Taking Stock

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Local Notes

It was a challenging third quarter at Weis Markets. The Sunbury, PA-based regional chain posted a 31.9 percent dip in earnings for the period September 28. Profits were $11.7 million for the period and both overall sales (negative 1 percent) and comp store revenue also declined (negative 2.9 percent). Weis said that “stagnant” center store sales in certain categories and significant deflation in fuel costs contributed to the volume drop. The closely-held regional chain took a $2.1 million impairment loss on four properties and also posted a $6.1 million charge related to the separation agreement with former CEO Dave Hepfinger who resigned in September. Weis said it recently has stepped up its promotional and sales building activities and expanded its loyalty marketing efforts to ignite sales in its fourth quarter. More Weis stuff:  Mike Mignola, senior VP-store operations, who was one of Hepfinger’s first hires from Price Chopper, has left the organization and the retailer has appointed John Neuberger as VP-operational administration where he will oversee the retailer’s store support functions including budgeting, sales and labor, net income performance, best methods for operations and retail efficiencies, inventory shrink and total store customer service. Neuberger is a Price Chopper alum. Joining Weis, too, are Marie Underkoffler as director of compensation and benefits and James Murphy as director of construction. November is a very busy month for the regional chain as well with ribbon cuttings at its two State College, PA units (remodelings), a new store in Huntingdon Valley, PA (a former Pathmark) and the unveiling of major remodelings in Danville, PA; Brodheadsville, PA; Odenton, MD and Pasadena. MD…at Supervalu, the turnaround continues as the slimmed down company earned a net profit of $40 million in its second quarter ended September 7. A year ago, SVU posted a loss of $111 million. While CEO Sam Duncan noted that he was pleased with the company’s accomplishments, he added that “we must remain focused on driving sales and generating cash. A big difference made during last year was at its corporately-owned Save-A-Lot discount unit where same store sales increase 4.6 percent. Including its Save-A-Lot licensed stores (about 75 percent of the fleet), same store revenue decreased 0.3 percent, still an improvement over recent quarters. Sales at SVU’s wholesale grocery (independent business) segment declined 1.6 percent to $1.84 billion and same store sales at its five conventional retail banners (Shoppers, Farm Fresh, Shop ‘n Save, Cub and Hornbacher’s) were at negative 0.9 percent, as compared to negative 3 percent in SVU’s first quarter (same store sales numbers have been negative every quarter dating back to 2008). Clearly, Duncan and his team have done a fine job over the past nine months with limited resources. Like a lot of turnaround stories, much of the early saving have resulted from “trimming the hedges,” rather than significantly increased sales. However, Duncan and chairman Bob Miller are now running the business professionally and are much more focused on execution and problem solving. On the obverse side of the coin, the significant cap-ex investment that’s sorely needed to improve its current store base and build new units hasn’t materialized yet and the competition in all of the company’s markets continues to become more aggressive and diverse. For corporate parent Cerberus, the deal is already a great one, having paid $4 a share for 30 percent of the company and operating control (at the close of  business on November 18, SVU shares were trading at $6.88). And like many other PE companies, Cerberus still has assets it can potentially sell – its five conventional supermarket banners as well as Save-A-Lot.  So, from an investment perspective, the deal is already a home run. And even from an execution point of view, the company is far better off than it’s been in at least five years. But, taking in the full view, SVU is not gaining significant traction or market share in any of the areas in which it operates, hasn’t spent enough yet to indicate it wants to “get back in the game” and its wholesale business hasn’t added any significant accounts since Duncan & Co. took over (and like other wholesale grocers, always remains in jeopardy of a key independent retailer switching suppliers or closing stores)…another baffler from the so-called “Wizards of Wall Street.” After Whole Foods, the best performing supermarket chain in the country over the past two years, posted a profit gain of 7.1 percent, an overall revenue increase of 2.2 percent and a 5.9 percent jump in comp store sales in its fourth quarter ended September 29 (12 weeks vs. 13 weeks last year), it’s performance was heavily criticized by many financial analysts. Apparently those strong numbers weren’t good enough for the armchair money changers who downgraded the stock (creating a sizeable