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Albertson’s announces store closures, job cuts

SHARE Albertson’s announces store closures, job cuts

It's been nearly three years since supermarket and drugstore chain Albertson's Inc. announced its intent to buy Salt Lake-based American Stores Co., but the Boise-based grocery giant is still suffering indigestion from the $11.7 billion mega-deal.

In its latest attempt to cure the heartburn from that acquisition, Albertson's announced a massive restructuring plan Wednesday in which it will close some 165 underperforming stores in 25 states and cut up to 20 percent of its managerial jobs above the store level, all with the goal of boosting growth, lowering costs, reallocating capital and boosting investor returns.

"The major actions announced today are just the first in a series of long-overdue steps that are necessary to begin unleashing the vast potential of this company," said Larry Johnston, chairman and chief executive officer, a former General Electric executive hired in April for his reputation for solving merger problems and consolidating operations.

To that end, the company also will cut its operating divisions from 19 to 15.

Albertson's wasn't saying early Wednesday whether it will close any of its Utah stores or how many jobs will be eliminated in the "aggressive" restructuring, but said it will be a "major reduction in force."

The company said it wouldn't cite specific store closures because they won't begin until the third quarter, and the process will take about 12 months. Announcing the closure of a specific store a year ahead of time would likely hurt a store's sales, since customers would begin looking elsewhere, said spokeswoman Ertharin Cousin.

But Cousin would say that about a quarter of the store closures would include the company's stand-alone Osco Drug and Sav-On stores, neither of which are in Utah. Albertson's also operates Acme Markets, Jewel Food Stores, Seessel's, Super Saver and Max stores, as well as its Albertson's supermarkets, the latter of which have been a strong retailing force in the state for years.

Cousin also would not detail the exact number of the company's 235,000 employees who will lose their jobs, saying that hasn't been determined. But some 8,000 of those workers are in the administrative and managerial positions that the company is targeting, which could mean some 1,600 of those positions could be cut, according to the 15-20 percent ratio announced.

To avoid firing some people, Albertson's said it would offer buyout packages to employees with 20 or more years of continuous service. Other terminated employees will be offered a lesser severance package, including outplacement services.

"Because of the impact on our associates, the decisions announced today are not easy," said Peter Lynch, president and chief operating officer. "However, in this increasingly competitive industry, reducing our operating costs is a necessary step in ensuring our company's long-term success."

Albertson's expects to record a one-time, pre-tax charge of $585 million to cover the cost of the restructuring plan, with $550 million of that to be recorded in the second fiscal quarter. The remaining charges will be taken over the next several quarters as the restructuring moves forward.

Johnston said that even with the store closures and the lost revenues that will ensue, he expects sales growth to continue through a combination of improved same-store sales, new store openings and what he termed "strategic fill-in" acquisitions of other stores. He forecasts the company will reach $38 billion in annual revenues for the current fiscal year.

"Further, we are becoming increasingly confident that over the next year we will achieve our expense reduction goal of $250 million," he said. "In fact, the jobs we are eliminating in corporate management and administrative roles alone should yield $100 million in annual benefits."

The company will announce its second fiscal quarter earnings on Sept. 4. Despite the restructuring charges, Albertson's expects earnings for the quarter to be at least 43 cents per share. Wall Street analysts polled by Thomson Financial/First Call expect Albertson's to post a profit in the range of 43 cents to 46 cents per share for the quarter.

Shares of Albertson's closed at $28.82 on the New York Stock Exchange on Tuesday. The stock's 52-week high is $34 and its low is $20.06. In early trading Wednesday the shares were up $1.66, or 5.76 percent, to $30.48.

Albertson's has struggled to integrate American Stores into its system. When the merger was first approved by shareholders in November 1998, Albertson's stock was trading at $56. For a short time, the deal made Albertson's the nation's largest grocer, until Kroger acquired Fred Meyer, pushing Albertson's into second place.


Contributing: Associated Press

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