The financial statements of Alon Holdings Blue Square - Israel Ltd. (NYSE: BSI; TASE: BSI), controlled by Alon Israel Oil Company Ltd., indicate that the financial state of the Mega food chain is getting worse, while the strategic plan introduced by outgoing CEO Motti Keren is not having the desired effect.
Mega's first quarter loss totaled NIS 31 million, up 39%, compared with a NIS 22 million loss in the first quarter of 2014.
Mega, Israel's second largest marketing chain, operates the Mega, Mega in Town, Zol Beshefa, and YOU sub-chains. It had 192 branches at the end of the first quarter. Sales were down 1.7% to NIS 1.4 billion in the first quarter, and its gross profit dropped 6% to NIS 339 million, and slid from 25.5% of sales in the first quarter of 2014 to 24.4% of sales in the first quarter of 2015.
In its reports, Mega separates the results of the branches that it has decided to sell or close down as part of the strategy it has adopted. These branches lost NIS 5.6 million, with NIS 25 million, most of the chain's loss, resulting from its core activity - the branches it aims to retain.
The reports also indicate that excluding the branches that the chain plans to close down, the chain's sales rose 4% to NIS 1.37 billion. This rise is attributable to the timing of the Passover holiday, which fell in the first quarter of 2015, in contrast to last year, when it fell in the second quarter, and to higher sales by the YOU chain.
Negotiations for the sale of Mega to giant US investment firm Blackstone have been reported recently. If this deal goes through, Blackstone will have to provide a substantial capital injection for the money-losing chain.
Given Mega's unstable situation, the Midroog rating company recently downgraded the debt of Mega parent company Alon Blue Square from Baa1 to Baa2, the second such downgrade in less than two months, and left the company on the credit watch list.
Published by Globes [online], Israel business news - www.globes-online.com - on May 28, 2015
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