Taking Stock

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‘Round The Trade

Albertsons is making progress in its effort to grow sales and reduce its giant debt load. The Boise, ID-merchant, the nation’s second largest pure-play supermarket chain, saw overall sales increase 1.8 percent in its recently ended third quarter. Earnings also bounced back from the previous period’s $32.4 million loss; this quarter’s profit was $45.6 million, ID sales grew 1.9 percent and Albertsons’ e-commerce business grew 73 percent year-over-year. Late last year Albertsons refinanced its primary term loan and paid off some debt. Additionally, it raised $600 million through the sale and subsequent leaseback of five distribution centers.

“We continue to gain traction in our efforts to deliver a seamless shopping experience for our customers in both the four-wall and no-wall environment. The third quarter marked our strongest identical-sales increase since the first quarter of fiscal 2016. Identical sales grew for the fourth consecutive quarter, and adjusted EBITDA grew over 50 percent compared to the same quarter last year, as the business has rebounded from fiscal 2017. We achieved a record-high sales penetration rate on our Own Brands products as we continue to delight our customers with our portfolio of award-winning brands,” said industry veteran Jim Donald, who was named Albertsons CEO in August. Donald has a daunting task ahead of him as he tries to either take the company public or find another partner to merge with after a proposed union with Rite Aid collapsed last summer. And despite the positive financial results and the paring of about $1 billion in debt, Albertsons’ debt load still stands at $10.6 billion….Target is shaking things up a bit and has promoted Stephanie Lundquist to president of its food and beverage unit, a new post. Lundquist has been with the Minneapolis mass merchant since 2005 and most recently served as chief HR officer. In her new role, she’ll oversee all food and beverage merchandising including strategy development and implementation. She’ll be a busy bee, because even with slight improvements made over the last 12 months, because Target really needs help when it comes to its approach toward and presentation of grocery…interesting presentation by Kroger chief executive Rodney McMullen at this month’s National Retail Federation (NRF) show in NYC. McMullen was bullish about his company’s effort to utilize both backroom and consumer-driven digital initiatives. He added that as consumer demographics and habits shift, Kroger is more willing to experiment with different approaches and partnerships such as the recent initiatives announced with Walgreens (grocery pickup depots at 13 Walgreens drug stores) and Microsoft (to market a commercial ‘Retail as a Service” connected store experience). McMullen also painted an accurate picture of the mindset of today’s consumer, noting that “they feel incredibly good about the economy but very nervous about where things are headed.” I wonder if he was referring to just the economy or was inferring some concern about the political direction of the country?…some news from adjacent markets: it looks like we’ll know something about the status of Shoppers’ 46 remaining Baltimore-Washington stores very soon. Multiple sources are telling us that retailers should be notified on or about January 25 if they’ve successfully bid for one or more stores. Once the notifications have been made, Shoppers would have to provide store associates with a 60-day WARN notice of closure. My guess is that slightly more than half of the remaining stores will be grabbed during this first auction round. And to further perpetuate the handicapping game, I’m wagering that Giant Food, Safeway and Harris Teeter all walk away with multiple stores. And don’t be surprised if retailers from other trade channels – perhaps Target, Aldi and Lidl – also make successful bids. About five Shoppers stores have already closed over the past sixth months with Giant Food acquiring three of those units…much like the ham-handed leverage plays attempted by private equity firms Blackwells Capital (Supervalu) and Third Point LLC (Campbell’s Soup), another PE firm is trying exercise more control (and ultimately more money?) over another food company – Dollar Tree stores, the nation’s second largest dollar store operator based in Chesapeake, VA. It seems that Manhattan-based Starboard Value is pressuring Dollar Tree to sell its Family Dollar business (which it bought for $8.5 billion in 2015) and is also seeking to replace seven of the discounter’s 12 current directors. Starboard Value has acquired 1.7 percent of Dollar Tree’s shares which are valued at approximately $370 million. Not surprisingly, Dollar Tree is rejecting Starboard Value’s offer, noting that its current board (which includes four new directors who were added since 2016 including its newest board member – former Harris Teeter CEO Tad Dickson who joined on January 1, 2019) is equipped with the right skills and perspectives to make its Family Dollar unit a success. It already stated that it will remodel 1,000 Family Dollar stores and convert another 200 units to its core Dollar Tree banner. “We believe that Dollar Tree is deeply undervalued and significant opportunities exist to create value,” said Starboard CEO Jeffrey Smith in a letter to Dollar Tree’s board. Blah, blah, blah…and speaking about questionable PE companies, the Washington Post had an interesting and sad story about Sun Capital Partners, the venture capital firm whose holdings included regional grocery chain Marsh Supermarkets. After Marsh, which had the double whammy of being poorly run by larcenous former CEO Don Marsh in the years leading up to Sun’s acquisition 2006, and by Sun’s leadership itself, went bankrupt in 2017, the PE firm was allowed to recoup much of their investment while more than $80 million of pension fund debt and other severance agreements were flushed away. “It was a long, slow decline,” said Amy Gerken, formerly an assistant office manager at one of the stores. “(Sun Capital) didn’t really know how grocery stores work. We’d joke about them being on a yacht without even knowing what a UPC code is. But they didn’t treat employees right, and since the bankruptcy, everyone is out for their blood.” The Post story points out that, all told, Sun Capital, based in Boca Raton, FL, has sought bankruptcy for five of its companies over the past decade leaving nearly $300 million owed to employee pension funds. And it’s not that Sun Capital’s ineptness was a great secret to those in the grocery industry; their ineptitude was known by many in the food biz. Along with another Florida-based PE firm Comvest Partners (whose reverse Midas touch was demonstrated by Haggen’s attempt to acquire divested Albertsons/Safeway stores), these two private equity firm represent worst in class…and could this possibly be the end of Sears? Well, not quite. “Slow” Eddie Lampert, the man who almost single-handedly ruined Sears over the past 13 years, is likely to gain control over the bankrupt organization again. It seems that Lampert’s $5.3 billion bid to keep 425 Sears and Kmart stores open and retain (at least for now) 50,000 employees will be accepted since he was reportedly the only bidder who wasn’t planning to liquidate the company’s real estate, brands and inventory. New York Bankruptcy Court Judge Robert Drain (he of A&P bankruptcy fame) still has to approve the deal which could find Sears’ debt significantly reduced, but in virtually the same predicament as before – tired stores that offer boring merchandising and little innovation. Do you think “Slow” Eddie has the creativity and spark to change Sears’ image, especially with limited capital to improve Sears’ physical plants? Can’t this guy just go away?