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December 3, 2013

UPDATE: US: Roundy’s targets accelerated growth with Safeway acquisition

US regional supermarket operator Roundy's Inc hopes to accelerate its expansion in the Chicago area through a deal to acquire 11 Dominick's stores from Safeway Inc for US$36m.

US regional supermarket operator Roundy’s Inc hopes to accelerate its expansion in the Chicago area through a deal to acquire 11 Dominick’s stores from Safeway Inc for US$36m.

The stores, Roundy’s said, will be converted to its Mariano’s banner over the next two months.

“This acquisition is transformational in terms of Mariano’s expansion plans in the Chicago metropolitan area, allowing us to open 11 additional stores in 2014 in prime locations with great market demographics,” said Robert Mariano, chairman, president and chief executive officer of Roundy’s.

Speaking to analysts and investors during a conference call Roundy’s management insisted that the move would accelerate the expansion Mariano’s, the company’s “growth banner” in the Chicago metropolitan area.

The deal will result in a “near doubling” of Mariano’s store count. Roundy’s currently operates 13 Mariano’s locations around Chicago and the company has commenced construction of an additional five sites.

Roundy’s now plans to increase its investment and allocate additional capital behind the Mariano’s banner, insisting that this is the “best use” of capital in order to deliver long-term shareholder returns. The company has therefore moved to suspend its quarterly dividend so that the cash can be used to accelerate Mariano’s growth.

The Dominick’s acquisition will be funded through a debt financing transaction, the company added.

The new stores are expected to be neutral to 2014 EBITDA due to start-up and remodeling costs, but accretive beginning in 2015, Roundy’s revealed.

Commenting on the news, BB&T Capital Markets analyst Andrew Wolf said he anticipates the additional stores will be “meaningfully accretive to earnings” in 2015 and beyond.

BB&T maintained its earnings forecasts for Roundy’s. “For 2013, we estimate core EPS at $0.70 and adjusted EBITDA to $170.6m. We project sales up 1.5% to $3.95bn on 3% square footage expansion (associated with the Mariano’s build out) and ID sales down 2.7%. For 53-week 2014, we estimate EPS forecast at $0.80. We forecast adjusted EBITDA up 3.6% to $178.2m. We project sales up 5.6% (3.6% on an equal weeks basis) to $4.17bn on 3% square footage expansion.”

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