I wouldn’t exactly call it a money grab in the same manner that Apollo Global is trying to take its troubled stepchild The Fresh Market public and recoup its investment. That’s because Cerberus Capital Management, still Albertsons’ largest shareholder, has maintained its equity stake in the Boise, ID-based chain for nearly 16 years, way longer than most hedge funds firms hold on to their investments.
After years of trying to end its relationship with Albertsons/New Albertsons, which began in 2006 when the original company was broken up (with Supervalu acquiring the biggest piece), Cerberus has been one of the best private equity partners in the history of food retailing. The Manhattan-based investment company not only financially supported Albertsons during the early lean times, but it also financed the retailer’s acquisition of chains Acme, Shaw’s/Star, Jewel, etc. from Supervalu in 2013. All told, nearly 900 stores were purchased – all banners that were part of the original Albertsons empire which then CEO Bob Miller knew intimately.
Two years later, Cerberus stepped up to the plate again and was the lead financier in Albertsons’ $9.4 billion acquisition of Safeway.
It was shortly after that deal that Cerberus (and other minority investors) sought to take the retailer public. That initial IPO effort failed to launch, as did some other efforts by Cerberus to separate itself from Albertsons (including the ill-fated “merger” attempt with Rite Aid in 2018).
Finally in late June 2020, Cerberus was able to convince Wall Street that Albertsons was IPO worthy, even though the opening share price was about 35 percent less than the company had hoped.
By SEC mandate, Cerberus had to maintain a percentage of its equity for a period of time to maintain the stability of the newly publicly-traded enterprise. That “retention” stake was about 30 percent and we’re told that Cerberus had to hold on to its shares for two years. That 24-month waiting period is only a few months away and it’s pretty clear to most observers that Cerberus wants out.
Albertson’s short press release on February 28 noted that its board of directors “has commenced a board-led review of potential strategic alternatives aimed at enhancing Albertsons’ growth and maximizing shareholder value. The review will include an assessment of various balance sheet optimization and capital return strategies, potential strategic or financial transactions and development of other strategic initiatives to complement Albertsons’ existing businesses, as well as responding to inquiries. The company has retained Goldman Sachs and Credit Suisse to serve as financial advisors to assist in this review. The board has not set a timetable for the conclusion of this review, nor has it made any decisions related to any further actions or potential strategic alternatives at this time. There can be no assurance that the review will result in any transaction or other strategic change or outcome. The company does not intend to comment further until it determines that further disclosure is appropriate or necessary.”
Take note of the last sentence. It’s clear to me that Albertsons wanted to get ahead of any speculation before it became too much of a widespread distraction (my Wall Street sources told me this was coming a week before the announcement was made).
So now we’re left to ponder if there’ll be a total company sale (highly unlikely), a partial disposition of current assets (possible) or a shakeup in the institutional equity of the shareholder base (very likely).
What’s also creating the momentum and positive vibe for an exit strategy by Cerberus is how well the company has done for the past three years. Under the leadership of former PepsiCo executive Vivek Sankaran (who was named CEO in 2019), the company has posted strong comp store sales, improved earnings and has put Albertsons on the map in terms of having an e-commerce presence. Certainly, the sales tailwinds from COVID have helped, and going public 15 months after Sankaran became chief executive made the financial burdens of the large retailer more palatable.
Could a piece of the large Albertsons network be sold? As I said earlier, that’s a possibility that will be closely reviewed. The vast Albertsons grid contains many pieces including 12 divisions that operate nearly 2,300 stores, 23 distribution centers and 20 manufacturing plants.
If something is spun off, the most likely target would be one of its operating divisions. And whenever speculation arises, the first unit to be mentioned is the company’s Mid-Atlantic division (Acme, Safeway Eastern, Kings and Balducci’s).
And on paper it’s easy to reason why – the Mid-Atlantic division includes older stores located in some of the most competitive and expensive marketing areas in the country that are burdened by challenging labor contracts and pension liability issues.