dip in share price) and faulted the Austin, TX natural and organics retailer’s sales and earnings performance. To be fair, WFM did lower its financial guidance for fiscal 2014, but the chain’s numbers continue to be “off the chart” especially when compared to its supermarket peers. Share price, despite the recent tumble, has increased nearly 40 percent this year and in FY 2014 the company plans to open between 32 and 38 new stores. ‘We reported record fourth quarter operating results which contributed to the best fiscal year performance in our company’s 35-year history. For the last four years, we have increased our new store openings while producing improvements in operating margin and higher returns on invested capital, and we expect these trends to continue in fiscal year 2014,” said John Mackey, co-founder and co-chief executive officer of Whole Foods Market. “We are dedicated to providing our communities with fresh, healthy, natural and organic food, and with 94 leases in our development pipeline, we look forward to delivering accelerating new store growth for several years to come.” That statement alone will hopefully allow the financial analysts to gain some perspective. Although I doubt it…at Brussels-based Delhaize Group, the company’s “brand repositioning” efforts at its Food Lion and Hannaford banners appear to be helping sales, but not profit. At its U.S. stores, which also includes Bottom Dollar Foods, total revenue grew 2.2 percent to $4.4 billion and comparable store sales increased 2.2 percent as well in the third quarter. However, underlying profit at its U.S units (not including Sweetbay, Harveys and Reid’s which are in the process of being sold to Bi-Lo Holdings) dipped 20.2 percent to $169 million and operating margins were down a full percentage point to 3.9 percent  of sales. Overall, the international retailer said additional price investments helped created a $112 million loss. As I’ve said in the past, Delhaize’s U.S, stores remain in big trouble, especially if even bigger gains aren’t achieved at its Flagship Food Lion banner. We’ll be better able to judge Delhaize’s U.S. performance in mid-2014 when the company cycles new numbers a full year after implementing its “brand repositioning” efforts. On a related note, it didn’t take long for short-term former Delhaize America CEO Roland Smith to find work. Office Depot, which recently acquired rival Office Max, has named the well-traveled Smith as its new chief executive. He replaces co-CEOs Neil Austrian and Ravi Saligram, who will be leaving the Boca Raton, FL based office supply retailer…Giant/Carlisle and Peapod, two operating units of Ahold USA, announced that they have opened a new fulfillment center in Coopersburg, PA that will allow Giant/Carlisle customers in more than 25 ZIP codes in the nearby area to shop online and be serviced with home delivery by Peapod. Customers will also earn Giant gas rewards and A+ School Rewards with their online purchases. The company said by using their Giant BonusCard they can jump start their first shop online from a list of items they have bought at their local Giant by entering their card number online. Groceries can be delivered as soon as the next day after the order is placed. More Ahold news: the Amsterdam based retailer announced generally flat earnings in its third quarter; net sales, underlying income and operating income were marginally down but not profit rose 17 percent. Identical sales growth was 0.1 percent (0.6 percent excluding gas). The Dutch merchant noted that “our stores maintained stable volumes and had low levels of inflation. In a promotional market, our U.S. operations gained market share. Consumer confidence in the economy remained fragile.” During the quarter, AUSA closed six New Hampshire units. Underlying U.S. profit margin was 4.0 percent compared to 4.1 percent last year. At the end of the third quarter. AUSA operated 772 stores, three fewer t han in the corresponding period in 2012…Fairway Group Holdings (Fairway Markets), which is still in its “honeymoon” period following its April IPO, posted a loss of $12.2 million in its second quarter, ended September 29. That’s a slight improvement from the comparable period last year when the Manhattan-based niche retailer lost $15.9 million. Revenue in the quarter grew 14.1 percent to $183.2 million from $160.5 million benefiting from two store openings – in the Chelsea section of Manhattan and in Nanuet, NY. However comp store sales only grew by 1 percent and the company said that its new 17,000 square foot store in Chelsea unit has gotten off to a slow start and that the store is now being reconfigured to make for a better shopping experience. More New York news: Westside Market NYC, one of Fairway’s prime competitors in Manhattan, announced that it will open its fifth unit next summer and first store on the East Side. The new 19,000 two-level Westside store will be located at the corner of E. 12th Street and Third Avenue. “Since the original Westside Market NYC was opened by my father, John, in 1965, we have worked diligently to provide the best supermarket experience to residents along the West Side of Manhattan,” said George Zoitas, CEO of Westside Market NYC. “After 48 years, four locations, and many people asking when Westside Market NYC would meet the East Side, we felt that the opportunity with 84 Third Avenue was the perfect introduction for our brand to the other side of Manhattan.”