Roundy’s reports mixed results on day of Kroger announcement
MILWAUKEE — Roundy’s reported a net loss of $8.6 million from continuing operations for the 13 weeks ended Oct. 3 on Wednesday, the day Kroger announced its acquisition of the midwest grocer. Net sales from continuing operations decreased 0.2% to $971.8 million.
Same-store sales from continuing operations decreased 3.4%, which was due to a 4.2% decrease in the number of customer transactions, partially offset by a 0.8% increase in the average transaction size.
“Our third quarter results were disappointing as sales and EBITDA did not meet our expectations,” Robert Mariano, Roundy's chairman, president and CEO, said. “The sales shortfall was primarily due to continued competitive store openings in our Wisconsin markets. Despite a very competitive pricing environment, we were pleased to maintain our gross margin rate compared to the prior year. We remain committed to our strategic initiatives, improving execution, and profitably growing sales across all of our markets.”
Net sales for the company’s Wisconsin markets were $619 million for the third quarter 2015, a decrease of $50.4 million, or 7.5%, from $669.4 million for the third quarter 2014. The decrease primarily reflects the closure of three stores during the fourth quarter of 2014 and one store during the second quarter of 2015 and a decrease in same-store sales, the company said. Same-store sales decreased 3.7%, due to a 4.1% decrease in the number of customer transactions, partially offset by a 0.4% increase in the average transaction size.
Net sales for the company’s Illinois market were $352.8 million for the third quarter 2015, an increase of $48.4 million, or 15.9%, from $304.4 million for the third quarter 2014. The increase primarily reflects the benefit of new stores in Illinois, partially offset by a 2.6% decrease in same-store sales. The decrease in same-store sales was due to a 4.2% decrease in the number of customer transactions, partially offset by a 1.6% increase in the average transaction size. Same-store sales were negatively impacted by the cannibalization effect of new and acquired store openings in the Illinois market. In addition, same-store sales have been negatively impacted by the reopening of a significant number of former Dominick’s stores that were initially closed in early 2014 and are now operated by other competitors.
Kroger expands Wisconsin presence with Roundy’s acquisition
CINCINNATI — Kroger and Roundy’s on Wednesday morning announced a definitive merger agreement under which Kroger will purchase all outstanding shares of Roundy's for $3.60 per share in cash in a deal valued at $800 million, including the assumption of debt.
“We are delighted to welcome Roundy's to the Kroger family,” Kroger chairman and CEO Rodney McMullen said. “We admire what Bob Mariano has done with the Mariano's banner in Chicago, where he has created an urban format that is resonating with customers and we expect to apply Roundy's experience to our stores in urban areas around the country.”
Roundy's — which had revenues of nearly $4 billion for the 2014 fiscal year — brings to Kroger an expanded footprint with a complementary base of 151 stores and 101 pharmacies in new geographies including Milwaukee, Madison and Northern Wisconsin, which are served under the Pick 'n Save, Copps and Metro Market banners. The merger also expands Kroger's presence with an innovative store format in the Chicagoland area, where Roundy's operates 34 stores under the Mariano's banner. Roundy's also operates two distribution centers in Oconomowoc and Mazomanie, Wis., and a commissary in Kenosha, Wis.
“Kroger's scale and strong financial position will enable Roundy's to reinvest in its home state of Wisconsin while continuing to grow in Chicago,” McMullen said. “Together, we are committed to investing in Roundy's people, communities, stores and merchandising to deliver a fantastic customer experience that will create opportunities for associates, grow customer loyalty and revenue, and create value for shareholders.”
Together Kroger and Roundy's will operate 2,774 supermarkets across 35 states and the District of Columbia. Following closing, Roundy's will continue to operate its stores as a subsidiary of Kroger and will continue to be led by key members of Roundy's senior management team. There are no plans to close stores, and associates will have employment opportunities with both companies. Roundy's headquarters will remain in Milwaukee, Wis.
The transaction price represents a premium of approximately 65% to the Roundy's closing share price on Nov. 10. The terms of the agreement were unanimously approved by the boards of directors of both companies, and the transaction — which contains a 30-day go-shop period — is expected to close before the end of the 2015 calendar year.
Kroger plans to finance the transaction with debt and refinance Roundy's existing debt of $646 million based on market conditions. Kroger said it planned to continue its quarterly dividend and share repurchase program while managing free cash flow to reduce the leverage taken on from this merger. Although the company's net debt to EBITDA ratio will increase at the time the merger closes, Kroger said it expects the ratio to remain in the 2 to 2.20 range upon closing of the merger. Kroger is committed to maintaining its current investment grade credit rating.
The deal is subject to Roundy's stockholders tendering at least a majority of the outstanding shares of Roundy's common stock in the tender offer, certain regulatory approvals and other customary closing conditions. Willis Stein & Partners and its affiliates, holders of approximately 7% of the outstanding shares of Roundy's common stock, have agreed to tender their shares.
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