To me, those hurdles are high enough to make it improbable that any buyer would even take a deep sniff at those 300 Mid-Atlantic units. You may argue that despite those handicaps, the division is now very profitable and stable.
That’s currently true, but what happens after the COVID tailwinds abate? And, would the division be nearly as successful if president Jim Perkins weren’t running the show? In the nearly nine years that Perkins has guided Acme/Safeway, no industry executive has done more with less.
If you remove the temporary sales spike created by COVID and subtract Perkins from a potential new ownership group, you’ve got some banners with little commercial appeal. And if a possible new owner thinks they can negotiate with Acme’s and Safeway’s unions to create more favorable labor contracts and pension fund relief, I can tell you, that ain’t gonna happen.
My end game prediction: Albertsons finds several new financial partners to fill the void created by Cerberus’ exit and nothing else gets acquired or sold.
Walmart, Target, Publix Posts Strong Q4 Comparable Sales
If there’s any doubt that sales remain unbelievably strong despite rampant inflation, labor shortages and supply chain dysfunction, look no further than the recent financial results of three of the top retailers operating on the East Coast (and elsewhere, too) –Walmart, Target and Publix.
At Walmart, the sales needle continues to more forward with Q4 (ended January 31) net sales rising 5.7 percent to $105.3 billion (its first ever $100B quarter) and comp store revenue increasing 5.6 percent (excluding fuel). The average ring at the world’s largest merchant also jumped 2.4 percent while transaction count grew 3.1 percent. On the earnings side, Walmart posted $5.2 billion in profit gain at its U.S. stores in Q4, growing its income by 0.3 percent. In its full fiscal year, the “Behemoth” operated 10,566 stores worldwide (in the U.S. – 4,742 Walmarts and 600 Sam’s Clubs) while combined sales reached an incredible $572.8 billion.
Target once again posted the best financials of any publicly-traded retailer (that sells groceries). The Minneapolis mass merchant’s comp store sales increased a very impressive 8.9 percent while its traffic count also grew by 8.1 percent. “Our strong fourth-quarter performance capped off a year of record growth in 2021, reinforcing the durability of our business model and our confidence in long-term profitable growth,” said Brian Cornell, chairman and CEO. “As we look ahead, we’ll keep investing and delivering on all that has earned the loyalty and trust of our guests; that starts with our outstanding team and includes continued differentiation through affordability, assortment, ease and convenience.”
The former Safeway and Pepsi executive also noted that Target is prepared to spend as much as $5 billion this year in cap-ex investments and would raise minimum starting pay to as much as $24 an hour in some of its more competitive marketing areas (think East and West Coasts). And more good news for Target subsidiary Shipt, which added 7-Eleven and Walgreens to its home delivery clientele. Those two retailers alone operate more than 12,000 brick and mortar stores nationally.
Among the other merchants who posted stellar Q4 operating results was (not surprisingly) Publix. For the 13-week period ended December 25, the Lakeland, FL profit-machine rang up an overall sales increase of 12.4 percent to $12.6 billion while also a posting comp store gain of 10.5 percent.
Q4 net income increased from $1 billion to $1.05 billion. For its full fiscal year, Publix amassed sales of $48 billion, a 7 percent gain for fiscal 2020. Comp sales also grew by 5.4 percent. Its projected cap-ex spend of about $2 billion this year is significantly more than last year’s $1.2 billion amount. At the end of 2021, Publix operated 1,297 supermarkets in seven southern states.
