It was a stormy first half year for the Yeinot Bitan supermarket chain, controlled by Electra Consumer Products (TASE: ECP). In May, in a highly publicized move, the chain launched fifty branches revamped under the international Carrefour brand around Israel, with the promise of bringing about a revolution in Israeli retailing. The financials released by Electra Consumer Products reveal, however, that for all the hype, for the time being the chain is weighing heavily on its results, causing it to post losses for the second quarter and the first half year.
This situation could shortly change, and not necessarily because the Carrefour Israel-Yeinot Bitan chain (under its new name "Global Retail") switches to profit. Electra Consumer Products reports that it is examining the flotation of the chain on the stock market and transferring its 35% stake in it to its parent company Elco (TASE: ELCO), which in turn is controlled by brothers Daniel and Michael Salkind.
Meanwhile, Electra Consumer Products, headed by Zvi Shwimmer, has reported the results of the Carrefour-Yeinot Bitan chain as part of its food retailing division (which also includes electrical goods, clothing, and sports goods chains). The division has 150 supermarket branches under the brands Carrefour (with 65 operating branches and another fifteen in the process of conversion to the brand), Yeinot Bitan, and Mega Ba’ir, and also the convenience store chain 7-Eleven, which began operating in Israel at the beginning of the year and currently has seven branches in the country.
In the first half of 2023, this division generated revenue of NIS 1.44 billion, 3% more than in the first half of 2022. Electra Consumer Products states that, in the second quarter, during which the Carrefour branches were launched, revenue rose by 11.3%, to NIS 792 million. In May-June, sales per square meter in the Carrefour branches averaged NIS 46,900 on an annualized basis, 70% more than for the same commercial space in the corresponding period of 2022, before the Carrefour brand launch. Electra Consumer Products expects annual sales of its Carrefour stores to average NIS 40,000 per square meter.
"Operating profit - in the second half"
The conversion of the Carrefour branches and the accompanying restructuring of the chain had a severe negative effect on the chain’s results in the first half year, during which it closed branches and operated others only partially. Electra Consumer Products has not published the full results of Carrefour-Yeinot Bitan, run by Uri Kilstein, but it says that the chain made a NIS 138 million loss in the first half, of which NIS 63 million was in the second quarter.
The losses by Carrefour-Yeinot Bitan brought Electra Consumer Products itself (which, as mentioned, holds just 35% of the shares in the chain) to a loss of NIS 133 million on its food segment in the first half year, which compares with a profit of NIS 13.5 million in the first half of 2022. In the second quarter, the loss for the segment was NIS 64 million. The company estimates that it will return to reporting a profit for the food segment in the second half of the year. Altogether, Electra Consumer Products posted a net loss of NIS 32 million in the first half year (NIS 21 million in the second quarter), which compares with a net profit of NIS 67 million in the first half of 2022.
"The results of Carrefour are in line with strategic plan in which we decided to close and renovate 50 branches, and introduce dozens of new products into the Israel market," said Shwimmer. "The first-half results for the food segment were affected by the launch and by the closure of branches for their conversion to Carrefour branches. The sharp growth in sales as a result of that process indicates that the brand conversion will lead to a switch to operating profit in the second half year."
Competitors priced much higher
Tel Aviv Stock Exchange investors are far from enthusiastic about the link between Electra Consumer Products and Carrefour-Yeinot Bitan. On Thursday, following the release of its financials, Electra Consumer Products’ share price fell 5%, giving the company a market cap of NIS 1.8 billion. In the past year, the stock has lost 45%. Since Electra Consumer Products bought control of Yeinot Bitan in May 2021, its share price has fallen by about 50%.
Electra Consumer Products could, as mentioned, part from its holding in the supermarket chain if it does not exercise its option to buy 49.9% of the chain currently held mainly by its founders, Nahum and Nurit Bitan. The option, valid until the end of this month, is to buy the shares at a price reflecting a NIS 900 million valuation for Carrefour-Yeinot Bitan, and Electra Consumer Products says that the chances of it being exercised are low. Incidentally, the valuation is low in comparison with the valuations of competing supermarket chains traded on the stock exchange that operate fewer branches: Ramy Levi has a market cap of NIS 3 billion, and Yohananof NIS 2.2 billion.
If Electra Consumer Products chooses not to exercise its option to buy out the shares in Yeinot Bitan on the existing terms, then, in accordance with a discussion by the board of directors and under existing agreements between Electra Consumer Products and the other shareholders in Carrefour-Yeinot Bitan, the sides will act to list the supermarket chain on the stock exchange or to float its shares. Carrefour-Yeinot Bitan is working on filing a prospectus with the Israel Securities Authority.
The controlling core of Carrefour-Yeinot Bitan is currently held by Electra Consumer Products (35.1%) and insurance group The Phoenix Holdings (TASE: PHOE) (15%). In order to meet the provisions of the Concentration Law, if the chain is listed on the stock exchange, Electra Consumer Products will sell its shares to its parent company, Elco, and thus avoid a situation of three layers of holdings, which the law prohibits.
Published by Globes, Israel business news - en.globes.co.il - on September 3, 2023.
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