Atlantic & Pacific Tea Co may file for bankruptcy
NEW YORK: Great Atlantic & Pacific Tea Co., the once-dominant grocery-store chain founded in 1859, may file for bankruptcy in the coming days to restructure debt, two people with knowledge of the matter said.
The shares fell $1.90, or 67 percent, to 93 cents at 1:24 p.m. in New York Stock Exchange trading, the biggest drop in at least three decades, before trading was halted.
A filing to reorganize under court protection may come as soon as this weekend, said the people, who declined to be identified because the matter is private. A&P hired law firm Kirkland & Ellis LLP to represent it in negotiations with creditors and in any Chapter 11 proceeding, the people said.
Lauren La Bruno, an A&P spokeswoman, didn't return an e-mail and a call seeking comment.
A&P's largest shareholder is Tengelmann Group, which operates a chain of German supermarkets and other stores. As of Oct. 22, the Muehlheimbased company held almost 40 percent of A&P's outstanding shares. Tengelmann is familycontrolled and has had an A&P stake since 1979.
Montvale, New Jerseybased A&P has struggled to cope with mounting competition from discounters such as Target Corp. and Wal-Mart Stores Inc., which are offering more fresh food to attract customers. A&P, which operated almost 16,000 stores in the 1930s, now runs about 400 locations under its namesake banner and others including Waldbaum's, SuperFresh and Food Emporium. In 2007, it bought the Pathmark Stores supermarket chain for $678 million.
A&P has lagged behind rivals on fresh food and presentation, said Jim Hertel, a managing partner at Willard Bishop Consulting, a Barrington, Illinois-based firm which advises retailers and suppliers. A&P also has been hamstrung by a heavily unionized workforce, he said.
A&P's labor costs mean the company has less flexibility to invest in other parts of the store, Hertel said today in a telephone interview.
The grocer in October said sales in the quarter ended Sept. 11 fell 7.1 percent to $1.9 billion and its net loss almost doubled to $153.7 million in that period. A&P had $94 million in cash and short-term investments as of Sept. 11, a 63 percent decline from $252 million as of the end of February.
Egan-Jones Ratings Company today lowered the company's credit rating to C from CC.
The company had about $1.5 billion in net debt as of September. It had an $876 million net loss on $8.8 billion in 2009 sales, its third straight annual shortfall.
A&P "may be illiquid at some point in the near term," Standard & Poor's said in July, issuing a downgrade of the company's corporate credit rating to CCC.
Chief Executive Officer Sam Martin was hired in July to help lead a turnaround, replacing Ron Marshall, who had held the job for about six months. Martin said then that A&P was examining its business in an effort to improve results.
The company announced a $89.8 million sale-leaseback of six stores last month. In August, A&P said it will close 25 stores in five states as part of its turnaround plan.
The Great American Tea Co. began as a store on Vesey Street in lower Manhattan, selling coffee, tea and spices and dispatching salesmen in horse-drawn carriages through New England, the Midwest and South, according to the company's website. The grocer renamed itself The Great Atlantic & Pacific Tea Co. in 1869. Once a national chain, A&P now operates its stores only in the northeastern and mid-Atlantic regions of the U.S. Moreover, TJX Cos. plans to cut 4,400 jobs as it converts 91 A.J. Wright stores into T.J. Maxx, Marshalls or HomeGoods stores and closes the brand's remaining 71 locations.
The goal is to concentrate management and financial resources on larger, more profitable businesses, the Framingham, Massachusettsbased discount retailer said today in a statement. Almost half of the positions to be eliminated are part-time.
TJX anticipates that all 162 A.J. Wright stores, concentrated in the northeastern U.S., will be shut by midFebruary, at a cost of about $150 million to $170 million, including asset impairment and severance expenses. The company said it expects that converting the 91 stores will take about eight weeks after the Wright closing.
T.J. Maxx and Marshalls attracted moderate-income shoppers during the recession, giving TJX confidence that those two chains can win sales from consumers who shopped at A.J. Wright, Chief Executive Officer Carol Meyrowitz told analysts today on a conference call.
"Management may want to focus its energy on the core businesses and Europe, and viewed A.J. Wright as a distraction," Howard Tubin, an RBC Capital Markets analyst in New York, wrote today in a note to clients. He rates TJX as "outperform."
The shares rose 7 cents to $45.03 at 12:58 p.m. in New York Stock Exchange composite trading. The stock had gained 23 percent this year before today.
TJX is shutting A.J. Wright 12 years after starting the chain to attract consumers less affluent than its T.J. Maxx and Marshalls shoppers. The brand generated sales of $779.8 million in the year that ended in January. The company is closing the Wright distribution centers in Indiana and Massachusetts.
The unit that operates T.J. Maxx and Marshalls locations has the potential for 2,300 to 2,400 stores, 300 to 400 more than TJX previously estimated, Meyrowitz said in today's statement.
The Marmaxx division operated 1,751 stores in U.S. as of Oct. 30, including 919 T.J. Maxx and 832 Marshalls venues, according to a Nov. 16 statement. -Bloomberg