Major Retailers Object To, Opt Out Of Class Action Settlement In Swipe Fees Case

A group of 19 of the largest retailers in the U.S. said this week that they each individually decided to object to and opt out of a proposed class action settlement of an antitrust lawsuit challenging fees—called interchange or swipe fees—that Visa and MasterCard fix for banks to charge merchants for the use of Visa and MasterCard credit and debit cards.

The merchants participating in the announcement include Walmart, Costco, Lowe’s, Alon Brands Inc., Gap Inc., Starbucks Corp., J.Crew Group Inc., Crate & Barrel and 7-Eleven Inc. A complete list of the merchants participating appears below.

These merchants will now consider the possibility of additional legal action to recover damages from Visa and MasterCard under U.S. antitrust laws. It is estimated that, even if the proposed settlement is finally approved by the court, such new litigation could result in billions of dollars in additional damages, covering all Visa and MasterCard transactions processed by those merchants from Jan. 1, 2004-Nov. 27, 2012.

Kyle McKeen, president and CEO of Alon Brands, said, “What is clearly striking about the opposition to this settlement is the diversity of merchants that have come out against the deal. They are from every corner of the country, from different merchant verticals, and are different sizes. But they share a common view: that this deal is not a good one for the industry.”

McKeen added: “In our market segment of convenience stores and petroleum sales, 76 percent of the stores are owned and operated by single-store operators that don’t stand a chance arguing against restrictive rules and regulations that the big credit card companies impose on them. Allowing this settlement to move forward would validate and continue the oppressive environment that small businesses have to face with the big card companies.”

Mike Cook, SVP of finance and assistant treasurer for Walmart, said: “If this settlement is approved, it would allow credit card companies and big banks to perpetuate an unfair and broken system that costs all consumers, including those who don’t even have a credit or debit card.

“Credit card networks could continually increase hidden swipe fees, which already cost consumers tens of billions of dollars each year,” Cook said. “Additionally, we object that the proposed settlement would require merchants to release future claims against the credit card networks covering rules we’ve never seen and conduct that has yet to occur that would affect people who aren’t even born.”

The interchange litigation filed in federal district court in Brooklyn in 2005 alleges, among other things, that Visa, MasterCard and their member banks have unlawfully fixed the interchange rates merchants pay for Visa and MasterCard credit and debit transactions, which has forced merchants to pay exorbitant fees well above competitive levels and the levels of similar fees around the world. These fees raise prices for consumers on goods and services in every part of the American economy, a news release says.

The merchants that are objecting to and opting out of the proposed settlement contend the settlement maintains and strengthens an anticompetitive system that allows Visa and MasterCard to fix interchange fees for banks. In their view, the settlement fails to provide any meaningful structural reform, while providing the defendants with an overbroad release that will cover every merchant that accepts Visa and MasterCard credit and debit cards, forever.

These merchants also believe that the settlement violates their rights to due process under the U.S. Constitution by depriving them of the right to sue for ongoing and future damages. While merchants can opt out of the damages portion of the Brooklyn settlement and sue for damages for past anticompetitive practices, if the court approves the settlement the merchants would be bound by the settlement’s unprecedented release of Visa,

MasterCard and the banks from liability for virtually any similar anticompetitive acts they take in the future relating to Visa’s and MasterCard’s current rules.

Merchants opting out believe that there has never been so broad a release from liability in any class action in U.S. history. They claim the release is a blatant violation of their due process rights and an unconstitutional taking of their legal rights to sue for current and future antitrust violations.

The case is In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-01720, U.S. District Court, Eastern District of New York.

The complete list of merchants participating the announcement:

Walmart

Costco

Lowe’s

Gap Inc.

Starbucks Corp.

J.Crew Group Inc.

Dillard’s

Footlocker

Nike Inc.

Crate & Barrel

7-Eleven Inc.

Panera Bread

IKEA

GNC

D’Agostino Supermarkets

Michaels Stores

Alon Brands Inc.

Roundy’s Supermarkets Inc.

Recreational Equipment Inc. (REI)

Former Sealy Exec Appointed CFO Of The Fresh Market

The Fresh Market has named Jeffrey Ackerman as its EVP and CFO, effective June 3. Ackerman, 50, will oversee the company’s financial functions including accounting, audit, information technology, investor relations, tax, and financial planning and analysis.