… Jim Rogers, veteran president and CEO of the Food Industry Alliance (FIA) of New YorkState, has retired. Rogers did a stellar job of leading the EmpireState’s largest food industry trade group during his 26 years at the helm. Krasdale’s Mitch Klein, who is current FIA chairman, has appointed an eight-member committee that will help conduct a search for Rogers’ successor. Also retiring at the end of last month was Natan Tabak, Wakefern’s senior VP and chief information officer. Tabak, a truly brilliant and funny man, began his career at Wakefern in 1981. At the cooperative wholesaler’s recent annual meeting, Tabak was presented with Wakefern’s Chairman’s Award which recognizes individuals for commitment to innovation, entrepreneurship and above all, cooperation – a value that has long defined the co-op. “I’ve had an incredible career at Wakefern – I have loved every minute of it,” Tabak stated. “My retirement provides me with an opportunity to explore other interests and to spend time with the love of my life, my wife Barri.” In other Wakefern new, the co-op is suing Lexington Insurance Co, a unit of AIG, for breach of contract alleging that the big insurance firm has yet to pay out more than a small portion of losses at its members’ ShopRite stores that were caused by Hurricane Sandy last year. Filed in Superior Court in Middlesex County, NJ, the Keasbey, NJ-based wholesaler is reportedly claiming that Lexington has denied coverage for more than $50 million in losses caused by the devastating storm. Wakefern is also allegedly charging that Lexington failed to respond promptly and meaningfully to its claims and then didn’t investigate them with due diligence. The complaint covers approximately 300 ShopRite and PriceRite stores…a tip of the hat to Wawa CEO Chris Gheysens, who delivered a masterful speech to more than 200 students earlier this month at the Pat McCarthy Lecture Series at Saint Joseph’s University. Not only was Gheysens’ talk detailed and interesting, his humble, self-deprecating style was a big hit with the future food industry executives. Filling retired chief executive Howard Stoeckel’s shoes is indeed a tall order, but I think Wawa got it right when they promoted Gheysens, who I believe is a future superstar in the food industry…several obits of note to report. Passing away late last month was Hal Needham, one of the greatest stuntmen in movie history. During a career that lasted nearly 60 years and featured stunt work on an astounding 4,500 TV shows and 310 movies, Needham claimed to have broken 56 bones. He also helped devise new stunt methods and devices that made his craft slightly less dangerous. Later in his career, he branched out as a director, piloting 20 movies including “Smokey and the Bandit” (1977) and “Cannonball Run” (1982). Needham was 82. Also leaving terra firma last month was Ed Lauter, one of the great movie “that guys” of the past 40 years. Lauter, 74, who appeared in more than 200 film and TV roles, usually played a cop or a bad guy. He described himself as a “turn” actor, someone who shows up at some point in a film and suddenly turns the plot in a different direction. Among his best known and most visible roles were as brutal prison guard Captain Knauer in the original “The Longest Yard” (1974); he also appeared in the 2005 remake); as sleazy gas station attendant Joseph Maloney in Alfred Hitchcock’s last film, “Family Plot” (1976); and as violent cop Richard Shriker who assists vigilante Charles Bronson in “Death Wish 3” (1985). You may not know Lauter by name, but one look at his face in any of his movie roles and you’ll know exactly whom I’m talking about… I was also saddened to hear of the passing of rock & roll legend Lou Reed. Reed, who had had liver transplant in March. He died at age 71 late last month. While Reed’s musical style and voice were often difficult to relate to, he was truly a man devoted to all things rock – from history to innovation. His first album in 1967 as the lead singer of the Andy Warhol inspired band,  Velvet Underground (who were inducted into the Rock and Roll Hall of Fame in 1996), was one of the first vinyl discs that I owned and its ferociousness burned an imprint in my mind that I can still remember. Despite heavy drug use and an overall lifestyle that later led to his health issues, Reed was like a misguided missile – moody, unpredictable and powerful – but one who managed to write two of the greatest rock tunes of all time – “Sweet Jane” and “Rock & Roll,” which both appeared on the Velvet Underground’s 1970 album “Loaded.”