The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

AML Foods yesterday pledged to “create a real power destination” through a total $17m investment that will place its Solomon’s and Cost Right brands side-by-side at the former’s Nassau SuperCentre location.

Gavin Watchorn, the BISX-listed food retail and franchise group’s president and chief executive, told Tribune Business that Cost Right’s relocation from the Town Centre Mall to its new home before year-end 2023 will slash costs and “create a lot of efficiencies” by eliminating the rents it is paying for two key New Providence stores.

By acquiring the 80,000 square foot portion of the East-West Highway building that presently houses the SuperCentre format, he explained that AML Foods will become a real estate owner and thus be able to reallocate current lease expenses. The SuperCentre format will be dropped, with Solomon’s converted to the neighbourhood food stores that AML Foods is rolling-out nationwide, helping to make way for Cost Right.

Explaining that the “streamlining” better aligns the Solomon’s store with the direction AML Foods is taking the brand in, Mr Watchorn told this newspaper that the general merchandise and clothing presently sold by the SuperCentre will be switched to Cost Right.

Promising that all staff at both impacted stores will be retained, and that AML Foods will “find a home” elsewhere in the group for any not required at East-West Highway, he added that the property purchase will also enable it to improve “standards” at both outlets.

Mr Watchorn said the acquisition, and the low interest rate $20m facility that will finance the deal, will “set the foundation for the long-term growth and development” of AML Foods with the entire East-West Highway project scheduled for completion around March 2024.

“We needed the right real estate transaction to invest for the long-term,” he told Tribune Business. “We’ve signed the sales agreement. It hasn’t closed yet, and we hope to close in 60 days. We don’t expect any issues that will prevent a closing.

“It’s a significant transaction for us and quite strategic as it looks at out two oldest sites, out two legacy stores. It sets them up for the future, secures the future for them, and secures them strategically for AML Foods for the long-term.”

Cost Right’s Town Centre Mall lease is due to expire within the next two years, and Mr Watchorn said AML Foods wanted to put it “into a facility more suited for the club format” with tall spaces. “Town Centre Mall has been good to us, but it’s time to move on and reinvest in the business,” he added. “At Town Centre Mall, we’re not going to invest heavily in a location we won’t be in for the long-term.

“This transaction came about, we were able to sign an agreement, and are quite excited about creating a new home for Cost Right, while taking the Solomon’s store and creating a neighbourhood food store aligned with what we’ve done in Exuma and aligned with what we believe is the future for AML Foods, which is smaller neighbourhood stores. I believe we are going to create a real power destination.”

It is understood that AML Foods is purchasing the existing Solomon’s SuperCentre building portion from Solomon Brothers Ltd, which is owned by Martin Solomon and his family. Cost Right’s present Town Centre Mall lease is also a related party transaction as that property is owned 50 percent by the Symonette family. Craig Symonette is one of the larger, though not a majority, shareholder in AML Foods.

The BISX-listed food group yesterday disclosed to investors that the $17m East-West Highway property purchase and remodel is being financed by a $20m Royal Bank of Canada (RBC) credit facility carrying an interest rate below Bahamian Prime. The rate is Prime (4.25 percent) minus 0.65 percent, pegging it at 3.6 percent, and highlighting how some lenders are willing to accept relatively low returns in an effort to cut the banking system’s $2bn-plus in surplus liquidity.

“It’s about putting in place funding that provides for the long-term. We think it’s a good facility for us, and sets up our finances longer-term and allows us to do more projects in the future,” Mr Watchorn said. The RBC credit facility, which was signed in August, will be drawn down in stages over the next 12-18 months.

Design work on the remodelled Solomon’s SuperCentre location has already begun, and the necessary equipment will be ordered in February 2023 due to the “substantially longer lead times” that companies are grappling with due to the supply chain backlogs.

Construction work on the Cost Right side will begin in May next year, and is expected to be completed in several months. The retail format will relocate from the Town Centre Mall “towards the end of 2023” and, after a work pause for Christmas, the Solomon’s store will see its fit out start in early 2024. The construction element is expected to take ten months total, placing completion at around March/April 2024.

Confirming that both stores will remain open during this process, Mr Watchorn said Solomon’s SuperCentre was reducing its general merchandise and clothing inventories as it prepares for these to transition to Cost Right. “I know some customers have been concerned because they are noticing the changes in the store already,” he added, “as there categories we are transitioning out of as we get ready for this.

“We fully expect to retain all those sales. We will just have it under one roof rather than two.” Besides removing the rental costs associated with the present two store locations, the AML chief added that “a lot of efficiencies will accrue from this transaction” although he declined to identify a figure. Operations will also be simplified through having smaller formats.

“The savings will start to accrue immediately to us on purchasing the building, as we eliminate the rent we are paying on it,” Mr Watchorn explained. “All staff will be retained. Any working on general merchandise and clothing at Solomon’s will shift to Cost Right and be absorbed in Cost Right.

“I gave a commitment to the teams at both stores today that if we are not able to absorb them there we will find a place for them. It’s our intention to retain everybody affected by this because we have some good people. We’ll find a home for them.”

AML Foods announced its Solomon’s SuperCentre/Cost Right plans as it unveiled a 35 percent year-over-year net profit increase to $1.3m for its 2023 third quarter as compared to $1m last year. “Sales for the period were $43.8m, an improvement of $0.9m or 2.1 percent compared to the same quarter last year,” Mr Watchorn said in his message to shareholders for the three months to end-July 2022.

“Net operating profit increased by $0.3m primarily due to an increase in other operating income and improved results from our Exuma operations. Although sales improved during the quarter over prior year, gross margins were lower than expected due to vendor price increases.

“Despite our best efforts to manage through better buying, increases in supplier and freight costs have impacted our margins in recent months. Inventory levels are also slightly elevated compared to the same period last year as a result of the increased costs of goods, as well as improved stock levels following large out-of-stocks in prior year brought on by supplier restraints following COVID.”

Mr Watchorn added that profits for the 2022 financial year’s fourth quarter had been overstated due to a timing “cut-off error” associated with its new Enterprise Resource Planning (ERP) system, resulting in a $0.7m downward adjustment.

“During the period, net cash balances decreased by $1.6m,” he said of the 2023 first quarter. “$1.3m was spent on various capital projects including the ongoing build out of our downtown Freeport store. Construction at the location continues to progress and the store is expected to open in late 2022.

“During the quarter, selling, general and administrative expenses were comparable to the prior year quarter as a percentage of sales at 28.4 percent (2021: 28.6 percent).”