alternatives" for the company, which could result in a decision to sell its operations. That choice, however, has not yet been made, the store said.

But a report earlier this week said private equity groups so far have expressed only mild interest in scooping up Pathmark, which has received "a few" early offers despite its stronghold on the densely populated New York metropolitan area. Four major funds focused on supermarkets have decided not to bid, according to research firm J.M. Dutton & Associates.

Instead, Carteret, N.J.-based Pathmark is more attractive to a strategic buyer as opposed to a financial investor because its store locations are more suitable for their current use than other retailing formats, J.M. Dutton analyst Jonathan Ziegler wrote in a recent research note.

"All along I've speculated that this is a great acquisition for other operators in the market," Ziegler told the Associated Press.

Pathmark's 142 stores generate some of the industry's highest sales volume per square foot and dominate in most markets they serve in New York, New Jersey and the Philadelphia area. While the supermarket enjoys some immunity from Wal-Mart Stores Inc.'s supercenter format -- each store requires a massive land parcel not easily found in the region -- other local grocers have been expanding and eating up Pathmark's share.

Ziegler said Pathmark could lure suitors not only with its valuable real estate, but also because its stock -- once trading at the $25 level -- gives the company a discounted price tag. In afternoon trading, Pathmark jumped 7.9 percent, or 44 cents, to $6 on more than four times its average daily trading volume on the Nasdaq.

"Pathmark shares, if you exclude the debt, could almost be bought with petty cash," he said. "The stock is fairly inexpensive."

The analyst added that even if management does not sell the company, Pathmark would still be able to weather the tough retail environment and keep its stores open.

"I know Kmart and Sears are merging because they feel they have the 800-pound gorilla out there," Ziegler said, referring to competition with retail giant Wal-Mart, which now rivals players in a number of industries, including food. "... With Pathmark's real-estate positioning in the dense New York-New Jersey markets, it could stand on its own. So it's a win-win situation."

Despite posting a string of losses in recent quarters, Pathmark's stores remain healthy, although sales haven't budged since more than doubling in the 2002 fiscal year. The company said it has taken steps to improve its "business trend," such as implementing cost-control initiatives and adjusting its spending on advertising.

Sales in the latest quarter ended Oct. 30 were $979.9 million, up slightly from $978.5 million a year earlier, as sales at stores open at least a year declined 0.5 percent.

The company on Thursday said its third-quarter loss widened to $3.6 million, or 12 cents per share, from a loss of $200,000, or 1 cent, a year ago. Excluding an interest charge of 2 cents per share from the early extinguishment of a credit agreement, its loss would have been $2.8 million, or 10 cents per share.

Pathmark said it is on track to reach its current forecast for a full-year loss of 13 cents to 25 cents per share, with same-store sales coming in flat to a decrease of 1 percent. Earnings were 66 cents per share on sales of $3.99 billion in 2003.

The store, however, would not provide a 2005 estimate because of "uncertainty in the market outlook and a lack of visibility on the long-term impact of its initiatives." Three analysts surveyed by Thomson First Call currently see a 2005 loss of 2 cents per share.