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Albertsons, Rite Aid call off merger at last minute

BY David Salazar

Albertsons Companies and Rite Aid called off their proposed, $24 billion merger amid growing opposition from Rite Aid shareholders who complained it undervalued the retail pharmacy chain.

The termination was announced Wednesday evening, a day before Rite Aid was set to hold a special shareholders meeting at which the company has been urging its shareholders to vote in favor of the merger.

“Albertsons believes that the strategic rationale of the Rite Aid combination was compelling, including the $375 million of cost synergies and $3.6 billion of identified revenue opportunities,” Albertsons said. “We disagree with the conclusion of certain Rite Aid stockholders and third-party advisory firms that although they acknowledged the strategic logic of the combination, did not believe that Albertsons was offering sufficient merger consideration to Rite Aid stockholders.”

In the lead-up to the shareholders vote, CNBC reported that Glass Lewis and Institutions Shareholder services — two advisory firms for investors — came out against the merger, citing the offered price as the main sticking point, as they both backed the rationale for the acquisition, according to CNBC.

In comments on the called-off deal, analyst Neil Saunders, managing director, GlobalData Retail, said that “the idea of creating a food, health, and wellness giant was always fanciful.”

“Neither Albertsons nor Rite Aid are stellar retailers,” Saunders said. “The former has a tired and shabby store portfolio that is in desperate need of investment, while the latter also has a retail proposition that is far from cutting edge. In our view, the deal was simply an acquisition that would have added some new revenue to Albertsons while injecting another entity into an already overly-complex corporate structure.”

Albertsons said that in consulting with its board, it was “unwilling to change the terms of the merger.” Moving forward, the company said it would be focused on the future following the completion of its integration with Safeway. Efforts include building up its store-brand offerings and bolstering its e-commerce platform, which it said posted 108% year-over-year growth in the first quarter of 2018.

Rite Aid chairman and CEO John Standley said that despite believing in the merits of the merger, it had listened to its stockholders and has committed to moving forward as a standalone company.

“We remain focused on leveraging our network of conveniently located retail pharmacies, our EnvisionRxOptions PBM and our trusted brand of health and wellness offerings,” Standley said. “We will continue building momentum for key areas of our business like our innovative Wellness store format, highly successful customer loyalty program and expanded pharmacy service offerings, as we also enhance our omni-channel and own brand offerings to strengthen our competitive position and create long-term value for stockholders.”

Rite Aid also noted that its board was weighing governance changes, which it said would be undertaken alongside engagement with shareholders. It said that it would hold the company’s annual shareholders meeting on Oct. 30 at 8:30 a.m. at a location that is yet to be determined.

Neither Albertsons nor Rite Aid is responsible for any payments to one another under the merger terms, the companies said.

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Vitamin Shoppe has Q2 earnings surprise as online sales skyrocket

BY Marianne Wilson

Weeks before its new CEO will take the reins, Vitamin Shoppe reported better-than-expected earnings for its second quarter amid digital growth and better gross margins.

The nutritional supplement company reported net income of $7.2 million for the quarter ended June 30, compared to a net loss of $156.4 million in the year-ago period.

Its adjusted earnings came in at 31 cents per share versus the 5 cents per share analysts had expected.

Total net sales were $293.1 million, down from $296.4 million last year. Same-store sales fell 1.1%. Digital comparable net sales, jumped 36.9% in the quarter.

Alex Smith, the chairman of the Vitamin Shoppe stated, “Our focus on retail fundamentals is starting to deliver improved performance,” said Alex Smith, chairman, Vitamin Shoppe.

In July, Vitamin Shoppe announced the appointment of Sharon Leite as the company’s new CEO, effective Aug. 27. Most recently, she served as president of Godiva Chocolatier in North America

“I am delighted to have a leader of Sharon’s caliber to spearhead the ongoing turnaround and future growth, building on the recent good work of the organization,” said Smith.

Vitamin Shoppe operates more than 775 company-operated retail stores under The Vitamin Shoppe and Super Supplements retail banners.

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Commentary: CVS needs to do better at retailing

As good as CVS’s [second quarter] overall numbers are, the headline from a retail perspective is the 1% decline in front-of-store comparable sales. This reverses last quarter’s uplift which was aided by a shift in the timing of Easter and a particularly bad cold and flu season. In essence, it underlines the point we made last period — namely that when it comes to retail, CVS is a long way from maximizing its potential.

It is particularly notable that many of the categories CVS sells as part of its retail offer saw strong positive growth during the period. Across the U.S., beauty sales were boosted by consumers with more money to spend; snacks and food treats saw good uplifts. And things like greetings cards and stationery witnessed some growth. That CVS did not capitalize on these opportunities says a lot about the state of its retail offer.

Our consumer data show a number of reasons for this and, in our view, the figures are worrying for CVS.

Firstly, CVS is increasingly used out of necessity rather than out of desire, with people coming into the store to buy things that they need to top-up on or have run out of. While there is nothing wrong with trading on convenience, not drawing in customers who want to shop for different reasons means that CVS is missing out on a large slice of trade. Such a position also means CVS Is vulnerable to rivals—both physical stores that open in close proximity and the rise of certain categories online.

Secondly, those shoppers who do visit a CVS store are becoming less likely to browse and shop categories outside of those they came in to buy. This deterioration in cross-shopping is another lost opportunity for CVS and makes it difficult for the company to boost sales of impulse-driven segments like beauty. In our view, it also signals an increasing challenge in getting pharmacy customers to make retail purchases while in store.

Thirdly, the proportion of customers who use CVS for special purchases like small gifts or greetings cards and gift wrap continues to decline. Given that many of the products in this category are high margin and boost basket sizes, this is a worrying trend that has the potential to erode the bottom as well as the top line of the retail operation.

Finally, there are some categories, such as laundry detergent for example, where a shift to online shopping and automatic ordering is starting to impact the number of customers to come in to top-up shop. Relative to other dynamics, this trend is relatively minor, but we still see it as having the potential to erode revenue over the medium to longer term.

If all or any of these things were the result of deep-seated and complex challenges, we would have some sympathy. However, the root cause of most of the trends is because CVS is poor at retailing. Store environments are dingy, inspiration is lacking, merchandising and shop-keeping standards are generally sloppy, and the offer is bitty and fragmented. With a little care and attention, CVS could turn these things around, but the company never seems to bother.

As much as the healthcare and pharmacy side of the business will allow CVS to succeed, we lament the fact it is missing out on a lucrative slice of retail growth.

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