KASH N' KARRY OWNERSHIP MAY CHANGE

MARK TOSH

TAMPA, Fla. -- A change in the ownership of Kash n' Karry Food Stores here may be completed by the end of the chain's fiscal year in August, SN learned last week.

A spokeswoman for Leonard Green & Partners -- a Los Angeles investment group that controls Kash n' Karry -- said last week that four food-industry players have expressed interest in taking some type of ownership position in the retailer.

She said talks have been held with businesses that have "strategic interests at stake," but the percentage of the equity investment any of the groups could make has not been determined.

Talks with the four should reach "some type of conclusion within the next four weeks," the spokeswoman said. She declined to identify any of the entities.

Leonard Green & Partners gained a controlling interest in Kash n' Karry following a 1988

buyout and through subsequent equity infusions. Kash n' Karry, a leveraged chain, operates 101 stores with annual sales of more than $1 billion.

The spokeswoman said Leonard Green & Partners supports management at Kash n' Karry. "Operations are strong because, for one thing, sales are ahead of budget," she said.

Ronald Floto, president and chief executive officer of Kash n' Karry, told SN he could not comment on the possible equity investments beyond what the company said in a mid-March filing with the Securities and Exchange Commission.

But Floto said he believes Kash n' Karry has made recent progress toward improving its operating results, evidenced by a slightly positive same-store sales result in the 13 weeks ended March 13.

"We feel very good about our progress and our position operationally and from a merchandising and marketing standpoint," he said. "What we have to do is get this company recapitalized and that's recognized by all concerned."

In the SEC filing, Kash n' Karry said discussions "of a preliminary nature" were under way with an unspecified number of industry participants who were interested in making an equity investment in the company.

"There can be no assurance as to the timing, terms or ultimate completion of any transaction, but it is the company's intent to complete any ensuing process prior to the end of its current fiscal year," Kash n' Karry said in a 10-Q filing.

Its fiscal year ends Aug. 1.

In the second quarter, which ended Jan. 30, Kash n' Karry reported a $6.5 million loss.

Sales declined 3% to $278.2 million in the quarter. Kash n' Karry said it has closed 17 stores in the past 12 months, including 11 last November.

Closing the 11 stores was difficult, Floto said, but it has proven to be a "very good decision." Late last year Kash n' Karry hired Morgan Stanley, a New York investment bank, to assist in evaluating strategic options for the company. "Morgan Stanley has had discussions with several industry participants, a subset of which has expressed an interest in further considering an equity investment in the company," Kash n' Karry said in the SEC filing.

The interested companies were not named in the filing.

One industry observer familiar with some of the negotiations said there are "a large number of people looking" at Kash n' Karry and all options are open at this time.

"The company is very attractive in the sense that it's in Florida," the observer said. "Tampa is one of the fastest-growing markets and Kash n' Karry has a good market share."

Despite its financial situation, Kash n' Karry made the February interest payments on $155 million of debt. Its next interest payments are due in August, but industry observers believe a restructuring of the company is likely to come before that.

Among the companies considered to have a strategic interest in Kash n' Karry, according to industry observers, are Albertson's, Boise, Idaho; Pueblo Xtra International, which is owned by the Cisneros Group of Cos., Caracas, Venezuela, and Kroger Co., Cincinnati.

Some of the stores in the Kash n' Karry chain were part of Kroger's Florida Choice chain, which it sold in 1988.

A Kroger spokesman said last week there is "no truth to any of the rumors or speculation about our interest in Kash n' Karry." For Albertson's, the acquisition of Kash n' Karry would greatly add to its presence in Florida. Albertson's also recently opened a 1-million-square-foot distribution center in Plant City, Fla. The full-line center supplies 75 stores in the state.

Albertson's officials could not be reached for comment. Officials of the chain, however, reportedly told one financial analyst that Albertson's has never acquired an existing chain in its history.

Pueblo currently operates 11 Xtra Super Food Centers in Florida. Officials of Pueblo could not be reached for comment last week.

R. Duane Norris, a high-yield analyst at Lehman Bros., New York, said Kash n' Karry has a "great group" of stores in western Florida, which perhaps is the most demographically attractive market in the United States.

"I think it's an incredibly attractive franchise," Norris said. "The company has not put out strong results, but I feel everything is in place to move forward."

2nd-QUARTER RESULTS

Qtr. Ended 1/30/94 1/31/93

Sales $278.2 million $286.9 million

Change -3%

Same-store -0.4%

Net Income ($6.4 million) ($645,000)

26 Weeks 1994 1993

Sales $534.8 million $537.8 million

Change -0.6%

Same-store -2.96%

Net Income (26.9 million) ($6.8 million)