A&P Stock Surge Not Impressing Everyone

Discussion
Mar 25, 2005
Rick Moss

By Rick Moss


A&P enjoyed the distinction of being the biggest percentage gainer on the NY Stock Exchange yesterday, ending the day up 22.5 percent. Investor enthusiasm was inspired by
a ratings upgrade from Lehman Brothers, based upon the investment bank’s expectation that the ailing retailer will be making important strategic moves over the next year and a
half.


Much of that strategy would entail the divestiture of property: the sale of its Canadian business plus the possible offloading of 102 stores in the Midwest and 41 in the Baltimore
metro area. Proceeds, presumably, would be used to pay down A&P’s current $815 million debt load.


However, acquisitions also appeared in Lehman’s crystal ball: as many as 39 stores from Northeast area competitor Pathmark.


Lehman boosted its rating on the retailer from “Equal weight” to “Overweight,” and increased the share price target from $11 to $18. However, it did not raise earnings estimates
since it had no verification from A&P on any of the news, other than the possible sale of the Canadian operations.


David Livingston, Managing Partner, DJL Research, and RetailWire BrainTrust panelist, was quick to criticize A&P’s anticipated plans.


“In my opinion, A&P would be foolish to acquire any more stores because they have never been able to improve upon anything they have acquired. And they are certainly not
alone in this category, e.g. Safeway.  Acquisitions have only led to more unprofitable stores,” wrote Livingston in an email to RetailWire, which went on to reveal his jaundiced
view of recent A&P history.


“If A&P has learned anything, it’s that they just can’t make a go of operating supermarkets.  About every six months, they try to reinvent themselves using recycled
ideas from the past. Every idea seems to backfire.  New stores never get to where they expected them to go.  Acquisitions have turned sour soon after the ink dries.”


Moderator’s Comment: Why can’t A&P management seem to find ways to improve the company’s performance via better operations?


Again, David Livingston was not short on opinion when it comes to A&P corporate management and the way they attempt to orchestrate turnarounds:


“Unlike other publicly held supermarket chains, A&P has a CEO that cannot be fired.  A&P’s ‘shoot the messenger’ management style has lead
to high executive turnover. I’m all for giving it your best shot, but there does come a time when a company needs to realize it’s never going to get better. Perhaps if Winn-Dixie
had sold out 10 years ago, their stockholders would not be in the situation they are in today.  A&P owes it to its stockholders to provide them a return before they too
become the next Winn-Dixie.”

Rick Moss – Moderator

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8 Comments on "A&P Stock Surge Not Impressing Everyone"


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Len Lewis
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Len Lewis
15 years 11 months ago
I admit to having a soft spot in my heart for A&P. I’m not sure for what reason, just that I don’t want to see another old line name go down the toilet. I’ve been covering the chain since they were acquired by Tengelmann in ’79 and little if anything has been done to successfully grow the company. The latest is simply another offloading of underperforming assets–not building for the future. Some may point to Food Emporium or Waldbaum’s as growth vehicles. But the fact remains these formats–inherently strong–would have fared far better under another company. I hate to bring up a subject that’s been bandied about for two decades. However, how long will it be before the Tengelmann family pulls the plug on this consistent money-loser or simply sells the remainder to another company? Maybe Albertsons is looking for a bargain to solidify their Northeast operations. Whether they would be interested in a turnaround situation is questionable, but stranger things have happened. In Europe, Tengelmann retail operations have been under intense pressure. Things have… Read more »
Tom Zatina
Guest
Tom Zatina
15 years 11 months ago

I tend to agree with David. The track record on their acquisitions speaks for itself. One direction for A&P, and others, to embrace more fully and effectively: The transformation of their grocery stores into marketplaces, expositions, food courts and bazaars that offer great food choices and plenty of sampling.

Charlie Moro
Guest
Charlie Moro
15 years 11 months ago

It would be foolish to disagree that there have been issues with the operations of the A&P group as a whole, but at the same time it is not fair to project too far forward based on past performance. There has been an influx of new, stronger management at the top, with Brian Piwek after his successes in Canada. The Waldbaums group seems to really have focused on their New York roots and if they try to continue to build on learning’s from Food Emporium to see what is transferable to the other formats, (think Albertsons and Bristol Farms). they may have a successful future. The demise of Pathmark, with their relationship with C&S to keep those stores away from Wakefern, may finally have them benefiting from the market place dynamics. Focusing on their core New York metro market and getting out of places like New Orleans can’t be a terrible thing.

W. Frank Dell II
Guest
15 years 11 months ago

A stock analysis recommendation does not make a successful company. A&P’s problems run very deep. Stores are old, dirty and unexciting. In my town they have an old small format store with Food Emporium prices. Consumers only shop there for convenience. This is a perfect example of a retailer that has yet to identify its target customer. They still think they are in the business of selling groceries to everyone.

Mark Burr
Guest
15 years 11 months ago

The answer lies in our other discussion today regarding strategy and execution. A&P has fallen short on both. Even if you have great execution, if you have a weak strategy, it won’t matter. You also can’t spin in the wind like a vane. Being unable to both find the correct strategy, and stick with it, along with worse than poor execution – well, the results are quite evident.

David Livingston
Guest
15 years 11 months ago

I’m glad no one disagreed with me. I thought I would get an onslaught of criticism. One of A&P’s biggest problems is that they have been doing so poorly for so long, that management has been conditioned to believe that just running in place is a huge success. They no longer look at store sales growth as a barometer of success. Instead they consider a successful store as one with a slower rate of sales decline. If you call Chris Haub’s recorded telephone message to employees (877-427-8833), you would think that everything is beautiful all the time. What he sees as positive improvements, other companies would consider the same things to be failures. I have to give A&P credit for still being in business. But I think they continue their past trend of continually contracting and becoming a smaller company, selling off stores as they retreat back to New York.

Kerry Ryan
Guest
Kerry Ryan
15 years 11 months ago

The answers lie in two of Mr. Livingston’s statements: “shoot the messenger management style,” and “recycling old ideas.” These struggling grocery chains, including A&P, Albertsons, Safeway, and Winn-Dixie, are being run by “old school” management styles and methods. Those ideas were sufficient twenty years ago, but are only further stagnating the grocery industry as a whole. The wheel has been reinvented and run into the ground. Unfortunately, what these companies don’t realize, is that they have new blood right underneath their noses. Yep, right there. Ready, willing and able to put a breath of fresh air back into the business. But I’m afraid you can’t teach old dogs new tricks.

Justin Time
Guest
14 years 11 months ago

Well, the stock is still rising, closing in on its 52 week high.

The Louisiana and Mississippi stores have reopened and the public has embraced these grand reopenings. Seems like something is going right here.

I wouldn’t criticize Tenglemann. If you have ever shopped their German stores, they are really great food emporiums. On some blocks, one is buffered by a PLUS discount format while at the end of the block is an A&P/Tenglemann. They have great locations and great service.

For a company which has been in business since 1859, it does have staying power. You may criticize management decisions however you want with sometimes cheap shots, but still, there is an A&P and there is going to be an A&P for some time to come.

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