Taking Stock

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‘Round The Trade

The recent Jana Partners nearly 9 percent equity stake in Whole Foods has already had an effect on the big organics retailer. On May 10, a month after Jana demanded changes at the sputtering merchant, CEO John Mackey (he ultimately may be one of those changes) blew up the company’s board replacing five directors, naming a new chair person and bringing in a new CFO. The new chairwoman is Gabrielle Sulzberger, wife of New York Times chairman and publisher Arthur Sulzberger. Keith Manbeck is WFM’s new CFO. He comes from Kohl’s and replaces the retiring Glenda Flanagan. On the sales and earnings front, in its recently completed second quarter ended April 9, the recent negative trend continued. Comp store revenue declined 2.8 percent (its seventh consecutive quarter of negative comps) and profits dipped 30.3 percent to $99 million. Mackey announced several new initiatives designed at cutting costs and improving efficiency. Those include a $300 million in cost cutting by 2020 and a centralized merchandising initiative that will be completed by the end of this year. Whole Foods’ affinity loyalty rollout to all of its approximately 465 U.S. stores will also be accelerated. One piece of good news for WFM: its new store in Riverdale, MD, which opened last month, is doing very strong business. The Austin, TX- based upscale merchant isn’t the only food retailer whose status is under scrutiny. It’s no secret that BJ’s Wholesale Club might be put on the selling block by principal owner, PE firm Leonard Green. Or that Albertsons might still be eyeing Sprouts or even the aforementioned WFM for a potential deal. And don’t forget that many regional supermarket chains, including Price Chopper and Giant Eagle, might be listening to outside offers. Currently, there are only two clearly identifiable strategic supermarket buyers – Kroger and Albertsons. But don’t discount Amazon from entering the bricks and mortar arena (a BJ’s purchase would help them). And while private equity has shied away from most retail food acquisitions in recent years (with the exception of Apollo’s strange decision to buy The Fresh Market last year), the money guys (who are never afraid of debt) could re-enter the buying derby, too. The effects of overstoring coupled with the diversity of retail styles in virtually every market in the U.S., is clearly causing more and more merchants to think about putting up the “white flag” while their companies still have significant value…in other earnings news of importance, Amazon once again posted strong numbers in its first quarter which ended March 31. Net income rose 41 percent to $724 million. Worldwide sales increased 23 percent to $35.7 billion and its Amazon Fresh unit continues to grow, now operating in 21 U.S. cities and London and Tokyo. At Publix, earnings decreased 4.6 percent to $555.3 million in its first quarter and comp store sales dipped 2.1 percent, its first quarterly sales drop since 2009. Along with the shift of this year’s Easter holiday (second quarter this year, first quarter last year) the employee-owned upscale merchant cited the effects of store cannibalization as a factor in declining same store revenue….Personal surprise of the past four weeks: Justin Dye’s resignation as chief administrative officer at Albertsons. Not only is he a member of the vaunted “30 Pound Brain” club, Justin possesses a very unusual skill set that combines finance, M&A experience and a street sense of the grocery industry (his family was involved in the supermarket biz in his native Indiana). Plus he’s a great guy. Non-compete clauses aside, I expect Justin Dye to be the first pick on somebody’s draft board as CEO before very long…veteran perishables executive Paul Kneeland, formerly of Kings/Balducci’s and Roche Bros. and most recently with Ahold’s Fresh Formats (bfresh) unit, has joined upscale Los Angeles-based merchant Gelson’s Markets as its new senior director of produce and floral… newly named Save-A-Lot CEO Kenneth McGrath has convinced his former right hand man at Lidl, Kevin Proctor, to join the Earth City, MO discounter as chief investment officer. Proctor (no relation to current Lidl U.S. CEO Brendan Proctor), also worked recently with McGrath at Digicell, a digital phone and related services organization based on the island of Jamaica…potential bad idea of the month: Target will soon begin testing an online delivery service in its core Minneapolis market that will allow shoppers to order online and receive delivery to their homes the next day. The new service, called ReStock, will be rolled out this summer. While I know every retailer needs an upgraded online presence, the idea that Target can make this experiment work based on its stumblin’, bumblin’ and fumblin’ execution in grocery at its stores seems highly implausible…Bumble Bee Foods, North America’s largest shelf-stable seafood company, has pled guilty to conspiring to fix prices of canned and pouched tuna the U.S. Justice Department has confirmed. With the guilty plea comes a minimum $25 million fine which could increase up to $81.5 million if Bumble Bee sells the company. The company is currently owned by London-based private equity firm Lion Capital LLP…just before presstime, we heard some disappointing news for two struggling regional chains. Southeastern Grocers (Bi-Lo, Winn-Dixie), owned by Dallas-based PE firm Lone Star, will shutter 20 stores in the next 45 days. Six of those units are Bi-Lo stores in North and South Carolina. Lone Star has been trying to find a buyer for its big supermarket asset since 2014. Overall sales last year dipped 7 percent and comp revenue fell 3.6 percent as heightened competition from Publix and Wal-Mart impacted the retailer’s business. At Marsh, the situation is even worse. The Indianapolis-based chain, after years of declining sales and store closures, finally filed for Chapter 11 bankruptcy protection on May 9. The formerly family-owned retailer, which was acquired by PE firm Sun Capital in 2006, warned that it could close its remaining 44 locations if a buyer can’t be found in the next 60 days. Sounds like the fire sale has officially begun.