‘Round The Trade
You don’t have to read real deeply to gauge that I’m as puzzled as anybody to describe this once-in-a-lifetime clusterjam where service levels resemble the early days of COVID, labor challenges impact every aspect of the business, raw materials and commodity expenses are unpredictable and costs are skyrocketing, yet retailers continue to sell more and more and more stuff, even with out-of-stocks at near record levels. However, despite the stellar balance sheets posted by the big retailers listed above, there have been two notable losers during the past year. Sprouts heads that list, posting another disappointing quarter in which sales dipped 7 percent to $1.49 billion and earnings fell to $36 million (from $68 million a year ago). Comp sales also declined by 1.1 percent for the 13-week period ended February 24. For its full fiscal, comparable store revenue decreased 6.7 percent. Perhaps as a way to jump-start the company’s performance, the Phoenix-based healthy food merchant hired Nick Konat as its new president and COO, effective March 21. He will report to Jack Sinclair, the former Walmart senior executive who became Sprouts’ CEO in 2018. Konat most recently served as chief merchandising officer for Petco. Before that, he was director of food merchandise planning at Target. As a Sprouts customer (Ellicott City, MD store), it’s pretty easy for me to understand the company’s dilemma – the quality of product is not as good as it was during the first year the store opened here (2017); like everybody else, the quality of labor has declined (which is more noticeable at a perishables-driven store); and the in-store merchandising lacks the pizzazz it once had. Sinclair certainly brought a proven track record and strong leadership skills when he joined Sprouts, and his relatively short tenure has brought more structure and discipline to the organization. However, the results have not been good, especially when compared to his publicly-traded industry peers.
The other publicly-traded retailer that has posted disappointing sales and earnings is Emeryville, CA-based Grocery Outlet, which started off like gangbusters after it launched and IPO in 2019 but has now posted declining numbers for the past few operating periods. In its 13-week Q4 ended January 1, overall sales dropped 3 percent to $782.7 million (a poor performance compared to its industry peers) and comp sales dipped 1.3 percent. Earnings-wise Grocery Outlet’s net income for its fourth quarter was $6.6 million compared with $24.6 million in the comparable period the previous year. CEO Eric Lindberg told financial analysts at the company’s conference call following the earnings release that he was “pleased with our fourth quarter performance which exceeded our sales and gross margin expectations and reflected sequential improvement in trends from the third quarter…” I’m always perplexed when a company executive deploys the “optimistic spin” approach to Wall Street executives when the current results and trends don’t indicate that there’s a lot to be positive about (to wit: 10 months ago Grocery Outlet’s stock was trading at $42.29 per share; it closed on March 2 at $27.23 per share). While I’m aware that most of the discount merchant’s stores are on the West Coast, its 20 stores in Pennsylvania (most of which began as Amelia’s) and one unit in Delran, NJ (which opened on December 30, 2021) have failed to impress me. Maybe it’s the franchisee-driven model, maybe it’s the reliance on close-outs and short-coded merchandise, but its Mid-Atlantic stores provide little sizzle and seem non-competitive when facing Aldi, Lidl and Walmart. Heather Mayo, a former Walmart and BJ’s exec who joined the company in 2019 as an executive VP to strengthen East Coast operations, is leaving Grocery Outlet this month. Her position will be filled internally.
In ADUSA news, Chris Lewis, who was president of the company’s supply chain unit, has departed and Roger Wheeler, president of the retailer’s large Retail Business Services division, has expanded his duties to include supply chain oversight. Lewis headed ADUSA’s self-distribution integration effort which began in late 2019. He began his Ahold Delhaize career more than 30 years ago at Hannaford (then owned by Delhaize America). In related self-distribution news, the former 1.2 million square foot C&S distribution center in Bethlehem, PA was officially folded into ADUSA’s distribution network late last month. Later in 2022, former C&S depots in York, PA and Chester, NY will also become part of ADUSA distribution network. Moreover, two “built from the ground up” frozen warehouses (in partnership with Americold) will also open in Mountville, PA and Plainville, CT this year. At that point, ADUSA will have achieved its goal of self-managing 85 percent of its distribution network. And at The Giant Company (TGC), minimum order fees for click-and-collect customers have been eliminated, which indicates to me just how competitive the diverse field of e-commerce merchants has become as retailers seek a differentiation advantage with customers.
