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It should be the "best of times" for Bi-Lo/Winn-Dixie, according to industry observer Burt Flickinger III, pointing to the favorable economic conditions in its Southeast market area. But the Jacksonville, Fla.-based regional retailer's inability to launch an initial public offering (IPO) may have placed too heavy a burden on company leaders, which resulted in the impending –- and, in most observers' views, unexpected –- departures of Bi-Lo Holdings CEO Randall Onstead and COO Mark Prestridge, the latter of whom resigned from the company at the end of 2014.
By the looks of things, Flickinger believes Bi-Lo should be "ideally situated" to build on the momentum it's acquired in recent years under Onstead's watch, given its well-populated operating markets and postive income growth trends; lower transportation and distribution costs; the struggles of one of its major competitors, Walmart, which has seemingly "lost its way," as shown by faltering same-store sales trends; and the ongoing reorganization at Delhaize America, another large presence in Bi-Lo's marketing territory.
Even without the full effect of the Walmart juggernaut, the company faces plenty of rivals, and not just from fellow pure-play grocers like Rouses, Publix, Kroger and Associated Grocers Inc.-supplied independents, but also from the likes of Dollar General, Fred's Super Dollar, Costco and BJ's, all of whom are becoming more food-focused, with Costco in particular threatening Winn-Dixie's time-honored status in the region as "the beef people."
Still, even with all of this competition, Flickinger attributes Bi-Lo's failed IPO to internal issues, noting, "The absence of an IPO appears to indicate that the company still has significant room for improvement in its top and bottom lines." Further, he added, Bi-Lo’s challenges could well stem from other factors beyond leadership, such as costs or operations incongruities –- or even a combination of all three.
As for Onstead and Prestridge's exits, Flickinger saw them as a move by investors to bring in new leadership to advance the cause of a new IPO, which would provide legacy investors with an opportunity to see a return.
Company spokesman Brian Wright told PG there would be "no other departures," but it remains to be seen who will succeed the executives.
Although certain that Bi-Lo would attempt another IPO, Flickinger noted lingering investor worries in regard to its timing. "If the company doesn't do an IPO to recapitalize in the first half of the decade, the degree of difficulty of recapitalizing in the second half of the decade" increases, he explained.
According to another veteran trade observer, who requested anonymity: "There are two key questions that begged to be asked: Why did Bi-Lo abruptly pull the plug on its IPO this past August, and what does it have to do with Onstead’s departure in the coming weeks? I believe it’s an 'agree to disagree' situation, with Onstead favoring the side of nimble, flexible, independent ownership, versus competing views of other stakeholders who are bent on going the route of an IPO, regardless of its long-term feasibility.
"Bi-Lo and Winn-Dixie really turned the corner under Onstead's leadership," the observer continued, "and his departure is a real loss for the company. He's a talented, capable, charismatic leader who infused a decidedly improved culture that translated to more productive stores and more contented and empowered associates."
In terms of the failed IPO, the ultimate concern for investors, says Flickinger, is that Bi-Lo would become another Toys R Us, whose attempted IPO in 2010 was a notorious flop. Flickinger deemed the toy retailer's current odds of launching a successful IPO "minute."
The thought process on Wall Street, Flickinger continued, was that if Rite Aid could engineer what he called "the most difficult turnaround of the past decade," and JC Penney and Target could improve their financial outlooks, Bi-Lo should be able to do the same.
When asked his thoughts on the outlook for the company, Flickinger said he was "hoping for the best," adding that Bi-Lo's upcoming financials would need to show increasing top-line and same-store sales, and operating profits to help allay investors' fears.