Taking Stock

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‘Round The Trade

It hasn’t been a great month for UNFI which suffered an $18.8 million operating loss in its first quarter. And the financial community, which was not smitten by the company’s acquisition of Supervalu earlier this year, hasn’t helped to bolster UNFI’s image. On the day prior to the purchase announcement (July 25), UNFI was trading at $41.18 per share; on December 13, the stock price had nosedived to almost a 15-year low of $10.17 per share (it was also announced that UNFI would be shifting its trading platform from NASDAQ to the New York Stock Exchange on January 2). Obviously, analysts fear the significant debt that UNFI inherited with the deal and they question the Providence, RI-based distributor’s ability to shift from a natural/organic and specialty distributor to a full-service wholesaler, and a troubled one at that. UNFI is also making further progress on selling its corporate retail stores. Coborn’s Inc., St. Cloud, MN, a current UNFI customer and owner of 114 retail stores (including 53 supermarkets), acquired eight of the nine Hornbacher’s stores (including one under construction) in North Dakota and Minnesota. And we expect to hear something early next year about several new buyers of UNFI’s Shoppers Food & Pharmacy units since final bids were submitted by interested parties last month. Expect Giant/Landover, Safeway, Harris Teeter and a few independents to be in the mix…C&S Wholesale, which slugged it out with UNFI in a bidding war to acquire Supervalu, made an acquisition of its own earlier this month when it agreed to buy Olean Wholesale Grocers, a co-op based in that Western New York berg. Olean currently services more than 270 independents and c-stores and operates a 380,000 square foot DC. C&S will also continue to supply Best Markets stores, even after Lidl officially acquires the Long Island based family-owned merchant. That’s quite a coup for the Keene, NH wholesaler because Lidl currently operates three under-utilized warehouses of its own. Once the conversions to Lidl’s operating model are completed next year, expect the product mix to change radically…it looks like Campbell’s and hedge fund bully Dan Loeb (Third Point LLC) have settled their differences. No, there won’t be an overthrow of the board and Campbell’s won’t be selling to Kraft/Heinz. Instead, Third Point will get two board seats – Kurt Schmidt, former Blue Buffalo CEO, and Sarah Hofstetter, president of Comscore – which will expand Campbell’s board to 14 members. Meanwhile, the Camden, NJ-based soupmaker continues its search for a new CEO to replace Denise Morrison, who left the company in May…according to both Bloomberg and the New York Post (still the greatest headline writers in the rag biz), FreshDirect has hit a rough patch after experiencing start-up issues with its new 400,000 square foot fulfillment center in the Bronx and heightened competition from other online delivery merchants including Amazon, Instacart, Peapod and jet.com. Co-founder and former CEO Jason Ackerman left the company a few months ago to be replaced by David McInerney, another co-founder of the 19-year old firm. FreshDirect not only serves Metro New York but has also expanded into the Delaware Valley and the Washington market in the last few years…apparently “Slow” Eddie Lampert hasn’t given up on reviving Sears, the iconic retailer he personally drove into ruins. According to published reports, Lampert wants to use $4.6 billion of his own money to resuscitate the bankrupt company. In more realistic news, the company will close an additional 40 stores by the end of the year and plans to offer 505 stores as a group to be sold next year – LOL! What’s not so funny is the reported initial legal bill that law firm Weil, Gotshal & Manges (WG&M) slapped on Sears – $5 million for 17 days of work ($1,600 per hour). Nice work if you can get. The same law firm is also advising Catalina, the St. Petersburg, FL-based marketer and checkout coupon provider, which filed for Chapter 11 bankruptcy protection on December 13. With a debt load of $1.9 billion and private equity ownership (Berkshire Partners and Hellman & Friedman), Catalina has been struggling for several years with financial and management issues. It is hoped that the elimination of $1.6 billion in debt will “enable us to accelerate investments in technology, advanced analytics, data science and talent to strengthen our core capabilities and enable date-driven solutions for our customers,” said CEO Jerry Sokol, who joined Catalina in October…in a surprise move, Amin Maredia, CEO of Sprouts Farmers Market, has resigned in the midst of one of most successful runs in the history of the Phoenix, AZ-based natural and organics retailers. Apparently, no hidden ball trick here – Maredia, who became chief exec in 2015, is leaving to pursue other interests. Jim Nielsen, Sprouts’ president and COO, and Brad Lukow, CFO, will take on co-CEO duties on an interim basis. Sprouts is ramping up its Mid-Atlantic expansion rapidly and its balance sheet remains very strong. In a not so surprising move, Instacart and Whole Foods will be divorcing. Instacart began providing home delivery to WFM in 2014 and currently services 76 Whole Foods stores, a number that has been declining since the organics merchants was acquired by Amazon in June 2017. As Amazon began expanding its own PrimeNow service to many of its nearly 475 stores, Instacart’s fate was sealed. And according to market research firm Hexa Research, online grocery sales are expected to reach nearly $27 billion by 2025. Current estimates peg online grocery sales at approximately $17 billion…Costco continued its record sales and earnings pace, posting a 10.3 percent sales increase in its first quarter ended November 25. Comp store revenue (ex-fuel) jumped an impressive 8.3 percent, in-store traffic increased 5.2 percent and its e-commerce sales rose 26.6 percent. Profits were also strong – a 19.8 percent gain to $767 million. Costco CFO Richard Galanti said that despite the strong numbers, other club operators and come supermarkets were impacting the Issaquah, WA-based merchant’s “fresh” margins. “Our competitors are working in a little lower margin there and we’re not going to let anybody take it away from us,” he explained. He added that he expects Costco to open 20-23 net new clubs (and four relocations) next year. That likely includes a new store in Harrison, NY (where Wegmans is also building a new unit) and possibly Cherry Hill, NJ (which also may open in 2020)…just before presstime, we learned that Anthony Hucker, former president of Giant/Landover and current CEO of Southeastern Grocers, has been awarded more than $4.5 million from another former employer, Schnuck’s Markets. Hucker sued the St. Louis-based regional chain after it fired him in October 2016 for what an arbitrator ruled was wrongful termination. As long as I’ve known the erudite Englishman, no matter the strengths of the headwinds that he faces, he always seems to be land on his feet – with a smile.