Thrifty rebuilds team, accelerates closings

Thrifty rebuilds team, accelerates closings

LOS ANGELES -- Pacific Enterprises is substantially rebuilding top management at Thrifty Corp., after the resignation last month of Richard Eils, president and chief executive officer.

The utility and retail company--facing what it said will be a poor profit year for the retail group--also said it will accelerate the closing of marginally-performing stores as part of "an intensive review" of its retail operation.

The Thrifty division of 814 drug stores and 256 sporting goods stores will close five percent to 10 percent of the store base in the next two years (about double the rate of closings of recent years), Tom Sanger, a spokesman for Pacific Enterprises, told Drug Store News. Sanger said Thrifty was evaluating its locations and within about three months will have developed a list of stores to be closed or sold.

Expected costs from the divestiture program and from "inventory adjustments and organizational changes" led PE to earmark a one-time charge of $100 million against Thrifty's earnings in the second quarter. That charge forced Thrifty to report an operating loss after taxes of $98 million for the quarter, despite a 6 percent sales gain to $761 million. Without the charge, Thrifty's operating income after taxes was $2 million, compared with $11 million in the second quarter of 1989. PE posted an overall loss of $229 million for the period ended May 31.

Thrifty's poor financial showing helped spur a management shuffle last month, in which Daniel Seigel was named president and chief operating officer, replacing Eils.

For the moment the ceo spot remains open. Leonard Straus, who had turned the ceo post over to Eils in March, remains as chairman of Thrifty Corp.

"A search is under way to recruit senior executives from the retail industry to come into Thrifty and strengthen the senior management team," Sanger said.

Seigel lacks a retail background, but is said to have strong executive skills honed as the head of two PE companies: Pacific Energy and Pacific Enterprises Leasing Co.

PE said that Eils, a 25-year Thrifty veteran, who has been president since 1979, resigned to "pursue other interests." Reached at his home in Hidden Hills, Orange County, Calif., Eils, 52, declined to comment on the reasons for his departure. Noting that the Thrifty resignation also required his resignation as chairman of NACDS, Eils commented: "I'm no longer involved in the drug store industry." (Phil Beekman, ceo of Hook-SupeRx Inc., took over as NACDS chairman Aug. 3.)

Although Thrifty hasn't met PE's goals in recent quarters, PE execs seemed upbeat about long-term prospects for the division and for the drug stores in a March meeting with analysts.

Some retail analysts, meanwhile, expressed surprise at Thrifty's poor showing in the second quarter. "This was quite a surprise to me. (PE) hadn't really indicated . . . just how poor the quarter (would be)," said Janet Dzwierzynski, an analyst at Duff & Phelps. "They hadn't really realized it until a few weeks (before the second quarter results were announced)."

Thrifty accounts for close to 50 percent of PE's sales, which stood at $1.6 billion for the quarter.

Thrifty challenges

The West Coast's largest drug chain, Thrifty has faced a mountain of challenges in the last three years that have only been heightened by an aggressive expansion program.

Since it was bought by PE, which owns the Southern California Gas Co., Thrifty has made 17 acquisitions, adding 193 drug stores, (including the Pay 'n Save and Bi-Mart stores), 101 sportings good stores and $1 billion in annual sales.

As it has struggled to integrate these acquisitions, Thrifty's profitability has been squeezed. Thrifty execs enumerated the challenges facing the company in a meeting with analysts earlier this year:

* Declining pharmacy margins (by 5.5 percent) due to third party sales. * Squeezed margins from competition with American Stores' Sav-on division, which launched an intense price-cutting and promotional campaign in Southern California last year to parallel their name change from Osco to Sav-on. * Costs from an intensive, ongoing implementation of automation, including a rollout of advanced POS systems, and a satelitte system. It creates a $15 million annual depreciation charge. * Too-high inventories with a 3 percent increase in the drug stores, and 26 percent in sporting goods last year.

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