Flagging performance by its Mega Retail supermarket chains plunged Alon Holdings Blue Square Israel to a NIS 6.3 million net loss attributable to shareholders in the first quarter of 2012, a turnaround from the NIS 30 million earned in the equivalent period of 2011, according to the financial statements released Tuesday. Operating profit fell 59%, to NIS 38 million, constituting 1.2% of net sales as opposed to 3.1% in the previous year's first quarter. The company's stock price fell 2.3% Tuesday, par for its performance over recent weeks, for a 40% slide since the beginning of the year.
Alon Blue Square, controlled by David Wiessman, Shraga Biran and the Kibbutz Movement, also includes 78% holdings in publicly-traded Blue Square Real Estate and Dor Alon Energy - operator of the gas station chain and the Alonit highway convenience stores - as well as ownership of several nonfood chains grouped under its BEE division.
But it was Mega that contributed the lion's share of losses for the concern. Supermarket sales dipped 0.6% compared to the parallel last year, to NIS 1.6 billion. Alon Blue Square CEO Zeev Vurembrand said the drop in revenue was precipitated by a 2.6% decline in same-store sales due to fiercer competition. The company, however, was the only food retailer that suffered a drop in same-store sales, suggesting a deep cut in its market share.
The decline was only partially offset by revenues from nine new stores added since the first quarter of 2011. Meanwhile, sales per square meter have since fallen 3.1%, to NIS 4,305 in the last quarter.
The supermarket division's gross profits dropped 4.7%, to NIS 437 million, from a gross margin of 28.0% in last year's first quarter to 26.8% in the first quarter of 2012, attributed by the company to heightened competition and the cost-of-living protests.
Runaway operating expenses
Alon Blue Square seems to be having difficulty aligning Mega's selling, administrative and general expenses to its decreased level of sales and gross profitability. Such operational expenses rose 2.8% since the equivalent period last year to NIS 420 million, representing 25.8% of sales as opposed to 25.0% in the comparable period. The company explained the increase as expenses associated with the launching of its nine new branches.
Dropping sales and gross margin combined with rising management and selling costs had the net effect of squeezing the food retailer's operating profit by two-thirds, to NIS 17.2 million. This reflects a mere 1.1% operating margin compared with 3.0% in the same period last year and sets Blue Square far behind rival supermarket chains.
Vurembrand pointed out that the company reduced headquarters staff by 50 in the first quarter and plans on cutting 300 positions at its stores during the current quarter. He also said efficiency measures being applied to selling, advertising, and operational expenses will yield an annual NIS 80 million in savings, and that the company is considering shutting down 10 money-losing branches totaling 2,000 square meters while planning on launching nine new stores.
