Wal-Mart Stores, Inc. (WMT): Mariano’s Fresh Market Doesn’t Justify Buying Roundy’s Inc (RNDY) and Its Dividend

A new brand to the rescue?
If there has been one silver lining to Roundy’s life as a public company, it has been in the form of its Mariano’s Fresh Markets, which are taking hold in Chicago. These stores — again, speaking from personal experience — are much more akin to what one would experience if one shopped at a Trader Joe’s: a quirky and vibrant atmosphere with differentiated product offerings.

These stores have been a huge hit. Mariano said that, as of the most recent quarter, the 11 Chicago stores are averaging more than $1 million per week in sales. That’s well above the company’s stated goal of $750,000. Realizing that it might have captured lightning in a bottle, management plans to invest aggressively and open five new stores per year until it hits 30 in the greater Chicago area.

The problem, for bullish Roundy’s Inc (NYSE:RNDY) investors comes when you look at what a small portion Mariano’s Fresh Markets makes up of Roundy’s base.

Source: SEC filings.

Even if Mariano’s continues to outperform, the eroding businesses in Wisconsin and Minnesota will continue to drag on the company’s stock.

Kenneth Goldman, an analyst at JP Morgan Chase, realizing this scenario, asked during the most recent conference call if Roundy’s management would be willing to sell off all of its non-Mariano’s business if the right buyer came along. Mariano said the question “painted a wonderful picture, but the reality is that there’s no such offer” existing.

The article Mariano’s Fresh Market Doesn’t Justify Buying Roundy’s and Its Dividend originally appeared on Fool.com and is written by Brian Stoffel.

Fool contributor Brian Stoffel has no position in any stocks mentioned. The Motley Fool owns shares of JPMorgan Chase.

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