“After conducting a national search, we are pleased to have attracted someone with Jeff’s strong leadership skills and deep financial and business planning expertise to our senior executive team,” said Craig Carlock, president and CEO. “With more than 25 years of experience across a broad range of consumer-oriented companies, Jeff’s operational mindset and retail focus are a great fit with our company and culture.”

Ackerman most recently served as EVP and CFO at Sealy Corp., one of the largest bedding manufacturers in the world. Prior to Sealy, Ackerman was VP of finance with Dade Behring Inc. and held a variety of finance roles at the Frito-Lay branded snack division of PepsiCo Inc.

Ackerman holds an MBA from the University of Texas at Austin and a bachelor of science degree in industrial management from Purdue University.

Founded in 1982, The Fresh Market is a specialty grocery retailer based in Greensboro, N.C. The company operates 131 stores in 25 states, located in the Southeast, Midwest, Mid-Atlantic, Northeast and West.

Food Retail Survey Anticipates Amplified Audit Function Over Five Years

Supermarket audit departments and audit budgets will witness resource expansions congruent to the expanding roles within information technology, retail operations and supply chain departments, according to the Food Retailing and Wholesaling Internal Audit Study published by the Food Marketing Institute (FMI). Forty-two percent of companies expect to grow the size of the internal audit function over the next five years in order to maintain effectiveness and efficiency of operations, reliability of financial reporting, compliance with laws and regulation and safeguarding of assets.

The in-depth report, conducted by 210 Analytics LLC, details the findings of a national survey of 31 supermarket retailing and wholesaling companies, representing 24,688 stores and 981 internal audit professionals. The study was released today at the 2013 Annual Internal Audit conference in San Antonio, Texas.

The report’s findings include:

• Trends in position profile and department structure

Supermarket retailing and wholesaling companies predominantly employ full-time audit professionals, who make up 97.7 percent of all auditors represented in the survey. These auditors come from primarily accounting backgrounds and 31.4 percent are Certified Public Accountants (CPAs). Internal audit departments most often report to the CFO or head of finance.

• Outsourcing specific audit functions

Eight in 10 supermarket retailing and wholesaling companies use third-party vendors for audit functions, albeit for less than 10 percent of total audits performed. The most commonly outsourced function for audits pertains to informational technology. Outsourcing is more common among companies operating a greater number of outlets and/or employing a greater number of employees.

• Time allocation to functional areas

The average number of days to issue an audit report is 18 days, inclusive of fieldwork efforts to the final report. Nearly one-third of total available audit time is allocated to retail operations, followed by the areas of finance and information technology. Companies operating fewer stores and employing fewer auditors spent more time on retail operations audits compared with their larger counterparts.

• Development of the audit plan

More than half of respondents formally assess the success/effectiveness of their internal audit department, but 96.6 percent of food retailers and wholesalers have a formal audit plan. Performance evaluations prioritize input from senior management, according to 66.7 percent of companies.

Walmart Posts First Quarter Results

Walmart Stores Inc. today reported financial results for the first quarter ended April 30, 2013.

Net sales for the first quarter were $113.4 billion, an increase of 1.0 percent over last year. Net sales last year benefited by 1.0 percent from the extra day due to leap year. On a constant currency basis, net sales would have increased 1.8 percent to $114.2 billion, according to a news release. Membership and other income increased 1.6 percent vs. last year, due primarily to an increase in membership income. Total revenue for the first quarter was $114.2 billion, a 1.0 percent increase over last year.

Consolidated net income attributable to Walmart for the first quarter was $3.8 billion, up 1.1 percent. Diluted earnings per share (EPS) attributable to Walmart were $1.14, a 4.6 percent increase, compared to $1.09 last year.

“In a quarter marked by considerable headwinds to top-line sales, Walmart delivered solid EPS growth of 4.6 percent,” said Mike Duke, Walmart Stores Inc. president and CEO. “Walmart’s mission is simple and focused—to help people save money so they can live better. When we simplify and focus our execution against this mission, it’s easy for our associates to prioritize what they have to do to serve our customers.

“I’m confident about our long-term strategy and the direction Walmart is headed,” Duke added. “Our expectations about our U.S. businesses’ performance, coupled with more discipline in International, will allow us to improve our performance throughout the year.”

