Management's discussion analysis
(52 1
weeks) 1
Giant-Carlisle/Tops Arena results
Net sales
Operating income
The following table sets forth information relating to
operating income for the Stop Shop/Giant-Landover Arena
in 2005 and 2004:
2005
2004
In millions, except
percentages
Change
(53
weeks)
Net sales in EUR
13,161
1.6
12,949
Net sales in USD
16,346
1.5
16,105
Operating income in EUR
708
2.5
691
Operating income in USD
882
2.6
860
Operating income in USD
as a percentage of net sales
5.4%
5.3%
Change in gross profit
margin
(0.7)
Change in operating
expenses as a percentage
of net sales
0.8
Competitive pressure from new store openings and
increased promotional activity resulted in a decrease in
the gross profit margin in 2005. In addition, increased
costs for perishable products, which were not fully passed
on to customers, had a negative impact on gross profit
margin in 2005. The arena was able to partially offset the
impact of the increased promotional activities on the
gross profit margin by reducing the cost of goods sold
primarily as a result of vendor negotiations. The decrease
in gross profit margin at Stop Shop was greater than the
decrease at Giant-Landover.
Operating income increased in 2005 compared to 2004.
However, excluding the impact of the USD 24 million
restructuring charge in 2005 relating to the restructuring
of the Giant-Landover supply chain, the conversion of
eight Super-G stores to the Stop Shop banner and the
closing of four Super-G stores, as well as the increased
insurance loss reserve totaling USD 45 million in 2004
and the USD 54 million integration expense in 2004,
operating income decreased in 2005.
Operating income in 2005 was negatively impacted by an
increase in energy prices compared to 2004.
Operating income was negatively impacted by non-current
asset impairment of USD 10 million in 2005 compared
to USD 48 million in 2004. In 2005, the arena recorded
a USD 9 million real estate gain, compared to a
USD 2 million gain in 2004, offset by a USD 9 million
loss related to a lease termination in 2005.
The arena's capital expenses for store development were
lower in 2005 compared to 2004. The arena's capital
expenses in 2006 are expected to remain comparable to
2005. Giant-Landover plans to replace or remodel
18 stores as part of its store upgrade program over the
next two years. In addition, health care costs are expected
to increase in 2006.
The following table sets forth net sales, store counts and
sales area information for the Giant-Carlisle/Tops Arena in
2005 and 2004:
2005
2004
In millions, except
percentages, store count
and sales area
(52
weeks)
Change
(53
weeks)
Net sales in EUR
4,989
(4.2)
5,209
Net sales in USD
6,201
(4.3)
6,480
Change in identical sales 1
(0.3)
Giant-Carlisle
3.6
Tops
(4.7)
Change in comparable
sales 2
Giant-Carlisle
Tops
Company-operated stores 3
Franchise stores 3
New stores
Replacement stores
Remodeled stores
Closed stores
Sales area in thousands of
square feet 3, 5
Net sales as a percentage
of consolidated net sales
0.8
5.1
(3.9)
262
5
4
6
10
220 4
9,788
11.2%
477
6
5
2
13
3
10,414
11.7%
1 The identical sales in 2005 are compared to 2004 identical sales (52 weeks in
2005 and 52 weeks in 2004).
2 The comparable sales in 2005 are compared to 2004 comparable sales (52 weeks
in 2005 and 52 weeks in 2004).
3 At year-end.
4 This includes the divested 198 Wilson Farms and SugarCreek convenience stores.
5 The sales area in thousands of square meters in 2005 and 2004 was 909 and
968, respectively.
The decrease in net sales in U.S. dollars in 2005 for the
arena was largely attributable to the divestment of 198
Wilson Farms and SugarCreek convenience stores in the
second quarter of 2005. Net sales in 2005 were also
negatively affected by the inclusion of the additional week
in 2004. Excluding week 53 of 2004 and the divested
convenience stores, net sales increased by 0.5%. Tops
continued its portfolio rationalization program in order to
focus on its core business to improve long-term success.
As a result nine northeast Ohio supermarkets were closed
68
