Albertson’s highlights real estate value

Listen to this article

00:00
00:00

This is an experimental feature. Give us your feedback. Thank you for your feedback.

What do you think?

Albertson’s, the US supermarket chain now seeking potential buyers, yesterday stressed the value of its real estate assets, saying it planned to accelerate store sales in under-performing markets.

Larry Johnston, chief executive, said the company was “aggressively looking to exit non-core, under-performing markets and monetise their valuable asset base and business value for shareholders”.

The strategy, he said, was a part of what he called “the end game” in Albertson’s drive to improve growth and profitability, and would lead to the creation of “a smaller yet more profitable” company.

“The power of the core is being masked and held back by an underperforming non-core group of assets and markets,” he said.

Albertson’s said on Friday it had retained Goldman Sachs and Blackstone to examine strategic options including the sale of all or part of the company.

Mr Johnston’s remarks highlighted the potential value embedded in Albertson’s real estate assets in the current market. The company owns around 60 per cent of its network of more than 2,500 stores in 37 states, compared to around a third at rivals Safeway and Kroger.

Real estate disposals were an important element both in this year’s private equity acquisition of Toys R Us, and in the 2003 acquisition of Kmart by Eddie Lampert, the hedge fund investor.

However, William McGuire of Alvarez & Marsal real estate consultancy noted that it can be harder to find an outright buyer for an existing grocery store, rather than for other “big box” retail locations.

“Grocery is one of the hardest things to reposition and to put into some other format. It’s a tough big box to reuse,” he said, adding that Albertson’s could sell and lease back some of its sites.

Albertson’s latest quarterly results, announced yesterday, reflected the continuing pressures on the retailer and other conventional supermarkets in the US from Wal-Mart and other discounters. Overall sales remained virtually unchanged on the same quarter last year, at $10.2bn, partly as a result of a continuing drive to cut prices.

Mr Johnston said the price strategy, which involves setting continuing low prices on key items, rather than promotional price cutting, was beginning to change customer perceptions of its stores, and that the strategy was sustainable as a long term business model for the company.

Comparable store sales were flat for the quarter and identical store sales fell by 0.1 per cent.

Net earnings for the second quarter were slightly below Wall Street’s expectations at $107m, or 29 cents a share, up 3 per cent.

Albertson’s also said it is extending its RFID tagging test programme to its 140 store Acme division on the east coast, with 15 stores introducing the technology in 2005, followed by the remaining stores in 2006. It says 48 suppliers are currently participating in its pilot progamme, centered on stores and a distribution centre in Texas.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.