(Sept. 9) LEWISVILLE, Texas — Fleming Cos. Inc., the No. 1 grocery distributor in the U.S., is planning to take a hard look at its business operations, although company officials won’t say if any changes are in store for its Food 4 Less, Sentry or Rainbow stores.

The firm also calls a lawsuit filed against it Aug. 30 that alleges the company had inflated its stock price by falsely portraying sales “baseless.”

Shares have fallen to their lowest level in decades since the lawsuit was filed. The suit alleges that Fleming deliberately misled shareholders by releasing upbeat statements about its financial health.

Fleming reported Aug. 22 only that it plans to give an update on a strategic review of its retail chain by the end of September.

POSSIBLE SALE OF STORES

The review, which the company announced July 30, could include a possible sale of about 127 warehouse-format stores that the company operates, according to some analysts.

Fleming spokesman Randy Hatcher said the firm had not defined what the review may involve.

Fleming shares closed at $8 Sept. 4 on the New York Stock Exchange, with a 52-week — generally downward — range of $30.45 to $7.05.

KMART BIGGEST CUSTOMER

Shares reached a new low at $6.90 in early trading Sept. 5, and volume was heavy at 6.46 million shares or nearly six times its daily average. Much of the downturn in share value has been pegged to the fortunes of Kmart, its largest customer, which is in Chapter 11 bankruptcy and announced in March that it was closing 284 stores.

Fleming’s retail division has faced an onslaught of competition from traditional supermarkets and superstores, notably Wal-Mart Stores Inc., Bentonville, Ark.

But Hatcher said that what competitors were doing had not prompted the review.

“It’s not related to that,” he said. “From time to time, you take a look at your operations and take a look at what you’re doing, and it’s as simple as that.”

A research report on Fleming conducted by Meredith Adler, an analyst at Lehman Bros., said the sale of retail units could yield about $565 million for Fleming, and the transaction would also help the company cut about $23 million in administrative expenses connected to the retail business.

“I think that in today’s day and age, with an atmosphere on profit, everybody is looking at all their divisions and formats and seeing if they are doing what they can for the bottom line,” said Ed Odron, president of Produce Marketing Consultants, a Stockton, Calif.-based retail consulting firm. “In some cases, you are better off to cut and run, and I think Fleming is doing nothing different than others.”

UNDERPERFORMING UNITS

Lehman Bros. reports that it believes some portions of Fleming’s retail operations are underperforming, including converted Sentry stores in Milwaukee and some of the company’s price-discount superstores in the Southwest. Lehman adds that Fleming is considering selling off Rainbow, the hybrid conventional/discount format in Minneapolis that was nearly sold two years ago but has performed well recently and has drawn interest from potential buyers. Lehman also notes that “the bulk of the value of Fleming’s current retail portfolio lies with Rainbow and the California Food 4 Less stores, which are also performing well.”

Odron said times had changed for underperforming units.

“They’re looking at ways to cut costs, and they’re looking at these units more closely than they would years ago,” Odron said. “Then, you’d kind of ride with them. Today, as competitive as everything is, they’re looking at them much harder, and it doesn’t surprise me that they’re doing it. Some tough decisions have to be made.”

Such a business review is standard for all major distribution and retail operations, Odron said.

“I think every large supermarket corporation is looking at all of (their units), including Wal-Mart,” he said.