Taking Stock

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‘Round The Trade

Wal-Mart announced that net income in its third quarter, ended October 31, increased 9 percent to $3.63 billion and comp store revenue at its U.S. store gained 1.5 percent, its fifth consecutive quarter of comp sales gains. Overall sales at its U.S stores rose 3.6 percent to $66.1 billion (total company sales in its third quarter excluding membership fees from Sam’s Club were $113.2 billion). However, Wal-Mart maintained its cautious stance in the fourth quarter and going forward. “Current macroeconomic conditions continue to pressure our customers,” asserted Charles Holley, the mega-retailer’s CFO. “The holiday season is predicted to be very competitive but we are prepared to deliver on the value and low prices our customers expect.” A few weeks before the earnings release, Wal-Mart told financial analysts that it will devote $12-$13 billion to cap-ex in fiscal 2014 and will add 36-40 million square feet to its existing retail footprint. At its annual investment day held at company headquarters in Bentonville, AR last month, the Behemoth also noted that other cap-ex priorities will be used further improve technology and innovation in an attempt to further leverage expense and productivity. One of those key areas will be an expansion of its e-commerce initiatives. In theU.S., Wal-Mart will spend slightly less ($5.5-$6.2 billion) than this year (fiscal 2013) while adding 125 more SuperCenters (net new and conversions from division I stores) and roll out 95-115 new Neighborhood Markets. By FY 2016, Wal-Mart said it will operate more than 500 Neighborhood Markets. Curiously, no specific mention was made of the chain’s previously self-touted flexibility with its smaller and express formats. Instead, Wal-Mart U.S. CEO Bill Simon seemed to lump all of Wal-Mart smaller format expansion under the Neighborhood Markets umbrella. What about the 20,000 square foot units in urban areas in the northeast? Will their more “express” stores open in differentiated markets like Chicago and Gentry, AR? As mighty and powerful as the Behemoth is (and I’m not underestimating their clout for a minute) doesn’t it seem that the planet’s largest merchant often over promises and under delivers when hailing some of its “newest and greatest” plans? More Wal-Mart news: with the apparent mindset that “nobody is going to out-Black Friday us,” the boys from Bentonville will open its stores at 8:00 p.m. on Thanksgiving. Some advertised items have already been leaked. Personally, I can’t think of anything more exhilarating than waiting on line for many hours so I might be able to buy a $38 Blu-Ray DVD player, if any remain in stock.…I’m hearing glowing reports about Giant Eagle’s new format – Good Cents Grocery+More, which cut the ribbon on its first store in Ross Township, PA. The store is clearly a discount unit that several observers described as a format somewhat resembling Wakefern’s PriceRite format, but only larger. At 46,000 square feet, Giant Eagle senior VP John Tedesco described the new stores as “…the missing link between discount stores and supermarkets.” And consumers won’t have to travel far to find the competition – Delhaize America’s Bottom Dollar Foods has a relatively new location right next door that is roughly half the size of the Good Cents unit. Ole!..and speaking of Delhaize America (DA), despite an improvement in comp store sales at its rejuvenated Food Lion banner, same store revenue at all of DA’s U.S. stores, fell 1.6 percent and operating profit dipped 12.3 percent (other banners include Bottom Dollar, Hannaford, Sweetbay, Harvey’s and Reid’s) in the Belgian retailer’s third quarter. However at the more than 700 Food Lion units that have been rebranded (there are approximately 1,100 Food Lion stores in total) revenue gained 1.6 percent. As discussed before, DA’s problems are larger than its Food Lion repositioning. It continues to produce flat to slightly negative ID sales at its other big banner (Hannaford) and while there has been some improvement at its core Food Lion operation, the Salisbury, NC operator waited much too long to reinvent itself. New DA CEO Roland Smith has a daunting task ahead of him. On a related DA note, the company’s Hannaford unit has renamed its store manager of the year award after Ron Hodge, the former Hannaford executive who retired last month as DA’s CEO. The annual award recognizes the Hannaford store manager who best exemplifies the leadership qualities espoused by Hodge, who was a highly successful store manager earlier in his career. “Ron has a unique way of making associates feel valued and cared about and supported,” said Beth Newlands Campbell, president of Scarborough, ME-based Hannaford, which operates 181 stores inMaine,New York,Massachusetts,New HampshireandVermont. “He understands that store