More Sale-Leasebacks Likely for Albertsons

Jim Donald’s first quarterly report since being named CEO of Albertsons Cos. showed his company executing well, albeit from a precarious position, analysts told WGB.

Donald, who has been serving as the retailer’s president since early this year, succeeded Bob Miller as CEO last month after an attempt to get Miller’s successor in a deal with Rite Aid fell apart amid a lack of support from the Camp Hill, Pa.-based drug chain's shareholders. That deal also cost Albertsons’ private equity owner, Cerberus Capital Management, an opportunity to spin off the big retailer to public markets where it can raise investment capital—a critical ability in the current grocery arms race. Cerberus has attempted a public spinoff, without success, for more than three years.

Jim Donald photograph courtesy of Albertsons

In a conference call, Donald told analysts that Albertsons would work to keep its financial options open, saying that the company hadn’t ruled out pursuing additional acquisitions. He also intimated that Albertsons would try to reduce debt before attempting another public offering, with more sale-leaseback deals likely.

Albertsons has more than $11 billion in debt, according to second-quarter financial results announced Monday. The company last month raised $290 million through the sale of two of its distribution centers, which it subsequently leased from its new owners and used that money to fund reduce debts. Donald said the company has more than $10.5 billion in owned real estate and that it would “opportunistically” look to monetize.

“As long as there’s a market, we’ll continue to look at that opportunity,” he said. “We still own a ton of real estate.”

Donald acknowledged that reducing the company’s debt ratios would aid another run at the public markets but said its leverage wouldn’t necessary preclude an IPO. “We definitely have debt reduction as a strategic priority,” he said.

Donald said that lower-than-expected inflation over the first half of the year contributed to a reduction in expectations for comp sales for the full year, but he highlighted progress in areas such as private-brand penetration, and price and quality perception from shoppers. The recent completion of its IT integration—during which its Jewel and Acme banners switched to the Safeway-bred system that the entire company now runs—will help the chain as it rolls out the “Just for U” personalized offers to shoppers and will allow those chains to devote their full efforts to servicing customers.

“I think the execution is right, the format is right and they have the right leaders,” Burt P. Flickinger III, managing director of Strategic Resource Group, told WGB. “I think they have some momentum, and that the chances they can do an IPO in two or three quarters is excellent.”