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Smart & Final mulling possible sale?

Report says warehouse-style food retailer exploring strategic options

Smart & Final Stores Inc. reportedly could be on the selling block.

Citing unnamed sources, Reuters reported yesterday that Smart & Final is exploring strategic options, including a potential sale of the company.

The sources in the Reuters report noted that it’s not certain a sale agreement will be reached. They said Smart & Final currently is working with investment banks and has contacted private equity firms that are potential suitors.

Commerce, Calif.-based Smart & Final declined to comment on the Reuters report.

“Smart & Final is focused on executing against our strategic plan to continue to build on our core strengths in value pricing and merchandising as we invest in digital commerce and infrastructure,” the company said in a statement Tuesday. “Beyond that, it is our long-standing policy not to comment on market rumors or speculation.”

The warehouse-style food retailer is majority-owned by private equity firm Ares Management, which holds a more than 58% stake in the company. No other institutional or individual investors hold a more than 4% interest, though Vanguard Group Inc. recently upped its share to 3.43%.

Los Angeles-based Ares acquired its majority stake in Smart & Final from Apollo Global Management in late 2012 for $975 million. About two years later, the retailer completed an initial public offering at $12 per share. As of afternoon trading on Tuesday, Smart & Final shares were at $6.34 after opening calendar 2019 at $4.70.

In its most recently completed quarter, ended Oct. 7, Smart & Final reported revenue of about $1.50 billion, up 2.8% from $1.45 billion a year earlier. The company said the third-quarter gain was fueled by a 0.6% rise in same-store sales plus business at new stores.

Key strategic initiatives for the retailer include migrating more of its legacy stores to the Smart & Final Extra! banner and ramping up its foodservice and e-commerce businesses, including delivery and click-and-collect services. E-commerce sales for the quarter doubled for the Smart & Final banner and soared 500% for the Smart Foodservice stores.

Adjusted net income in the third quarter came in at $16.9 million, or 23 cents per share, versus $12.9 million, or 17 cents per share, a year ago. Analysts’ consensus estimate was for adjusted earnings per share of 17 cents. 

Overall, Smart & Final operates 324 stores in California, Oregon, Washington, Arizona, Nevada, Idaho, Montana and Utah. As of Oct. 7, its U.S. locations included 199 Smart & Final Extra! stores, 61 legacy Smart & Final stores and 64 Smart Foodservice Warehouse stores. The chain also operates 15 stores in northwestern Mexico through a joint venture.

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