Duke also noted that e-commerce sales grew more than 30 percent in the first quarter vs. last year.

“There is no doubt that our company is making the right investments in e-commerce to differentiate ourselves and become a better Walmart,” said Duke. “And with our sales growth in the first quarter, we believe our investments are paying off.”

The company’s operating expense leverage was relatively flat for the first quarter, but the commitment to leverage for the full year remains a priority, the news release says.

“We are proud that our U.S. segments leveraged operating expenses in the first quarter, and we expect them to continue leveraging,” said Duke. “To operate in a difficult sales environment requires disciplined expense and productivity management, the core of EDLC and EDLP. We are committed to have the total company achieve expense leverage for the year.”

“Although we believe our company will leverage expenses for the year, the second quarter will be challenging, given expense pressures in International and our corporate area,” said Charles Holley, EVP and CFO. “Expense leverage may not be delivered evenly across the quarters, but we believe that by executing our plans, we will continue to reduce expenses and improve productivity.”

“We deployed cash to grow our business and return value to shareholders,” said Holley. “Despite the multiple headwinds during the quarter, we grew operating profits ahead of sales growth. Our balance sheet is strong, and we continue to grow.”

During the first quarter, the company repurchased approximately 30 million shares for $2.2 billion. In addition, the company paid $1.6 billion in dividends. As previously announced, the company increased its dividend by 18 percent for fiscal 2014 to $1.88 per share.

Return on investment (ROI) for the trailing 12 months ended April 30 was 17.8 percent, compared to 18.1 percent for the prior trailing 12 months ended April 30, 2012. The decline was primarily the result of acquisitions, along with an increase in fixed assets within Walmart’s base business.

Walmart ended the quarter with free cash flow of $1.9 billion, compared to $3.1 billion in the prior year. An increase in income tax payments due primarily to changes in federal bonus depreciation rules and an increase in capital expenditures contributed to the free cash flow decline.

“Given current business and economic trends, including currency, we expect second quarter EPS to be in the range of $1.22 to $1.27,” said Holley. “Investments in global e-commerce initiatives were forecast to have an incremental $0.09 impact for fiscal 2014, and this remains in our guidance. We expect the Q2 impact to be in line with the $0.02 per share we had in the first quarter. In addition to e-commerce initiatives, expenses related to FCPA matters are expected to range from $65 to $70 million for the second quarter.”

Last year, Walmart delivered $1.18 in EPS for the second quarter.

Net sales, including fuel, were as follows:

• Last year’s net sales included an extra day for leap year, which added approximately 1.0 percent growth in the first quarter of last year.

• On a constant currency basis, Walmart International’s net sales would have been $33.8 billion, an increase of 5.4 percent over last year.

• Net sales for Sam’s Club, excluding fuel, were $12.2 billion, an increase of 0.5 percent from last year.

• Consolidated net sales, on a constant currency basis would have increased 1.8 percent to $114.2 billion.

“On a constant currency basis, Walmart International’s first quarter sales were $33.8 billion, up 5.4 percent. Our stores in the U.K., Africa, Mexico, Central America, Brazil, Chile, Argentina, China and India delivered positive comp sales,” said Doug McMillon, Walmart International president and CEO. “Comps in Canada and Japan declined. We grew our share in seven of our 11 markets.”

During the 13-week period, the Walmart U.S. comp was negatively impacted by a delay in tax refund checks, challenging weather conditions, less grocery inflation than expected and the payroll tax increase, the news release says. Comp traffic was down 1.8 percent, while average ticket increased 0.4 percent.

“Despite comps being lower than expected, we continued to generate market share gains,” said Bill Simon, Walmart U.S. president and CEO. “According to The Nielsen Co., we gained 20 basis points of market share in the measured category of ‘food, consumables and health and wellness/OTC’ during the 13 weeks ended Apr. 27, 2013.”

For the 13-week period ending July 26, Walmart U.S. expects comp store sales to increase from flat to 2.0 percent. Last year, Walmart’s comp sales rose 2.2 percent for the comparable period.

“The second quarter is off to a good start, with positive comps,” Simon said. “We continue to believe in the strength of our strategic plan to deliver a broad assortment with EDLP. We also continue to monitor the impact of the 2 percent payroll tax increase, along with other factors, like fuel prices.”

