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