California shoppers will be seeing a lot more of Smart & Final Stores next year.
The Commerce grocer’s plans to open more than 30 stores – on top of a solid quarter for sales – resulted in its stock rising 12 percent Thursday to $16.33 a share by the close of markets.
Smart & Final on Wednesday reported net income of $12.4 million (17 cents a share) for the third quarter, compared with $10.2 million for the same period last year. Revenue jumped 10 percent to $1.2 billion.
Smart & Final picked the new stores out of 100 properties that became available after their owner, Bellingham, Wash. grocer Haggen, went bankrupt. Out of 32 stores it aims to acquire in Central and Southern California, seven are in Los Angeles. The deal is expected to be approved in bankruptcy court on Friday.
The new sites will open as medium-sized stores under the Extra! brand and will include some relocations of Smart & Final’s older, warehouse-like markets.
Smart & Final Chief Executive Dave Hirz told the Business Journal that his company, with 145 years of experience in California, is targeting “anybody who buys groceries.” The neighborhoods it is eyeing represent a mix of homes and businesses, ideal for the chain’s model of offering everyday shopping items along with products in bulk.
“It really does well in any demographic,” said Hirz. “It’s about value. Value is the new normal.”
The company is preparing to put up about $70 million to buy the stores and spend another $70 million on renovations, said Hirz. He added that the company was willing to spend big because most of the leases, signed decades ago by former grocery tenants, have rents far below market value. Most stores will be able to keep those leases for another 20 years.
Some of the stores that currently occupy 50,000 square feet will be reduced to Smart & Final’s typical footprint of 30,000 feet, leaving room for other retailers such as dollar stores or clothing shops to rent.
Smart & Final’s growth a year after going public comes as other grocers also make bold moves in Southern California’s lucrative grocery market. Gelson’s Markets of Encino is aiming to acquire eight stores in the Haggen bankruptcy. German grocer Aldi is making its first California foray with 45 stores. And Emeryville’s Grocery Outlet plans to open 14 markets.
But Hirz said he has few qualms about the competition. And preparing to add stores – six percent more than Smart & Final had anticipated for the year – means the company’s long-term expansion plan is on track.
“There’s a lot more growth in California,” he said.
