OKLAHOMA CITY -- Credit losses to retail customers are the primary obstacle hindering Fleming Cos.' return to satisfactory profit levels, Robert E. Stauth, chairman and chief executive officer, said at the company's annual meeting here.
"There is no problem in our company that requires more attention than this important area," Stauth told about 400 shareholders late last month. He later told SN Fleming had credit losses totaling $52 million last year. This compared with a $28.3 million write-off for credit losses in 1992.
The credit losses continued into the first quarter, with Fleming writing off about $15 million, or $4.4 million more than in the year-ago first quarter. The credit losses contributed to an overall 34.7% decline in net earnings in the quarter ended April 16. (See related story, Page 8.)
Fleming's retail customers are battling a "hostile competitive environment," Stauth said. "Our retailers are still experiencing generally soft sales in all regions of the United States -- with California being especially difficult."
Stauth said credit losses to retail customers have become the "No. 1 roadblock" to Fleming producing consistent results.
"And we're taking a number of measures to ensure that we make new loans more carefully," he said. "We're also becoming tougher on the management of credit extension."
First-quarter sales were down 0.3% overall, but several company divisions were reported to have shown "excellent improvement" compared with last year's first
quarter, including northern California; San Antonio; Hawaii; Geneva, Ala., and the new Garland-Fort Worth, Texas, unit.
The Baker's Supermarkets chain in Omaha, Neb., part of Fleming's corporate retail group, also is "off to a fast start," Fleming executives said.
Indeed, corporate retail business, which now comprises 5% of company sales, will increase to between 25% and 30% of total sales volume by the end of the decade, Stauth told SN after the meeting.
Randy Devening, vice chairman and chief financial officer, said Fleming is developing an aggressive growth plan for the corporate retail group. This includes evaluating markets Fleming already serves and identifying appropriate acquisition candidates in specific niche markets, he said.
Kmart Corp., Troy, Mich., will become Fleming's largest customer in 1995. Sales to the supercenter operator are expected to total more than $500 million on an annualized basis by the end of 1994 and increase above that in 1995, Stauth said. Fleming currently supplies 13 of the 21 Super Kmart Centers in operation. Kmart has plans to open 55 such centers in 1994 and Fleming said it expects to supply the majority of those.
Stauth told the audience that core earnings from operations in 1994 are not expected to improve from 1993 levels and the second quarter is expected to show an "unfavorable comparison."
But with implementation of a re-engineering plan, consistent earnings growth should begin in 1995, he said.
Startup of the re-engineering plan in the next 18 months was described as a top priority -- enough so as to put international development temporarily on the back burner. "I've redirected the efforts of our senior management team internally to refocus on our core operations," Stauth said. "And until we get our business moving forward, international will have a secondary focus. But only for a short time."
Four of five planned facility consolidations, currently under way, will be completed early in the fourth quarter, according to Stauth. The last of the planned consolidations will be announced in 1995. Devening said cash expenditures related to these activities have not yet been significant. But the company expects that cash requirements in support of these programs will be about $30 million in 1994 and $50 million in 1995.
In its re-engineering process, Fleming has compiled a list of "quick hit" items, or functions that are being examined to see if they can be eliminated or radically changed to cut costs, said Jerry Austin, executive vice president of operations.
"The list of ideas so far includes looking at how we handle travel expenses, who should attend conventions, use of voice mail, simplifying company reports, controlling legal costs and many other things which have the potential for saving several million dollars annually."
While Fleming already has announced broad outlines of its re-engineering focus, it hasn't yet revealed details of the plan.