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Via Long Investment Ideas from Seeking Alpha:
The Great Atlantic & Pacific Tea Co.'s (GAP) acquisition of Pathmark last year further entrenched the company's position as the dominant grocer in the North East United States. GAP's flagship banner, "A&P", has been feeding families for over a century and is one of the most legendary grocery retailers in the New York, New Jersey and Philadelphia areas. Wall Street was expecting GAP's acquisition of Pathmark to produce positive results right out of the gate, but when 1st quarter results were released below expectations, investors ran for the exits as fast as they could, sending the shares down a whopping 33%. The sell-off was an overreaction according to Lehman Analyst Karen Howland: "the results were disappointing, but the negative reaction was overdone". The Pathmark deal: Management is expecting to reap $150 million in annual synergies. The integration of the two companies is already ahead of schedule. Pathmark's focus is low prices, so today's tough economic environment should attract more price conscious consumers. GAP's gross profit margin dipped 66 basis points from 30.87% to 30.21% due to Pathmark's lower margin business model. SG&A costs improved from 31.36% to 29.65%, while same store sales increased a respectable 3.2%
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