Mergers Depress Profits at Supermarket Chains
Southern California supermarket rivals Vons Cos. and Ralphs Grocery Co. on Wednesday reported third-quarter losses while profit at American Stores dropped sharply--the fallout of a recent wave of industry mergers and major corporate changes.
It was the first Vons quarterly report to include the impact of 162 Southern California Safeway stores acquired earlier this year.
And it was also the first time in several years that Ralphs, a subsidiary of Campeau Corp., has publicly disclosed quarterly financial information. Until it recently sold bonds to the public, the chain was not required to report earnings as a corporate subsidiary.
Despite the losses, industry consultant Tom Pirko was impressed with the overall results of both chains. “Considering the kinds of acquisition and business activity that they have undergone,” he said, “they have pulled through smoothly. What we all have feared is that these (transactions) would saddle them with so much debt that it would hurt their performance.”
Effects of Lucky Purchase
At Irvine-based American Stores--which owns Lucky, Alpha-Beta and Osco Drug stores--third-quarter profits plunged 43.7% to $20.7 million. The company said profits were affected by its $2.5 billion merger with Lucky Stores.
American Store third quarter sales, including those of Lucky, rose 42.3% to $4.9 billion. Excluding Lucky, sales rose about 6% to $3.7 billion.
Ralphs reported a loss of $22.3 million for the three months on sales of $542 million, up 5.1% from the same period last year. Changes in the company’s corporate structure did not permit a year-to-year comparison of profit or loss.
The 130-store chain blamed the loss on a one-time charge of $14.8 million associated with the merger costs incurred when Campeau Corp. acquired Ralphs’ former corporate parent, Federated Department Stores.
But Ralphs reported a dramatic rise in operating income--income before taxes and one-time gains or losses. The Compton-based chain said third-quarter operating income soared 63.9% to $19.5 million, a result of cost cutting--administration expenses were reduced by $8 million and advertising by $4 million--and more efficient warehouse operations.
“We are pleased with the very substantial improvement in operating income,” said Ralphs Chairman Byron Allumbaugh in a statement. “This demonstrates the successful implementation of programs to reduce expenses in warehousing, store operations, advertising and administration.”
$9.5-Million Loss at Vons
El Monte-based Vons reported a loss of $9.5 million for the third quarter ending Oct. 9. It broke even during the same period last year. The 350-store chain, which includes Vons, Pavilions and Tianguis, said the loss stemmed from its $371.5-million acquisition of most of Safeway’s Southern California stores.
Third-quarter operating income also declined to $13.5 million from $19.3 million a year ago. Much of the decline was blamed on one-time costs of $7.9 million linked to the integration of Safeway stores to Vons’ operations.
Third-quarter sales rose 26% to $1.23 billion, reflecting the additional Safeway stores. Excluding the Safeway stores, Vons’ sales increased 6.5%.
“Despite a net loss in the third quarter, sales are strong,” said Roger E. Stangeland, chairman and chief executive. “We knew there would be substantial costs associated with the acquisition of 162 stores and we are managing those costs intelligently.”
