S&P Says Pathmark Has Tough Climb

Discussion
Feb 01, 2005
George Anderson

By George Anderson


If you’re a stakeholder in Pathmark, it would be easy to get down after reading the latest evaluation of the company’s prospects by Standard & Poor’s.


According to the credit rating firm, Pathmark is struggling with debt, competing in a tough marketplace and its move to an EDLP format has failed to increase business while driving down margins.


About the only upside, according to S&P, is the fact that Pathmark operates in the densely populated New York and Philadelphia metropolitan areas. This means it has a large customer base as one of the top three chains in its markets and a lack of developable space cuts down on the supercenter factor.


A major concern of S&P is declining margins at the supermarket chain. According to the report, “Pathmark changed its pricing and marketing strategy in February 2004 to ‘everyday low pricing from ‘high-low.’ Management originally anticipated that increases in unit volume would offset lower prices and that the company would achieve breakeven in six to nine months. However, based on recent performance, it will take longer than anticipated to achieve this goal. Reflecting the impact of the strategy shift, operating margins have deteriorated, to 5.1% in the fiscal third quarter, down from 5.8% for the previous year.”


The report concludes: “A highly competitive operating environment, promotional pressures, and rising costs are expected to continue to challenge Pathmark’s operations. Ratings could be lowered if the company is unable to check the decline in its profitability.”


Moderator’s Comment: What will Pathmark need to do to increase profits and market share?
George Anderson – Moderator

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