Fairway Seeks Premium to Supermarket Rivals in U.S. IPO

Fairway Group Holdings Corp., the grocery-store chain focused on greater New York, is seeking to go public at a valuation that’s more expensive than peers including Whole Foods Market Inc.

The IPO, scheduled to price today, would value the New York-based company at $453.6 million, or about 15 times adjusted earnings before interest, taxes, depreciation and amortization for the fiscal year ended April 2012, according to data compiled by Bloomberg. That compares with 13 times Ebitda for Whole Foods and 5.2 times Ebitda for Safeway Inc., the second-largest U.S. supermarket chain. Fairway’s Ebitda was adjusted to exclude the costs of opening new stores.

Fairway, which started as a small neighborhood market in the 1930s, is moving ahead with the IPO after expansion in suburban New York, New Jersey and Connecticut helped boost sales for at least three years in a row. Sales at Fairway rose 14 percent to $554.9 million in the year ended April 1, 2012. The company had a net loss of $11.9 million that year.

The food seller, which has 12 locations, said in a regulatory filing that it’s planning to add stores in population-dense metropolitan areas and has the potential for more than 300 new U.S. shops.

“The concept could work outside of New York,” Joe Feldman, a New York-based analyst at Telsey Advisory Group, said in an interview. “It feels like a discount-oriented space with really quality stuff.

‘‘You can go and get Cheerios and Frosted Flakes, but you can also get some of that organic stuff that you would find at a Whole Foods,’’ he said.

Grocery Sales

Sales at U.S. grocery stores may begin to increase after falling 2.1 percent in 2012, according to a report from industry researcher IBISWorld Inc. in Santa Monica, California. Revenue is projected to rise 0.4 percent a year, on average, and reach $500.9 billion in 2017, the data show.

Fairway is offering 13.7 million shares for $10 to $12 each and at the midpoint of the price range, the company would have a market value of $453.6 million. The shares offered are equal to a 33 percent stake in the grocery retailer.

Fairway joins companies in industries from technology to energy that are taking advantage of greater investor appetite for new equities as U.S. stocks surge to record highs this year. U.S. IPOs raised 37 percent more last quarter than they did in the year-earlier period, according to data compiled by Bloomberg.

Blackhawk IPO

Safeway, based in Pleasanton, California, announced earlier this month that its gift-card company, Blackhawk Network Holdings Inc., would seek to raise as much as $220 million in a U.S. IPO. At the midpoint of the offering range, Blackhawk would be valued at $1.09 billion, according to a filing with the U.S. Securities and Exchange Commission.

Sprouts Farmers Market LLC, the Phoenix-based grocery-store operator with about 150 locations, is in discussions to proceed with an IPO as early as May, people familiar with the matter said this month. Apollo Global Management LLC is paying itself and other shareholders a dividend of $280 million from Sprouts as the chain prepares to go public, said the people, who asked not to be named because the discussions are private.

Fairway, which gets about 65 percent of its sales from produce, organic items and prepared foods, competes with Austin, Texas-based Whole Foods and closely held Trader Joe’s, as well as big-box discounters Target Corp. and Wal-Mart Stores Inc. Fairway stores sell organic milk and baby food, as well as gluten-free breads and pancake mix.

Consumer Interest

‘‘It’s not just value that’s driving consumer interest” at food sellers, said Todd Hale, Cincinnati-based senior vice president of consumer and shopper insights at Nielsen. “It’s health and wellness, better for you and alcoholic beverages -- wine, in particular, has done extremely well,” he said.

Of the 12 Fairway locations, three are Fairway Wines & Spirits stores, which sell craft liquors and gluten-free wines, as well as traditional alcohol.

Fairway’s valuation, including the cost to open new stores, would be 89 times Ebitda, according to the data compiled by Bloomberg.

Kroger Co. is the largest U.S. grocery-store chain.

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