If you’re in the “food” business, then it’s very likely you’ve encountered some rodent issues at some point in your career. Of course, there’s a big difference between finding a dead rat behind a refrigerated case and what recently occurred at Family Dollar’s West Memphis, AR distribution center. An inspection of that facility revealed more than 1,100 deceased rodents (RIP) which followed a previous audit that indicated that more than 2,300 previously deceased rodents were found in that warehouse from March-December 2021. All of this rodentia-related ruin led to the temporary closure of the facility as well as about 400 Family Dollar (FD) stores that had received products from that depot. A word of advice to the quality assurance team at FD – cats. That’s right, felines. Since you have abjectly failed at providing even the minimum level of product safety at that distribution center, I’d say if you brought in about 50 cats (feral ones would be best), you would no longer have a rodentia issue to be embarrassed about. Actually it’s been a tough year for FD and its parent company Chesapeake, VA-based Dollar Tree Stores, whose new $1.25 retail price point wasn’t viewed so favorably (although it was necessary) when it announced the increase (from $1) last November. However, there is one piece of Dollar Tree news that should be applauded. Bob Sasser, 70, the discounter’s executive chairman, will soon retire from the company he reshaped during a 23-year career, including the period of 2003-2017 when he served as CEO. Current chief executive Mike Witnyski accurately summarized Sasser’s contributions when he said: “Bob Sasser has left an indelible mark on Dollar Tree as a result of his outstanding leadership skills, business acumen and commitment to excellence. He has been the engineer of the company’s success and growth over the last 23 years. During his 13-year tenure as CEO, shareholder value increased 733 percent, a testament to Bob’s leadership. He successfully drove growth and improved efficiencies throughout all levels of the business, while providing the strong leadership that enabled Dollar Tree to withstand pressures from market downturns and related industry headwinds. It has been a privilege to work closely with Bob over many years, and while we will certainly miss his leadership and counsel, Dollar Tree is a stronger company because of him.”…do you like donuts? How about caffeine? I mean, who doesn’t? Well our buddies at Hostess Brands have created something tasty and time-saving that is sure to satisfy your sugar, carb and caffeine Jones. I’m talkin’ about Boost Jumbo Donettes, a single-serve donut that contains 50-70 milligrams of caffeine. And Donettes come in two mouth-watering flavors – chocolate mocha and caramel macchiato. So, next time you’re craving a caramel macchiato at Starbucks or a chocolate glazed donut at Krispy Kreme, save yourself some time and money and just pop a Boost Donette in your mouth. I’ve been told the taste is comparable to the pairing of a fine cabernet with a prime ribeye steak.
Local Notes
Just before presstime, we learned that Amazon will be closing its brick-and-mortar bookstores (its original online business), its 4-Star shops, its Pop-Up stores and its recently-announced new entry – Amazon Style (fashion and accessories). “Godzilla” said the move is being made so it can focus more heavily on its physical food stores (Whole Foods, Amazon Fresh and Amazon Go). All told, those banners appear on 66 stores in the U.S. (24 bookstores, 33 4-star shops with 16 more that had been planned, and nine Pop-Up stores) and two additional units in the U.K. This isn’t shocking news, because none of those entities never really made their mark on U.S. customers in the limited areas where they operated. And on the labor front, Amazon faces more challenges after it was revealed that associates at a single Amazon Fresh store in Seattle are attempting to organize that market, seeking a $25 an hour starting wage, a more flexible attendance policy and longer breaks. At Amazon’s Bessemer, AL distribution center, voting is continuing (until March 25) as warehouse employees decide for a second time if they want to organize. Ballot counting begins on March 28. And in Staten Island, NY, a union election is set for March 25-30. I still believe that Amazon will prevail in all three cases, but there’s no doubt that pressure to organize has increased at several formerly non-union firms including Starbucks (currently two union stores and petitions to organize 60 other units) and outdoor goods retailer REI, a non-profit co-op whose Manhattan store was recently unionized. More locally, 1,300 workers at a Hershey manufacturing plant in Stuarts Draft, VA (Augusta County, not too far from Staunton) are currently voting to determine if they want to go the union route. Ballot counting will be held on March 24.
