23% Drop in Profit Reported by American : Supermarket Company Also Announces Delay in Lucky Takeover Bid
American Stores, in the midst of a $2.5-billion takeover of Lucky Stores, said Thursday that its first-quarter earnings plunged 23% from a year ago, blaming the decrease partly on pressures to cut prices at its Alpha Beta stores in Southern California.
Separately, the company reported a delay in completing its financing for the Lucky Stores buyout that would make American Stores the largest supermarket company in the United States.
The Salt Lake City company extended until late Thursday the deadline for its $65-a-share offer for Lucky and said earlier in the day that it was considering a second extension in order to complete a credit agreement with banks that are providing financing for the deal.
By the original deadline of midnight Wednesday, the company said, it had received 93% of Lucky stock.
There seemed to be little concern Thursday about a delay in financing. “I don’t think there has been a problem getting the money together. The Memorial Day holiday probably slowed down the plans. An extension isn’t uncommon, and this purchase is not a small one,” said Richard Pyle, a retail analyst at Piper Jaffray & Hopwood, a brokerage firm in Minneapolis.
When completed, he said, the deal will be a will be a “smart” one for American--whose faltering Alpha Beta chain posted a 43% drop in profits for the quarter.
Deliberately Cut Prices
American, which plans to move its headquarters to Irvine in July, reported sales for the quarter ended April 30 of $3.6 billion, up 4.4% from $3.4 billion a year earlier. Net income dropped to $27.1 million from $35 million a year ago.
The company said its earnings slide and minimal sales growth occurred because it deliberately cut prices to increase market share during the quarter. But analysts described the results as disappointing and said American Stores is not succeeding in its efforts to bring in more customers.
“Their performance means that they were smart to buy Lucky when they did, because their own attempts to turn things around for several years haven’t been working,” said Pyle.
In reporting its results, American Stores released sales and earnings separately for each of its divisions, a move that the company acknowledged was unprecedented. The move could signal that American Stores is preparing to sell some of its divisions, said John Kosecoff, a supermarket industry analyst at First Manhattan, a New York brokerage firm.
That report confirms what analysts have been saying for several years about the low-profile company: that its Western operations are not doing well.
Operating profit at Alpha Beta, which operates mostly in Southern California, dropped to $6.7 million from $11.9 million. The Skaggs Alpha Beta and Buttrey stores divisions, which operate mainly in the Northwest, reported an operating loss of $9.2 million, compared to a loss of $1.2 million in the year-earlier period.
Profit came from the nationwide Osco Drug unit and the American Superstores chain in the East and Midwest. American reported a $32.1-million profit for Osco Drug, up 35% from the year-earlier $23.7 million. Sales for the drugstore chain increased 1% to $737.4 million.
