Ralphs Has Loss; Buyout Cost Cited

Ralphs Grocery Co. on Friday reported a fourth-quarter loss related to its buyout last year by Campeau Corp. but said its Southern California supermarkets are performing well.

For the fourth quarter ended Jan. 29, the Compton-based company showed a loss of $13 million because of interest payments and other costs brought on by the takeover. At the same time, a key measure of the company’s financial health, its operating cash flow--or earnings before depreciation and the payment of interest and taxes--was a strong $49.2 million.

When taken as a percentage of Ralphs’ $751 million in sales for the quarter, that 6.56% level of cash flow makes Ralphs one of the best-performing companies in its industry. Analysts noted that typical supermarket companies have cash flow ratios of 3% to 4%.

Ralphs’ stated goal has been to achieve a cash flow rate of 7% of sales.

The company’s high level of cash flow means that it is able to meet its expenses and still have money left over, analysts noted. Some of that excess cash is being used to reduce the $1 billion in debt that the company took on when it became a wholly owned subsidiary of Campeau, a Toronto-based real estate development firm that bought Ralphs as part of its purchase last year of Federated Department Stores.

Others in Similar Position

Ralphs, with 137 stores, is not alone among Southern California supermarket chains in having hefty debt but solid operations. Vons Cos. of El Monte, which nearly doubled in size with its acquisition last year of the Southern California Safeway stores, is in much the same position. And American Stores, owner of Alpha Beta, recently borrowed heavily to buy Lucky Stores.

In a letter to holders of its stock and bonds, Ralphs credited the strong cash flow to efficient operations and good use of technology. The company noted that costs of handling products were significantly reduced by an automated high-rise warehouse opened in November, 1987. In addition, the company’s recent decision to eliminate its separate Giant warehouse operation and rename those stores Ralphs will result in savings on advertising costs.

Although Ralphs stock is not publicly traded, it must report earnings and other financial information to the Securities and Exchange Commission because it has registered to sell bonds to the public.