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Buffeted by increased competition, including from e-grocers, Fairway Group Holding, the parent company of Fairway Market, must raise more capital by April to pay off its debts, while the chain's 15 New York metropolitan-area stores are losing considerable money, according to a report in The New York Post, which said that the supermarket chain was considering filing for bankruptcy.
The newspaper noted that the grocer lost $35.7 million in the quarter ended Dec. 27, after hemorrhaging more than $300 million over the past five years, and cited an SEC filing by the company that revealed revenue fell 7 percent to $191.6 million from the year-ago period.
When contacted by Progressive Grocer, industry observer Burt Flickinger, of New York-based Strategic Resource Group, said that the company would most likely file for Chapter 11, given its valuable leases, high volume and customer counts, and profit per square foot, including the strong performance of its suburban locations over the holidays. However, Flickinger didn’t rule out the option of Chapter 7 liquidation if the fees of law, restructuring and accounting firms take too big a bite out of Fairway’s debtor-in-possession financing.
Although Fairway hopes new stores can turn its fortunes around, it admitted in its filing that, without the needed infusion of capital, “our current limited cash resources and significant leverage will adversely affect our ability to open” them. The grocer is also in danger of being de-listed from the New York Stock Exchange, a measure of the dwindling confidence of potential investors in Fairway’s prospects.
Flickinger noted that Fairway was currently trading at between 43 cents and 47 cents per share, which he referred to as a sign of “deep distress,” as companies that trade below a dollar usually wind up in bankruptcy.
He added, however, that there is still a chance some investors might be looking to buy Fairway out of bankruptcy at a “deeply discounted rate.” The potential suitors could include “more enlightened” Wall Street private equity firms willing to reinvest in the business for five years to build it back up before doing another IPO. Other possibilities include players in the U.S. supermarket sector, two Canadian multiformat food retailers, and some contenders from even farther afield, including Germany’s Metro AG, the third-largest food retailer worldwide.
Fairway, a formerly family-owned company, went public in 2013 with the goal of expanding into other parts of the country, but business has been bad enough lately that the chain has reportedly hired Weil, Gotshal & Manges, the law firm that oversaw the A&P bankruptcy, according to the Post, which cited unnamed industry sources. A&P encountered difficulty unloading its stores, a fair number of which remain unsold.