Post-Merger Ralphs Does Better Than Many Expected

Performing more strongly than industry analysts expected, Ralphs Grocery Co. on Friday said it was able to keep its losses to $283 million after incurring merger-related costs in its first fiscal-year report since combining with the operator of Alpha Beta stores.

Ralphs, which became the largest supermarket operator in the Southland after the merger in June, lost $105 million during its fourth quarter ended Jan. 29, largely because of the cost of converting 112 Alpha Beta, Boys and Viva supermarkets into Ralphs stores.

For the year, Ralphs said, it had sales of $4.3 billion. Sales for the fourth quarter were $1.65 billion.

“There are so many charges and costs related to this one transaction,” Jonathan Ziegler of Salomon Bros. said of the merger. But he added: “Looking at the sales, this tells me that this company has the potential to be a strong player in Southern California. The sales were surprisingly strong for a chain that experienced so many [store conversion] disruptions.”

Same-store sales declined 1.9%, far less than the 3% some analysts expected. Same-store sales--those for stores open at least 12 months--are a key to understanding the financial status of a retail chain. The measure helps determine sales trends when companies add or close stores.

In another sign that the company’s outlook is stronger than expected, Ralphs executives told The Times they intend to open 26 stores over the next 12 months, while closing 10 poorly performing stores. The company currently operates 278 Ralphs and 75 Food 4 Less stores.

“We expect that there will be some additional transitional costs as we finalize our consolidation efforts,” said George Golleher, Ralphs chief executive. “With our recent acquisitions and an aggressive growth plan underway, we believe we are well positioned for the years ahead.”

Yucaipa Cos., a Los Angles-based investment firm, acquired Ralphs last summer. The combined company kept the Ralphs name. However, Yucaipa’s warehouse store chain--Food 4 Less--retained its identity and operates under the Ralphs corporate roof.

Earlier this year, Ralphs purchased a warehouse and nine supermarkets owned by Smith’s Food & Drug Centers. That acquisition, as well as costs of the merger with Yucaipa Cos.’ Alpha Beta, Boys and Viva chains, generated $223 million of the $283-million loss, the company said.

In addition, Ralphs incurred costs by closing 24 poorly performing stores. The company was also forced to close or sell 21 more stores to obtain regulatory approval for the merger.

As a result, the company earlier this month announced that it would lay off 1,000 employees. At this point, the company has laid off about 840, most of them part-time workers.

There have been other bumps in the consolidation process. Ralphs had to ask its lenders to revise its loan agreement to acquire the warehouse and the nine Smith’s stores. As such problems came to light, some analysts believed that the company’s financial performance would be weaker.

“When the loan terms were renegotiated, many of us thought they would have weaker results,” one analyst said. “The results were a bit better than Wall Street expected.”

Industry analysts say Southern California has one of the most competitive supermarket environments in the country. The merger last year gave Ralphs about 27% of the Southern California market, vaulting it past longtime market leader Vons, with about 19%.