Gelson Parent Co. Shares Soar on Earnings Report

The exotic food isn’t the only thing about Gelson’s Markets that’s pricey these days.

The thinly traded shares of Arden Group Inc., which owns the 10 upscale Gelson’s and three Mayfair supermarkets in the Los Angeles area, have soared in recent days after Arden said its earnings improved markedly in 1997.

And that’s spawned millions of dollars of additional wealth--on paper at least--for Arden’s chief executive, 73-year-old Bernard Briskin, who is by far the company’s biggest stockholder.

Arden is based in Compton, with executive offices in Beverly Hills. After the company announced its 1997 results Wednesday, Arden’s stock surged $28 a share that day alone, to $128, and it has since climbed to $132 a share on the Nasdaq Stock Market. The stock traded at $57 a year ago.

The shares’ latest run-up also reflects Arden’s disclosure that it plans a 4-for-1 split of the shares later this year. The move is aimed at keeping Arden listed on Nasdaq’s top-tier National Market under revised rules that Nasdaq recently adopted.

Currently, Arden doesn’t have enough shares outstanding--or float--to stay listed on the National Market. But it’s gotten a temporary exemption from the new requirements pending a hearing with Nasdaq and its proposed stock split.

In fact, Arden’s float is extremely small, which is why the stock moves so sharply and why virtually no Wall Street analysts bother following it. When the stock soared Thursday, for instance, only 7,400 shares changed hands. On some days the shares don’t trade at all.

“There just isn’t much stock in the marketplace,” said Ernest Klinger, Arden’s chief financial officer.

Arden has about 554,000 shares of Class A common stock outstanding, and 30% of those are held by Briskin. Arden also has 334,000 Class B shares, which don’t trade but are convertible 1-for-1 into the Class A, and Briskin also owns 90% of the Class B stock.

Because Arden’s Class A shares have now more than doubled in price during the last year, the market value of Briskin’s stake in the company (assuming full conversion to the Class A shares) has soared to $62 million from $27 million a year ago.

In addition, splitting Arden’s stock to meet Nasdaq’s requirements should help Briskin and other holders cash out their paper profits, should they decide to do so. That’s because there will be more shares outstanding to absorb sales by those investors, reducing the chance that their sales would severely depress Arden’s market price.

Despite Arden’s sharp rise lately, the stock is still moderately priced on the basis of its profits, compared with other publicly traded supermarket chains.

Arden currently trades for about 15.5 times its 1997 earnings, whereas the six companies in the Standard & Poor’s supermarket-chain index--which has also risen sharply in recent months--carry a combined price-earnings ratio of 29.

Arden said its 1997 after-tax profit from continuing operations jumped to $8.7 million, or $8.42 a share, from $4 million, or $3.57 a share, the prior year. (A $2.7-million loss from discontinued lines knocked Arden’s net income down to $6 million last year.) Its annual sales rose to $274.4 million from $252 million.

The earnings growth reflected the higher sales, increased profit margins on its groceries and lower expenses as a percentage of its sales, Arden said. But Arden still has the thin margins commonplace among supermarkets: The company earned a mere 3 cents on every dollar of sales last year.

Gelson’s, which markets imported foods, unusual deli items, fresh seafood and baked goods, was started in 1951 by brothers Bernard and Eugene Gelson, who paid $5,000 for a small grocery in North Hollywood.

They sold the business in 1964 to Arden, which traces its roots to the turn of the century when it was a dairy operation, although Bernard Gelson continued running the stores until 1986. Arden overall currently employs about 1,000 full-time workers.

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Gracer’s Gain

Thinly traded Arden Group stock has more than doubled since March 1997. Monthly closes and latest:

Friday: $132

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Source: AP, Reuters