Fleming's Retail, Distribution Changes Spike Stock Prices

The Lewisville, TX-based Fleming, amid a glowing earnings call, revealed a real estate realignment to shuffle the Oklahoma territory and open doors closer to western Missouri and northwest Arkansas. Oklahoma City will lose 280 jobs and Dallas, 85.

A Fleming contact tells GlobeSt.com that the distribution portfolio alone had 21 million sf in it prior to yesterday's changes. Distribution sites in Topeka, KS, Memphis and Garland, TX will take up some of the slack from the shutdowns.

Fleming's sales volume jumped 13% to $4.69 billion in the first 16 weeks of the year while first quarter net income spiked 59% to $24.6 million or 52 cents per share, said Mark Hansen, chairman and CEO. The earnings report sent stock up $2.38 per share to $24.85 at yesterday's market close.

It almost seemed as though Fleming could do no wrong, including its dealings with Kmart. Fleming said it took a hit of at least $5 million from Kmart's Chapter 11, but the retailer is now current with its receivables, at least with Fleming. Kmart's fiscal problems could strip as much as $900 million in sales from the bottom line, but officials believe nonetheless that the company is on track to hit this year's projected $14.3 billion in distribution revenue.

Across-the-board increases were reported to shareholders along with hyped-up 2003 guidance calling for another $3.55 to $3.65 per share. The changed forecast is due to the takeover of Core-Mark International Inc., a move that solidifies holdings in the West while its buyout of Georgia-based Head Distributing will do the same for the Southeastern US. The acquisitions will close in the second quarter, according to Neal Rider, Fleming's CFO. Fleming's leaders said $100 million will be spent this year on acquisitions to further strengthen its positioning as the nation's leading supplier of consumer package goods to the US retail industry.

Once the Core-Mark's deal is done, Fleming's portfolio will contain nearly 50,000 retail locations of all sizes and categories. The contact did not have a retail sf available, due in part to the extraordinary changes that the supplier has made in the past year with acquisitions and dispositions. In the last 12 months, Fleming sold 97 conventional supermarkets to leverage itself for a piece of the price impact market.

The corporate contact said Fleming is pushing a plan to get out of conventional supermarkets and into price impact locations. "We saw the price impact match up better with our wholesale expertise," he explained. Fleming currently operates 130 stores in that category under the Yes!Less, Foods4Less and Rainbow Foods banners.

In the fall, Fleming intends to launch a franchise program for Yes!Less. Hansen said the plan targets geographical regions for multi-store franchise pacts similar to those structured for fast-food franchisees instead of the traditional one-off supermarket packaging. The target markets are not being disclosed, but Hansen foresees hundreds of Yes!Less stores arising from the deals. Investor interest, he added, has been "very strong." To date, there are 16 Yes!Less stores in Texas and one in Shreveport, LA, all company owned.