In the first quarter, Sam’s Club comp traffic was up 1.3 percent, while ticket was down 1.1 percent for the 13-week period ended April 26.

“Comp sales for the first quarter were impacted by unfavorable weather and less than expected inflation,” said Rosalind Brewer, Sam’s Club president and CEO. “Our business member is an integral part of our business, and comp sales and traffic patterns indicated that they remained pressured in the first quarter. Small business optimism remains at historically low levels, as businesses adapt to higher payroll taxes and cautious consumers.”

As of May 15, Sam’s Club increased its membership fee to $45 nationwide for both Advantage and Business base memberships, reflecting a $5 and $10 increase, respectively. The fee for Plus membership remains $100. This is Sam’s Club’s first fee increase since January 2006.

“The combination of our strategies, including our membership fee increase, positions us well for the second quarter, and we have a number of events to drive sales,” said Brewer. “Members will experience exciting merchandise, heightened by local brands, all displayed with a new level of visual excitement.”

Sam’s Club expects comp sales, excluding fuel, for the current 13-week period ending July 26 to increase from 1.0 to 3.0 percent. Last year, for the 13-week period, comp sales, excluding fuel, increased 4.2 percent.

Walmart U.S. and Sam’s Club will report comparable sales for the 13-week period ending July 26 on Aug. 15, when the company reports second quarter results. For fiscal year 2014, Walmart will report comparable store sales on a 53-week basis, with 4-5-5 week reporting for the fourth quarter.

Kroger Promotes Henderson, Foley

The Kroger Co. has named Scott M. Henderson as VP of pension investment and strategy and appointed Todd A. Foley as VP and treasurer, effective with their elections by Kroger’s board of directors June 27.

Henderson, 57, currently serves as Kroger’s VP and treasurer, a position he has held since 2003. He will lead a new team that is responsible for overseeing nearly $12 billion of assets.

“We are very pleased that Scott has agreed to take on this important responsibility,” said Mike Schlotman, Kroger’s CFO. “Scott brings investment expertise and steady financial leadership to our pension funds, as demonstrated by his more than 10 years as treasurer and his contribution to the successful consolidation of four UFCW pension plans in 2011.”

Henderson joined Kroger in 1981 as manager of financial reporting in Cincinnati. He has held various positions of responsibility, including VP and controller for the company’s Dillon division and VP of planning for Kroger.

Foley, 43, currently serves as Kroger’s assistant corporate controller. He replaces Henderson as treasurer.

“Todd has been a valuable member of Kroger’s financial leadership team for 12 years,” said Schlotman. “Todd brings his financial acumen and extensive experience managing Kroger’s business planning process to the role of treasurer.”

Foley began his career with Kroger in 2001 as an audit manager in the internal audit department, after working for PricewaterhouseCoopers. He was named controller of Kroger’s Cincinnati/Dayton division in 2003 before being promoted to his current role in 2006.

Foley’s replacement will be named at a later date.

Natural Grocers Posts Positive Results For 2Q

Natural Grocers by Vitamin Cottage Inc. has released results for the second quarter and first half of fiscal year 2013, and updated its outlook for fiscal year 2013.

In addition to presenting the financial results of Natural Grocers and its subsidiaries conformity with U.S. generally accepted accounting principles (GAAP), the company has presented selected second quarter and first half of fiscal year 2012 results on a pro forma basis to reflect the purchase of the 45 percent non-controlling interest in Boulder Vitamin Cottage Group LLC (BVC), which owned five stores in Colorado.

Highlights for 2Q, fiscal 2013’s first half compared to prior period

• Net sales increased 25.4 percent to $106.5 million in the second quarter and increased 26.6 percent to $202.3 million in the first half of fiscal 2013.

• Daily average comparable store sales increased 10.6 percent in the second quarter and increased 11.6 percent in the first half of fiscal 2013. Daily average comparable store sales removes the effect of the loss of two selling days in the second quarter of fiscal 2013 due to leap year in 2012 and the occurrence of Easter in March 2013 rather than April 2012.

• Net income attributable to Natural Grocers increased 29.5 percent to $3.2 million with diluted earnings per share of $0.14 in the second quarter and increased 56.5 percent to $5.4 million with diluted earnings per share of $0.24 in the first half of fiscal 2013.

