Posted: 6:22 pm Thu, July 12, 2012
By Chris?Newmarker
Tags: Best Buy, Cub Foods, Goldman Sachs Group, Greenhill & Co., J.P.Morgan, McComb Group, Supervalu, Trader Joe's, Whole Foods
Supervalu?s Minnesota real estate holdings include its more than 1.8-million-square-foot distribution center at 101 Jefferson Ave. S. in Hopkins. It is the company?s largest distribution center nationwide. (Submitted photo: CoStar)
Nearly four months after Richfield-based Best Buy said it would shutter a handful of big-box stores in Minnesota, the state could face a round of store closings from another retailer based in the state ? Eden Prairie-based Supervalu.
Supervalu, which operates Cub Foods and many other grocery store chains across the nation, announced Wednesday that it would slash an additional $250 million in costs over the next two years. That means something has to give.
?There may be Cub stores that close, depending on the economics of that store and that market. I think to a certain extent, they may have spread their stores too thin or may have gone into trade areas that don?t generate the volume for them that they did before,? said Jim McComb, president of the Minneapolis-based real estate and retail consulting firm McComb Group.
Many of the 67 Cub stores in Minnesota are 40,000 to 60,000 square feet, but some are nearly 100,000 square feet ? which may be too big. ?You have huge stores with all that shelving, and all of a sudden it drives your inventory costs,? McComb said.
Asked who might take over the location of a closed Cub, McComb said, ?Tough to say. There aren?t a lot of retail stores that are that size.?
For now, Supervalu spokesman Jeff Swanson said the company?s focus is on reducing product prices. As for store counts, he said, ?we?re going to continue to make those decisions about the stores we operate based on regular reviews of performance.?
Meanwhile, Supervalu plans to open about 40 of its smaller, roughly 15,000-square-foot Save-A-Lot stores nationwide, but the expansion will likely not include the Twin Cities.
?Where we have a presence already it makes more sense from the efficiency standpoint,? Swanson said.
The stakes for Minnesota are huge.
The fourth-largest public company based in the state, Supervalu has 8,700 of its 130,000 workers based here. It has two Eden Prairie office buildings, an office building in Chanhassen that it is vacating soon, and Stillwater offices supporting Cub Foods. It also has a nearly 2 million-square-foot distribution center in Hopkins, its largest nationwide.
Of the 67 Cub Foods stores in Minnesota, 44 are corporate owned. Supervalu also operates a Hornbacher?s in Moorhead. And there are two independently owned Save-A-Lot stores, one in Duluth and the other in St. Cloud.
The majority of Supervalu?s 64 million in retail square feet nationwide is leased.
As for job losses, Swanson said it is too early to tell where layoffs related to the cost-cutting will occur. The company announced earlier this year that it was cutting a few hundred corporate jobs in the state and it said last month that it was laying off as many as 2,500 workers in its Albertsons Southern California Division.
The cost-cutting plans came amid a first-quarter earnings announcement in which the $41 million in profits and $10.6 billion in sales for the quarter ended June 16 failed to meet analysts? expectations.
For years, Supervalu has been losing customers as huge discount retailers such as Minneapolis-based Target Corp. and Arkansas-based Wal-Mart Stores moved into the grocery business, at the same time that California-based Trader Joe?s and Austin, Texas-based Whole Foods are grabbing more specialty business.
?We did not move quickly enough to respond to intensifying competitive conditions in our industry,? Supervalu CEO Craig Herkert said Wednesday during a conference call with analysts.
Along with the expected cost-cutting, the company announced that it was halting dividend payments, renegotiating roughly $2 billion worth of debt, reducing capital expenditures by up to $225 million this year, and directing Goldman Sachs and Greenhill & Co. to seek ?strategic alternatives.? That?s corporate-speak for a possible sale of all or part of the business. (Herkert said bankruptcy protection is not an option.)
Much of the savings will be plowed into lower prices on store shelves to prevent loss of further market share.
Investors appear to be unimpressed by Supervalu?s moves: The company?s stock was down $2.60 per share, or 49.1 percent, to $2.70 at the close of trading Thursday.
During the Wednesday conference call, UBS analyst Jason DeRise asked whether cutting store staff and operations might be hurting Supervalu?s ability to generate revenue.
?Actually what may need to happen is more staff needs to go into the stores,? DeRise said.
Herkert responded that the company is looking for ?non-customer facing opportunities? to reduce expenses.
DeRise actually upped his rating on Supervalu stock to neutral from sell after the announcement, saying in a report that removing debt covenants allows Supervalu to ?begin to properly invest behind its turnaround.?
As for ?strategic alternatives,? DeRise thinks it is unlikely in the near term that Supervalu will be able to find a buyer willing to pay a fair value for its assets.
J.P. Morgan analyst Ken Goldman, who downgraded his rating on Supervalu to neutral from overweight after the Wednesday announcement, said in a report that the ?unknowns are vast.?
Questions include how equity or debt might be distributed in a possible company breakup, or whether store closings would trigger multi-employer pension plan withdrawal liabilities.
?With these questions (and more) surrounding the company, we believe there are too many unknowns to fairly judge if a strategic action is likely and/or value creating at this time,? Goldman said.
Source: http://finance-commerce.com/2012/07/supervalus-real-estate-is-vast-in-minnesota/
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