Taking Stock

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‘Round The Trade

Since it acquired Safeway in early 2015, Albertsons has struggled to produce positive identical store sales while also showing some significant operating losses over that period. That trend seems to be reversing itself as the Boise, ID-based merchant turned in its best financial performance in more than three years. For the quarter ended February 24, the big chain retailer whose annual revenue reached $59.68 billion posted an ID sales gain of 0.6 percent. Net income was $388.8 million, a significant improvement over the $34.6 million it earned in the fourth period in fiscal 2016’s fourth period. And while the company acknowledged that its results were aided by a $373 million income tax benefit and strong fuel sales, chief executive Bob Miller pointed to some positive trend lines. “We are very encouraged by the trends in our business as we returned to positive identical-store sales and saw operating income and adjusted EBITDA improvements during the fourth quarter. We expect to continue the positive momentum into fiscal 2018 with identical-store sales growth, as we continue to build and expand our digital offerings to enhance loyalty in store and online, including the recent announcement of a new digital marketplace, which is being launched to expand selection for our customers later this year,” noted the veteran grocery executive. This will be a very important year for the company, which last month named Jim Donald (in a return engagement) as its new president and COO. The retailer is projecting ID sales growth of 1.5-2 percent, operating income gains of $280 to $320 million and adjusted EBITDA of $2.7 billion. About $1.2 billion in cap-ex is slated to be allocated. And then there’s the big deal to consider – its Rite Aid merger. Miller stated in an SEC 8-K filing, “We are also looking forward to our merger with Rite Aid, which will create a leader in food, health and wellness, with excellent presence on the West Coast and a strong position in the Northeast. We will be uniquely positioned to serve our customers’ needs. We expect to realize significant synergies, both increasing revenues and reducing our costs, that in turn should improve shareholder returns and enable us to reduce debt and enhance financial flexibility.” In reporting their fiscal 2018 results on Thursday, Rite Aid executives underscored the opportunities offered by the proposed merger with Albertsons, which would become a public company under the $24 billion deal, announced in February. On March 28, the company was given Hart-Scott-Rodino clearance and now hopes for an early closing in the second half of this year. One more note on Miller’s reference to his company’s new digital marketplace: this new ecommerce initiative will allow vendors to sell directly to Albertsons’ consumers which gives the retailer greater exposure to more specialized items and will provide potential useful (and confidential) data about specific products and trends in the many markets where the chain operates. Albertsons would reap a commission for those items sold and suppliers would then ship products directly to those consumers who utilized that portal on the retailer’s website…according to several published sources, Supervalu, which has been under pressure by a minority (4.3 percent equity) activist investor Blackwells Capital since late last year, is reportedly working with an investment advisor to explore a potential sale. Smells like CEO Gross and the SVU board are doing the right thing by following normal protocol, but I expect nothing to come of it, even if it ultimately leads to a proxy fight. Seriously, where is Supervalu going? Who’s going to buy them? And given the mess that the former C&S executive inherited, what would one do differently?…and about a year after Albertsons announced it was going to take over the partially mechanized distribution center that ABS and SVU co-occupied (but was owned by Albertsons) in Denver, PA, which forced Supervalu to find a new DC in the Mid-Atlantic area (in Harrisburg, PA), details about that new depot have finally been released. The facility will be 750,000 square feet in size and SVU will invest approximately $69 million in the project. The wholesaler also expects to add at least 350 jobs over the next three years. The warehouse is expected to open in the next few months…encouraging news for our friend Anthony Hucker, CEO of Southeastern Grocers (SEG). While filing Chapter 11 is never anyone’s first option, in this case it was the only shot at survival for the beleaguered chain had. The prepackaged plan certainly creates some pain (94 stores will be closed providing more opportunity for market leaders Publix and Walmart to gain share) but will allow SEG to remove $500 million of debt from its balance sheet debt (thanks to parent Lone Star Funds) while also significantly reducing its selling, general and administrative costs. Furthermore, the agreement calls for no impairment to all creditors, meaning that all vendors will be paid in full. And if you were wondering six weeks ago whether the financial community would subsidize yet another Chapter 11 filing from the Lone Star clown show, SEG received a full bank commitment to back the plan. Good luck, Mr. Hucker!…Instacart, the hottest grocery-related company other than one named amazon.com, is really on a money-raising roll. The San Francisco-based grocery delivery service recently raised another $150 million in new investment funding, bringing their total to $350 million since the first of the year. Instacart’s recent success has lifted its market valuation at above $4 billion…if you can’t beat ‘em – I guess that’s the way troubled meal kit provider Blue Apron feels. After falling below its initial IPO financial projection last summer and then seeing its stock price tumble to a current level of about $2 per share, the Manhattan-based start-up will attempt to sell its somewhat pricey meal kits through the supermarket channel. Might have been a great idea two years ago, but with Albertsons acquiring Plated last year, Walmart about to launch its own meal kit program chain-wide later this year and other smaller retailers seeing meal kits as a new sales driver which they can assemble and control themselves, where’s the fit for Blue Apron? And I’m not even talking about competition from within the digitally-driven meal kit space which includes Hello Fresh, Sun Basket, Home Bistro and Home Chef. Do I visualize a “for sale” tag on display in the near future?