In an interesting story from the Maryland Daily Record detailing alleged embezzlement and theft of trade secrets between Annapolis-based Compass Marketing and Flywheel Digital, the company that Compass is suing. The suit is being led by Compass’ executive chairman and founder John White (who we remember from his days at Acosta; he even hired former Chaimson/MAI/Acosta senior executive Ralph Panebianco as president of his fledgling firm in the early 2000s when Compass served as a sales agency of branded products to alternate channels of the trade). White is accusing his two brothers – Michael White, who currently is chief judge of the Saint Mary’s County Orphans Court and Daniel White, a deputy states’ attorney in St. Mary’s County – as well as Michael White’s son, George, a Maryland state police officer, of embezzling thousands of dollars from Compass. Also named in the suit were former Compass employees James “Chip” DiPaula (who also served as chief of staff for former Maryland Governor Bob Ehrlich) and Patrick Miller, both of whom founded Flywheel in 2014. John White’s two brothers are accused separately of embezzling and laundering money from Compass “to finance a life of luxury for themselves and their immediate family members.” The lawsuit notes that both DiPaula and Miller resigned the day after they had formed Flywheel. It also alleges that both former Compass executives misused trade secrets they learned while employed at their former company, poached a number of Compass associates, and pursued existing Compass clients. According to the Daily Record story, “the complaint seeks to link the Whites with DiPaula and Miller through a series of checks that Michael and Daniel White issued to DiPaula and Miller in 2015 after the latter two men had moved on to their new company.” In late 2018, Flywheel was acquired by U.K.-based data analytics firm Ascential for $400 million. Ascential told the Baltimore-based legal publication that “the allegations have no merit and will be vigorously defended.” This case will be one worth watching…
Just before presstime, Wegmans announced that its next new store will open on May 11 in the Carlyle section of Alexandria, VA, close to the city’s historic Old Town area. The 81,300 square foot uber-market will be the Rochester, NY-based family-owned regional chain’s 107th store. More Wegmans news: After years of trying to find a location in the Nutmeg State, the high-volume perishables-driven merchant will open a 95,000 two-level store on 11 acres in tony Norwalk, CT (Fairfield County), close to I-95. No opening day timeline has yet been announced, but the battle between Wegmans and Stew Leonard’s original store – also located in Norwalk – will be a battle of titans.
A couple of obits to report this month including Sally Kellerman, 84, best known for playing the original “Hot Lips” Houlihan in Robert Altman’s iconic movie “M*A*S*H” (1970). While Loretta Swit’s TV portrayal of Margaret Houlihan might be better known because of the length and popularity of the series (11 years), Kellerman’s version was much better, and her ability to combine military stiffness with sexiness helped her win a Golden Globe award and an Oscar nomination. All told, Kellerman’s career spanned 64 years and included 157 film and TV credits. Kellerman, who pursued a singing career after her acting career waned, also worked with Altman on three other movies – “Brewster McCloud” (1979), the underrated “The Player” (1992) and “Pret-a-Porter” (1994). She also played Rodney Dangerfield’s love interest in the embarrassingly hilarious “Back to School” (1986)…also passing on was Gary Brooker, whose most famous song gave us a glimpse of his raw talent as a singer, songwriter and keyboard player. Brooker, 76, was a founding member and lead singer of the British band Procol Harum, and his 1967 hit “A Whiter Shade of Pale” sold an estimated 10 million copies. However, a deeper dive indicates that Brooker and his band were far more than one-hit wonders. Songs like “A Salty Dog” (1971) and “Conquistador” (1972) were also hits for the band which also included guitar great Robin Trower. For the past 30 years, Brooker was a solo performer who played with Eric Clapton, Ringo Starr and George Harrison, among others. He was honored as a member of the Order of the British Empire (MBE) for his many years of charitable endeavors.