managers are the lifeblood of our business. Great store managers lead. They listen. They coach. They inspire. And day after day, year after year, they overcome challenges to succeed.” Hodge began his industry career with Hannaford in 1980 and rose through the ranks to become the banner’s president in 2000 and its CEO in 2001. A well deserved honor for one of the industry’s good guys…Leon Bergmann, corporate EVP and president of Supervalu’s independent business unit, has resigned from the company he joined (from C&S) less than two years ago. We expect talented people like Leon (as well as other former SVU execs like Bill Shaner and Tom Lenkevich) to emerge shortly in jobs that will utilize their abilities which were stifled under the Craig Herkert regime. And just before presstime, in a move that I’d consider collateral damage from Mr. Herkert reign of supreme benign neglect, comes word that Supervalu has frozen salaries. That message came in an internal email sent from executive VP- human resources and communications Dave Pylipow which states in part: there will be no 2013 merit pay increases for salaried team members. Additionally hourly team members in SVU’s corporate, banner, region and distribution center offices will not receive a merit pay increase. This does not impact store hourly or store pharmacy positions, or hourly operational distribution center roles. Promotions and job changes will continue to be recognized with pay changes where appropriate. Subject to any applicable laws, the frequency at which some team members are paid will change in early 2013. Today, all team members are paid on a weekly basis. Next year some salaried team members will transition to a bi-weekly pay schedule and others to a monthly schedule. Also, SVU’s service anniversary awards program as it exists today will be discontinued and as for salaried team members, as well as hourly team members in Supervalu’s corporate, banner, region and distribution center offices, the company’s matching contributions are being suspended. For store hourly and store pharmacy positions, as well as hourly operational distribution center roles, the company’s maximum matching contributions will be reduced from 5 to 3.5 percent. Pylipow added: “We recognize that these changes will have a significant impact on you, and we will continue to evaluate them in light of our business results. Thank you for your understanding and your work for the company in these critical times.” A sad situation for a company that must “divest itself from itself” ASAP…A&P (which in some surreal way finds itself in a slightly better position today than Supervalu) announced it will close three New Jersey Super Fresh stores on January 11 – Marlton, Plainsboro and Westmont – reducing the number of Super Fresh units to 22. On the executive front, Tom O’Boyle, EVP-merchandising, marketing and supply chain, has resigned from the company to take over the helm at Marsh Supermarkets where he will become chairman, president and CEO of the Indianapolis, IN based retailer which is owned by private equity company Sun Capital Partners. O’Boyle replaces Bill Holsworth, who had been serving as interim chief executive since May when Joe Kelley resigned to return his Boston roots as president of Stop & Shop’s New England division. O’Boyle’s role will be filled by two current executives – Mike Mills, SVP-merchandising, and Ajay Kanwar, VP-marketing. If possible, things are even more dysfunctional now than in the bad old days at The Tea Company. O’Boyle was aggressively recruited from Sears/Kmart (and Albertsons/Jewel) as perhaps the most important cog in A&P’s comeback effort. O’Boyle’s departure follows a series of other executive exits and layoffs. Did somebody say “comeback?” Also just before presstime we discovered that Robin Michel, former president of Giant/Landover, has left Sears/Kmart and been named president of Natural Market Restaurants Corp., the Canadian company that owns Fresh & Green’s, Mrs. Green’s and Richtree Market Restaurants. Speaking about Fresh & Green’s only, Robin will need all of her grocery skills and a lot of luck to turn that beleaguered retail organization around…tell me it ain’t so – a world without Twinkies? Except for some possible mediation efforts (a long shot at this point), it seems like the end is at hand for Hostess Brands. After nearly a decade of “on-again, off-again” bankruptcies, 82 year old the snack maker is poised to finally pull the plug on its ailing business after employees struck the Irving, TX baker to protest a new labor contract. The result of its liquidation: 18,000 employees, 36 bakeries and a bunch of notable brands that will likely be sold to interested bidders once a Bankruptcy Court sorts things out. And beyond Seinfeld, we all know that there is value in such brands as HoHos, Ding Dongs, Ring Dings, Wonder Bread and of course, Twinkies.