Kroger Buying 15 Harris Teeter Stores Here

ATLANTA-Spotting a weak segment in its portfolio, Harris Teeter Inc. of Mathews, NC, one of the 50 largest grocery chains in the United States, is unloading 27 properties totaling an estimated 1.62 million sf.

Cincinnati-based Kroger Co. is buying 15 of the assets containing an estimated 900,000 sf. Terms and price were not disclosed.

The transactions are expected to be completed in the fourth quarter. Fourteen of the stores are in Atlanta; the 15th is in nearby Athens, GA.

The stores will become part of Kroger’s Atlanta division, which currently operates 107 stores in metropolitan Atlanta and three stores in Athens.

“These stores will provide new growth opportunities for Kroger as we expand our business in metro Atlanta,” Bruce Lucia, president of Korger’s Atlanta division, says in a prepared statement. He ranks Atlanta as the eighth largest metropolitan statistical area (MSA) in the nation.

Ruddick Corp., the publicly-traded, Charlotte-based parent of Harris Teeter, is also selling 12 stores totaling an estimated 720,000 sf to an undisclosed buyer in the South Carolina cities of Spartanburg, Myrtle Beach, Litchfield and Columbia.

Ruddick is taking a pre-tax charge of about $45 million in its third fiscal quarter. That number primarily reflects the excess of the net book value of $52 million in lease contracts, less net proceeds of about $7 million for assignment of store leases and other considerations, according to the company’s prepared statement.

Tax benefits of $18 million will reduce the loss on the disposition to about about $27 million after taxes.

“While the estimated non-cash charge is significant, the transactions must be viewed in their entirety,” Thomas W. Dickson, Ruddick’s president/CEO, says in the statement. “The transactions are cash positive in aggregate; they remove a significant amount of direct lease obligations through the assignment of the operating leases; and they divest markets that have not generated acceptable levels of profitability.”

The stores to be sold accounted for about $139 million or 11.2% of Harris Teeter’s total sales of $1.24 billion for the six months ended April 1, 2000.

Pro forma operating profit without the stores to be sold would have been $41.7 million or 3.79% of pro forma sales, compared with reported results of $35.2 million or 2.83% of sales for the six-month period.

Harris Teeter estimates the pro forma comparable stores sales increase for the same period without the stores would have been 3.38% versus 2.07% as previously reported by the company.

Ruddick’s third fiscal quarter ends July 1. Results are scheduled to be released July 25. “While the results of the third quarter not fully known at this time, Harris Teeter’s results continued to show improvement in comparable store sales compared to the prior year and operating profitability remained strong,” Dickson says in the statement.

He says, “After a strategic review of each market’s performance, we concluded that a sale of our stores in these areas is a prudent business decision that will substantially strengthen the company’s overall performance.”

The company will be directing near-future capital investments to its core markets, “which have more consistently generated attractive levels of profitability, and we believe, offer the greatest potential for long-term return on capital and increased shareholder value.”