Dean Best

On the money: Supervalu CEO Herkert sees more "solid progress"

By Dean Best | 11 April 2012

Supervalu Inc chief executive Craig Herkert is expecting "another year of solid progress" at the US retailer as he pushes ahead with plans to revamp the business.

The company yesterday (10 April) reported a loss of US$1.04bn for the year to 25 February on the back of goodwill and asset impairment charges. A year earlier, Supervalu booked a loss of $1.51bn. However, excluding one-off items, net earnings fell 10.4% to $265m.

Under Herkert, who joined Supervalu in 2009, the retailer is part-way through a "transformation" programme, which includes moves to tailor the products on sale in stores to their local customer base and emphasise the company's value and fresh offerings.

Speaking to analysts after Supervalu issued its annual results, Herkert said the retailer had built a "strong foundation" over the last 12 months on which it could continue to implement its new strategy. The year ahead, he said, would be one of "focused execution".

Herkert said: "We will focus on three priorities: one, improving our value proposition; two, bringing an even greater hyperlocal experience to the neighbourhoods we serve; and three, driving long-term growth. We enter the new fiscal year as a leaner company, committed to a business strategy that will make us a more competitive retailer."

Analysts questioned Supervalu's price and promotional strategy and asked Herkert whether the retailer would become more aggressive. Jeffries & Co. analyst Scott Mushkin pointed to indications that US retail giant Kroger and Delhaize, which runs chains including Food Lion in the country, were focusing more on price.

Herkert said Supervalu's strategy of ensuring it had the funds in place to invest in price would continue and argued activity by competitors were not unusual, given the fragile economy in the US.

"For us, it's a combination of making sure that we get that base price right [and] continuing to use our promotional strategy," he said. "I don't know that I would look at the current environment as being that unusual. I think in this industry, any time there are economic challenges, you have retailers repositioning their price. I don't know that I would view it as being wildly outside the norm. And clearly, with the economy the way it is, value continues to be important."

The Supervalu chief said he was "thrilled" with the feedback from customers over the launch of the retailer's Essential Everyday private-label line and said more SKUs would be rolled out this year.

The retailer, meanwhile, plans to open 50 more Save-a-Lot discount stores over the next 12 months. "We still believe that there is a significant opportunity to grow that business," Herkert said.

However, Herkert faced a question over whether Supervalu would consider spinning off Save-a-Lot as a way of boosting value for shareholders. Supervalu's stock rose yesterday in the wake of its results, closing at $6.13. However, in the last 12 months, the retailer's shares have fallen by more than a third and, last May, they reached a 52-week high of $11.77.

Herkert declined to comment on whether Supervalu would consider spinning off Save-a-Lot. "Management and the board have a regular process of reviewing the business, the business performance and the best way to achieve shareholder value," he said.

Sectors: Financials, Private label, Retail

Companies: Supervalu Inc, Kroger

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