Ralphs Arranges Financing to Add 50 Stores by 1994 : Retailing: The new credit pact will make the grocery chain a stronger competitor and free more than $100 million in capital in the first three years by stretching out debt payments.
Ralphs Grocery Co. on Friday announced an ambitious program to open 50 new stores by the end of 1994, and said it obtained up to $450 million in new financing to replace existing long-term debt and to free capital for the expansion.
Alan J. Reed, chief financial officer of the Compton-based supermarket chain, said the new financing through Security Pacific National Bank would cut annual long-term debt payments that are now about $50 million a year. He declined to specify the amount to be cut, but said the new financing would free more than $100 million in capital in the first three years.
“This Security Pacific package allows for the necessary flexibility to complete the aggressive capital expansion program that we have begun,” he added.
Analysts said the refinancing was another sign that Ralphs is financially strong, despite being saddled with debt after it became part of the Campeau retailing empire in the takeover of Ralphs’ parent, Federated Stores Inc., in 1988. Ralphs is operated as a separate corporation from the rest of the troubled Campeau holdings.
“It’s probably more appropriate for Security Pacific to be borrowing money from Ralphs,” joked retail consultant Tom Pirko, alluding to the bank’s recent announcement that it expected to lose as much as $360 million in the fourth quarter.
The expansion plans were also seen as a necessary step to counter competition from archrivals Vons and Lucky Stores. Both have expanded recently through acquisitions and mergers with other supermarket chains; Ralphs has lagged behind partly because much of its cash flow was going toward heavy debt payments.
“In a market as competitive as you have there, doing nothing is not an option,” said Michael Sansolo, editor of Progressive Grocer, a trade publication based in Stamford, Conn. “By doing this, it seems Ralphs is positioning itself to keep growing with the market.”
Under its new plans, the 148-store Ralphs chain will add 50 new stores throughout the six counties of Southern California, including stores in southern Orange County and in new planned communities along Highway 15 in the Temecula Valley of north San Diego County, said Jan Charles Gray, a Ralphs senior vice president.
The expansion also includes building an automated distribution warehouse for perishable goods in Compton, to replace two warehouses in Los Angeles, in late 1992 or early 1993, he said.
The expansion will mean the addition of about 5,000 to 6,000 new employees to Ralphs current work force of more than 17,000. It will also mean the expansion of total sales from less than $3 billion now to about $5 billion by 1994.
“I think what this signals for a lot of their competitors is that a real strong competitor just got a lot stronger,” said Richard Giss, a partner in charge of the retail services group at the accounting firm Deloitte & Touche in Los Angeles.
Reed said the new financing package, which is expected to be in place by April, will include a private placement of debt up to $200 million, a long-term loan of $150 million and a revolving credit line of up to $100 million. The total package will replace about $430 million of current senior debt now with Bankers Trust, he said.
Ralphs reported a loss of $11.4 million in the quarter ended Oct. 7 on sales of $623.5 million, but its cash flow for the period was a healthy $44 million.
The expansion would move Ralphs closer to its rivals. Gray said Ralphs is currently the No. 3 supermarket chain in Southern California, behind Vons and Lucky.