• Net income attributable to Natural Grocers compared to pro forma net income attributable to Natural Grocers (which illustrates net income as if the company owned 100 percent of BVC for the comparable period in fiscal year 2012) increased 20.6 percent to $3.2 million for the second quarter and increased 42.1 percent to $5.4 million in the first half of fiscal 2013.

• EBITDA increased 28.3 percent to $8.8 million in the second quarter and increased 39.6 percent to $15.5 million in the first half of fiscal 2013.

“We are pleased to announce our results this quarter with continued strength in both sales and earnings growth while remaining focused on our five founding principles,” says Kemper Isely, co-president of Natural Grocers

Balance sheet and cash flow

During the first half of fiscal 2013 the company generated $10.7 million in cash from operating activities and invested $17.7 million in capital expenditures, primarily for new stores.

The company ended the second quarter of fiscal 2013 with $9.5 million in cash and cash equivalents, $500,000 in restricted cash and $1.8 million in available for sale securities, as well as $15.0 million available under the revolving credit facility.

The company was deemed to be the owner during the construction period for five build-to-suit store locations. Two opened during the fourth quarter of fiscal 2012, two opened during the first quarter of fiscal 2013 and one opened during the second quarter of fiscal 2013. In addition, the company has two stores that are accounted for as capital leases. Both opened during the second quarter of fiscal 2013.

Growth and development

During the second quarter of fiscal 2013, the company opened four new stores, bringing the total store count to 65 stores located in 13 states.

The company plans to open 13 stores in fiscal year 2013 and expects to relocate one and remodel two existing stores. On April 23, the company opened its first store of the third quarter in Kalispell, Mont.

The company has signed leases for the remaining six stores planned to open in fiscal year 2013 and four stores planned to open in fiscal year 2014. Leases have been signed for locations in Idaho Falls, Idaho; Shawnee and Topeka, Kan.; Omaha, Neb.; Tulsa, Okla.; Beaverton, Bend, Gresham and Salem, Ore.; and Wichita Falls, Texas.

Currently, in all, Natural Grocers has more than 65 stores in 13 states.

Chiquita’s Restructuring Efforts Improve Company’s 1Q Operations

Chiquita Brands International Inc. earlier this week released financial and operating results for the first quarter of 2013, reporting net income of $2 million for the period compared to net loss of $11 million for the first quarter of 2012. The Charlotte, N.C.-based company also reported comparable operating income of $23 million compared to $13 million for the same period of 2012.

“We continue to execute against our previously announced restructuring plans and strategy to focus on our core products,” said Ed Lonergan, Chiquita’s president and CEO. “We are pleased that our first quarter results reflect the initial benefits from these strategic decisions and actions. The improvements overcame euro exchange rates that negatively impacted this quarter by $12 million after hedging, and we view these results as a clear sign of the progress we are making and a good first step toward achieving our long-term financial targets.

“Performance in our core businesses continues to improve,” he added. “In both our North American bananas business and our salad business, we have responsibly increased segment shares with new contracts and through improved velocity with existing customers. In Europe, we have continued to prioritize profitable contracts and have shed arrangements that did not meet our profit targets. We also continue to focus on improving productivity and remaining disciplined in our value chain and overhead spending. With the recently announced addition of Rick Frier to our management team, we believe that we have the pieces in place to execute our strategy and achieve our long-term financial goals.”

• Bananas: Comparable net sales decreased 3 percent to $505 million primarily due to reduced volumes in Europe, a result of the strategic decision to prioritize price over volume, negative impacts from the net hedged euro rate, and lower prices in North America. These factors were partially offset by higher local currency pricing in Europe and increased volume sales of bananas in North America. Improvements in sourcing and logistics cost related to Chiquita’s value chain restructuring more than offset the decrease in sales, and comparable operating income increased to $27 million in the first quarter of 2013 from $25 million in the same period of 2012.

• Salads and healthy snacks: Net sales increased 1 percent to $240 million as foodservice and healthy snack sales offset lower sales of retail value-added salads. Comparable operating income was $8 million for the first quarter of 2013 vs. $2 million comparable operating income in the same period of 2012, principally due to the savings from restructuring activities, deferrals in marketing expenditures and exiting non-core businesses, which more than offset increased industry costs in the quarter.