BOISE, Idaho -- Albertson's here is moving forward on multiple expansion fronts following a string of acquisition moves.
In developments last week:
Albertson's completed its acquisition of 15 Bruno's stores in Tennessee and Georgia and promised more growth in the region.
It disclosed plans for a new Midwest distribution center in Tulsa, Okla., that will, in part, service the Tennessee stores.
It said it has started developing a transition team to oversee its merger with American Stores Co., Salt Lake City.
It said it expects to close in mid-September on its acquisition of Buttrey Food & Drug Stores Co., Great Falls, Mont.
Albertson's also disclosed plans last week to expand the number of fuel centers it operates to approximately 40 by year's end and released second-quarter financial results, which the company said demonstrated some of the benefits to sales and earnings of previous acquisitions.
Gary Michael, chairman and chief executive officer, said the acquisition of the Bruno's stores expands Albertson's presence in Tennessee and marks its entry into Georgia, "and we expect this transaction to provide the foundation for Albertson's continued growth in these and the surrounding markets," he said.
Albertson's already operates 10 stores in Memphis, Tenn., which it acquired last January, under the Seessel's name.
Albertson's said the former Bruno's stores will operate under the Albertson's banner and will be supervised by a district office in Nashville, Tenn., which will report to the chain's Memphis division.
The 15 Bruno's include 11 in Nashville (including one new store that is built but not yet opened); three in Chattanooga, Tenn.; and one in Fort Oglethorpe, Ga.
Albertson's plans to close one of the existing stores and open the newly built store as a replacement unit, for a net of 14 stores, analysts told SN.
The company said the addition of the former Bruno's units boosted Albertson's total retail square footage to 46 million square feet, an increase of 12.3% over the past 12 months. Albertson's also disclosed plans last week to build a new Midwest distribution center in Tulsa to distribute dry grocery, frozen-food, produce, meat and delicatessen items to the Tennessee stores, among others. The company said it has already broken ground on the facility -- its 12th distribution center -- which is scheduled to open in September 1999. Albertson's said the facility will be an L-shaped warehouse of 747,000 square feet that is designed to service 70 to 80 stores, primarily in Oklahoma, Kansas, Nebraska, Iowa, Arkansas, Missouri and Tennessee. The company said the 113-acre property will enable Albertson's to expand the facility by 500,000 square feet.
According to Jonathan Ziegler, a San Francisco-based securities analyst for Salomon Smith Barney, New York, Albertson's decision to build the distribution center "implies it has plans to triple or quadruple its store base in Tennessee and Missouri [where it operates Smitty's]."
Albertson's said its pending merger with American Stores is moving forward, with a transition team beginning the job of combining the two companies. "But it's a process that's still developing," a chain spokesman told SN, "and although some people are already working on the transition, there's been no formal team named."
The spokesman said he expects Albertson's to mail proxies to its shareholders "in the next several weeks" so they can vote for or against the proposed merger. He was unable to say when the proxies would be due.
He said Albertson's is estimating it will close on the American Stores deal by the end of next year's first quarter, "but we have to go through the FTC and a couple of states' attorneys general, and we don't know how long that will take," the spokesman said. Albertson's said it hopes to complete its acquisition of Buttrey by mid-September. "That's our best guess," he said. "It's up to the FTC."
The company said two weeks ago it had reached agreement with the FTC -- more than eight months after it disclosed plans to acquire the chain -- that involved selling a combination of 15 Buttrey and Albertson's stores in Montana and Wyoming, including 13 to Smith's Food & Drug Centers, Salt Lake City, a division of Fred Meyer Inc., Portland, Ore., and two to Supervalu, Minneapolis.
Albertson's said last week that agreement has been submitted to the FTC commissioners by the commission staff with a favorable recommendation.
The chain also said last week it is extending its tender offer for all outstanding shares of Buttrey common stock until midnight Sept. 30. It said it will amend the offer to accelerate the expiration date once all conditions to the offer, including FTC clearance, are satisfied. Securities analysts said Albertson's is testing fuel centers (gas stations) at seven stores to test their viability as a sales driver, "and management is talking about having 40 by year-end," Ziegler said.
"And while that's less than 5% of the chain, I feel half of Albertson's stores could have them within a relatively short time as a way to drive same-store sales."
Albertson's financial results showed sales up 8.5% to $4 billion for the 13-week second quarter and 7.6% to $7.8 billion for the half. Identical-store sales rose 0.6% for the quarter and 0.1% for the half, while comparable-store sales, including replacement units, were up 0.8% for the quarter and 0.3% for the 26 weeks.
Net income rose 17.3% to $128.4 million for the quarter and 9.3% to $239 million for the half.
During the quarter, the company said, it opened 18 new stores, remodeled five, and closed 12; for the half, the company said, it opened 53 new stores, including 24 acquired units (10 Seessel's, 10 Smitty's, three Super One Stores and an independent in Shelley, Idaho), remodeled seven and closed 15.
Albertson's said it plans to open approximately 31 new stores and complete 24 remodelings during the balance of the year, for an annual total of 84 new locations and 31 remodelings. The company did not indicate how many stores it plans to close during the second half.
Commenting on first-half results, Craig Olson, senior vice president of finance and chief financial officer, said, "We have successfully integrated 24 newly acquired stores into our system, [while continuing] to focus on existing operations and on programs designed to grow our sales and strengthen our company."
Debra Levin, an analyst with Morgan Stanley Dean Witter, New York, said the Seessel's stores in Memphis "are making strong progress" after two full quarters under Albertson's operation, with customer counts up 2% and average weekly sales up more than 10%. Levin said the company is also pleased with results at Smitty's, Springfield, Mo., which was acquired in April, where she said Albertson's has added service meat and seafood departments.
She said Albertson's plans to continue to operate three Super One stores in Des Moines, Iowa, and an independent unit it acquired in Idaho under their existing names "until its remodeling efforts [at those stores] are completed next spring."
Securities analysts told SN Albertson's deserves high marks for shifting its focus from earnings to sales in the last couple of years.
"Albertson's today is very much a sales-driven company, and management is very tuned in to what it has to do to compete," Ziegler said.
Chuck Cerankosky, an analyst with McDonald & Co., Cleveland, echoed that comment. "Much of the company's current flexibility has to do with the pattern of the last few years, which has seen retail square footage grow faster than revenues, which has prompted management to question what it was doing.
"In the process it recognized that its everyday low-pricing approach needed a stronger voice and more promotional flair. And management also realized that its basic store, while very efficient, may not have had the customer appeal it needed, especially in comparison with some competitors."
To deal with that challenge, Cerankosky said, Albertson's developed a prototype that was unveiled in May in Houston "that's a kind of research-and-development facility for a lot of concepts.
"We may never see another Albertson's that looks like the Houston store, but we will certainly see parts of that store reflected in other locations as the company experiments with sales builders."
Among the store's features are several boutique concepts, for example, meal centers, pet centers, snack and beverage centers, party centers and fuel centers.