MARSH STOCK SOARS ON REAL ESTATE APPRAISAL

JON SPRINGER

INDIANAPOLIS - The stock of Marsh Supermarkets here shot up last week after the company said a recent appraisal of its real estate revealed fair market value of $100 million to $150 million more than the book value reflected in the retailer's financial statements.

Marsh owns the real estate and buildings for 34 supermarkets and 44 convenience stores, as well as a distribution center, company headquarters and other properties, and is currently searching for a buyer for the company as part of a strategic review. The real estate appraisals were performed in connection with the ongoing review, as well as for recent loans secured by various properties, the company said. The book value, determined by subtracting liabilities and depreciation from assets on the balance sheet, and reported most recently in Marsh's annual report last June, was $15.72 per share: Marsh Class A shares were trading as low as $6.25 in recent weeks.

"The asset value of the company may be higher than some people may have believed, or they hadn't focused on it," Doug Dougherty, executive vice president and chief financial officer for Marsh, told SN in an interview last week.

Dougherty speculated that the real estate news might have been a factor in Marsh stock skyrocketing last week, with Class A shares gaining more than 23% to close at $8.89 and Class B shares climbing nearly 34% to $7.90, in a single day Wednesday. The lightly traded stocks did 10 times their average daily volume.

Market reaction to recent restructuring decisions, and financial results that Dougherty termed better than many had expected may have also been factors. Marsh earlier this month announced the closure of eight stores and a number of layoffs at corporate headquarters including four senior officers who were relatives of the founding Marsh family. The company will focus on stabilizing its credit ratios, cutting costs and limiting its spending, it said in a quarterly report last week.

"You can view a store closing as bad news, or you can view it as the management team starting to make the right kind of decisions for the company," Dougherty said. "There also may have been expectations that we were doing worse than our numbers indicated."

Dougherty declined to comment on the process or details of the strategic review, which Marsh began with Merrill Lynch in December, but said if and when the company calls off a search for a buyer, it would say so publicly.

Charges related to asset write-downs and the strategic review contributed to a loss of $9.6 million during the fiscal third quarter, which ended Jan. 7. The loss included an $8.4 million charge for impairment of long-lived assets at nine supermarkets and 10 convenience stores. It also included a $1.2 million charge related to the review, debt refinancing and severance.

Sales of $407.5 million for the period increased 1% increase from the same period a year ago. Comparable-store sales increased 0.7%, and excluding fuel sales, decreased by 1.4%.

Gross profit as a percentage of sales decreased to 29.5% from 29.6%, due mainly to a higher mix of gasoline sales. The company said its ability to increase margins was a "challenge, due to competitors' promotional activity."

3RD-QUARTER RESULTS

Qtr Ended: 1/7/06; 1/1/05

Sales: $407.5 million; $401.8 million

Change: 1%

Comp-store: 0.7%

Net Income (Loss): ($9.6 million); $2.7 million

Change: NA

Inc (Loss)/Share: $1.22; 34 cents

40 Weeks: 2006; 2005

Sales: $1.4 billion; $1.3 billion

Change: 3.1%

Comp-store: 2.1%

Net Income (Loss): ($12.4 million); $5.6 million

Change: NA

Inc (Loss)/Share: ($1.57); 71 cents