FRAMINGHAM (03/17/2000) - The Great Atlantic & Pacific Tea Co.'s announcement of a planned $250 million systems overhaul sent the supermarket chain's stock rating into a tailspin this week.
The overhaul, spaced over four years, will cut fiscal 2000 profits by as much as $1.50 per share, from the $3-per-share profit the Montvale, N.J.-based supermarket chain had previously projected.
A&P looks to the overhaul as an opportunity to "transform our core business processes, provide Internet-based e-business capability" and use store-specific data to tailor purchasing, A&P President and CEO Christian Haub said in a prepared statement. A&P executives couldn't be reached by phone.
The systems upgrade should lower operating costs and improve product availability by $325 million over the implementation period, he said.
But Lehman Brothers, a New York investment company, estimated that the systems upgrade would lower A&P's fiscal 2000 earnings by closer to $2 per share and cut A&P's stock rating from neutral to buy.
"By making these investments," Lehman financial analyst Meredith Adler said of the planned systems overhaul, A&P managers "are taking value away from shareholders."
The chainwide information technology implementation replaces a "hodgepodge of systems cobbled together over 20 years," said John Goedert, a senior vice president at Retek Inc., which is providing software for the project.
"A&P wants to move quickly into (creating and using an online) exchange and business-to-business initiative," he said.
Minneapolis-based Retek will deliver retail merchandising software, including supermarket-specific software, to individualize store offerings, and IBM will contribute hardware and professional services, Goedert said.
The IT overhaul is just the latest move in A&P's campaign to revitalize the troubled chain, which includes A&P, Food Emporium and SuperFresh stores, said Marvin Roffman, president of financial management company Roffman Miller Associates in Philadelphia.
Since 1998, A&P has sold off more than 100 "underperforming" stores and last month reorganized management into regional divisions.
But the turnaround has been slower than hoped for, Adler said. Against growing competition fueled by an aggressive rate of chain consolidation, A&P must find a global partner in order to survive, she said.
When A&P finds that partner, it will have to convert to that partner's systems, rendering the planned "risky" investment redundant, Adler said.
But increased efficiencies resulting from the overhaul could ultimately make A&P more attractive to potential partners, Roffman said.