Earnings Preview: Great Atlantic & Pacific Tea Co.

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May 2, 2008

NEW YORK—Great Atlantic & Pacific Tea Co. Inc. reports earnings for the fiscal fourth quarter on Monday. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Grocer Great Atlantic & Pacific, the parent company of A&P supermarkets, spent much of the quarter integrating its operations with Pathmark Stores Inc., which it bought for $665 million. The deal closed at the start of the fourth quarter after antitrust regulators cleared the way for the deal.

The combined company has about 450 stores in the Northeast with sales of $9.4 billion. A&P operates stores under the A&P, Super Fresh, Food Emporium and Waldbaum's names.

To help repay debt related to the acquisition, A&P offered $380 million in senior convertible notes in December.

A&P said it will use the proceeds to pay back debt under a bridge loan agreement used to fund part of its Pathmark acquisition and to pay the cost of convertible hedge transactions related to the offering.

Like other grocers, A&P also dealt with far higher commodity costs in the quarter. Supermarket chains have all been raising prices to offset the higher cost of commodities such as dairy and grain.

BY THE NUMBERS: A&P has not offered any guidance for the quarter. Analysts polled by Thomson Financial expect a loss of 65 cents per share on revenue of $2.19 billion.

ANALYST TAKE: Lehman Brothers analyst Karen Howland said in a note to investors the integration of the Pathmark stores into A&P has gone smoothly so far.

Howland added that in the fourth quarter, she expects the company to report a rise in same-store sales, or sales open at least a year, of 3.2 percent at A&P. She added that Pathmark same-store sales will likely be flat for the quarter.

Same-store sales is a key indicator of retailer performance because it measures growth at existing stores rather than newly opened ones.

WHATS AHEAD: Analysts and investors will be watching to see how consumers handle higher retail prices on grocers' shelves and whether they "trade down" to lower-priced products. Wall Street will also be determining the success of A&P's Pathmark integration as the year continues.

STOCK PERFORMANCE: Shares fell 10 percent in the quarter and have dropped 11 percent in the past 52 weeks.