SN's half-year survey of the nation's 10 largest food retailers with publically traded equity or debt shows that the financial news is generally good for those food retailers. As a group, sales increased 7%, operating income increased 10.6% and comparable-store sales increased by a median of 1.4%.
But, of course, many individual companies in the group exceeded those performance benchmarks by a wide margin, and some fell below them. Let's take a closer look.
According to information developed by SN reporter Elliot Zwiebach for this week's front-page report, Ahold USA chalked up the most impressive gains in sales and operating income for the period in question: 36% and 46%, respectively. (SN's financial survey considers each company's fiscal quarters that most closely align with the first calendar half of this year.)
Other stellar performers, as measured by sales and operating income, include Kroger Co. (17% and 24%, respectively) and Safeway (14% and 26%). Comparable-store sales, perhaps the most telling measure of all, were also strong at Kroger, Ahold USA and A&P. Relatively modest gains in these three measures were shown by Albertson's, Food Lion and Winn-Dixie Stores. Companies that produced negative numbers in some or all of these measures include Penn Traffic, Pathmark and A&P. (I've rounded some of the percentages here. For a fuller explanation of these results, take a look at the news feature and the chart on Page 21.)
Despite the relatively rosy picture painted by industry results for the first calendar half, there's something missing: Reward from equity markets.
Many of the retailers that had robust financial performance have seen their equity values decline at a fast pace. Indeed, several chains in the SN Top-10 group that have shown strong to adequate financial results have share values that are well off their 52-week highs. These include Ahold's ADRs, Kroger, Safeway, Albertson's, Delhaize America (Food Lion) and Winn-Dixie. What's going on here?
Naturally, there are separate explanations for individual companies, many of which can be surmised by a look at this week's financial report.
But, in the main, many food-retailing stocks seem to be caught in the unrealistic rising expectations of Wall Street. By comparison with, say, technology companies, the food-retailing group's performance looks puny. And, if an analysis were applied to all publically held food-retailing chains -- not just the Top 10 -- the average financial performance wouldn't look quite so fine. Equity markets do reward extraordinary growth levels, though, a theory that can be proven by looking at the strong share values of Wal-Mart Stores and Costco Cos.
But maybe the biggest reason for the equity slump is that Wall Street anticipates -- probably correctly -- that the wave of large-scale mergers is finished. A year ago, or so, the equity values of many chains were artificially pumped up in anticipation of merger-related payoffs. Now, realistic-to-underspun equity values are bumping against that. That theory is proven by the share values of Hannaford Bros., to be acquired by Delhaize America, which are holding toward 52-week highs.
