• Q3 net sales down 5%
  • Q3 back in black, nine-month net losses cut
  • Group sells chunk of retail business for $3.3bn

US retail giant Supervalu has clawed itself out of the red for its fiscal third-quarter, but sales dropped 5% due to a "distressed" consumer climate.

Net sales for the 12 weeks to 1 December fell by 5% on the same period of last year, to US$7.9bn, said Supervalu today (10 January).

The group blamed the drop on weaker same-store sales, amid a poor consumer environment and an increasingly "competitive environment"; both of which has forced it to invest more in promotions.

Sales in retail food for the third quarter were 7.4% down on the prior-year period, at $4.96bn.

There was better news at the bottom line, where Supervalu scraped back into profit. It was back in the black by $16m for the quarter, thanks to a one-off after-tax gain of $26m, versus losses of $750m in the same three months of last year. Operating profits were $157m, versus losses of $708m a year ago.

However, the group remained in the red over the first nine months of its fiscal year. It did, though, cut nine-month losses to $54m, from $616m a year earlier.

Today's announcement coincided with news that Supervalu has agreed to sell five of its retail chains - Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market - to an investor consortium led by private equity group Cerberus Capital. The deal is valued at $3.3bn.

The firm did not provide outlook guidance on sales and profits, other than to say that it expects to have cut net debt by $400m in its current fiscal year.

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SUPERVALU Announces Third Quarter Fiscal 2013 Results

  • Cash flow from operations of $357 million fiscal year-to-date; cash flow used in operations of $57 million for fiscal third quarter reflects seasonal holiday inventory build
  • Net earnings of $0.08 per share; adjusted earnings of $0.03 per share
  • EBITDA of $1.60 billion before charges for the 52 weeks ended December 1, 2012

MINNEAPOLIS--(BUSINESS WIRE)--SUPERVALU INC. (NYSE: SVU) today reported third quarter fiscal 2013 net sales of $7.9 billion compared to $8.3 billion last year. Net earnings for the third quarter totaled $16 million, or $0.08 per diluted share, including a $26 million after-tax gain related to a cash settlement received from credit card companies which was partially offset by $15 million in net after-tax charges primarily related to previously announced store closures. In the third quarter of fiscal 2012, the Company reported a net loss of $750 million, or $3.54 per diluted share, including non-cash goodwill and intangible asset impairment charges of $800 million after-tax, or $3.78 per diluted share. When adjusted for these items, third quarter fiscal 2013 net earnings were $5 million, or $0.03 per diluted share compared to third quarter fiscal 2012 net earnings of $50 million or $0.24 per diluted share. [See table 1 for a reconciliation of GAAP and non-GAAP (adjusted) results appearing in this release]. Third quarter net cash flows used in operating activities were $57 million compared to $61 million last year, reflecting the Company’s historically higher inventory levels at the end of the third quarter.

Third Quarter Results

Third quarter net sales were $7.9 billion compared to $8.3 billion last year, a decline of 5.0 percent. The decrease in net sales primarily reflects a decline in identical store sales of negative 4.5 percent for Retail Food and negative 4.1 percent for Save-A-Lot network identical store sales, the disposition of a majority of the Company’s retail fuel centers which contributed $112 million in sales in the third quarter of fiscal 2012, and the impact of previously announced store closures. Identical store sales were influenced by the stressed consumer, the competitive environment, and continued investment in achieving competitive pricing.

Gross profit margin for the third quarter was $1.68 billion, or 21.2 percent of net sales, compared to $1.81 billion or 21.7 percent of net sales last year. The decrease in gross margin as a percent of net sales reflects the negative rate impact from additional promotional activity, an increased level of continued investment in competitive pricing, and a change in business mix which was partially offset by the rate benefit from lower fuel sales (approximately 20 basis points), a lower LIFO charge, and the favorable impact of higher generic drug sales in the Company’s pharmacies.

Selling and administrative expenses in the third quarter were $1.52 billion, or 19.3 percent of net sales, including a $19 million net pre-tax benefit comprised of income related to a cash settlement received from credit card companies which was partially offset by net charges primarily related to previously announced store closures. Excluding these items, third quarter selling and administrative costs were $1.54 billion, or 19.5 percent of net sales compared to $1.61 billion, or 19.3 percent of net sales last year. The 20 basis point increase in the adjusted selling and administrative expense rate as a percent of net sales in the third quarter of fiscal 2013 reflects a 20 basis point negative impact from lower fuel sales. The impact from sales deleveraging was offset by the Company’s cost reduction initiatives.

Net interest expense for the third quarter was $126 million compared to $119 million last year. The increase is primarily related to a higher average interest rate compared to last year associated with the Company’s refinanced secured term-loan facility.

SUPERVALU’s income tax expense was $15 million, or 48.4 percent of pre-tax income, for the third quarter, compared to an income tax benefit of $77 million, or 9.3 percent of pre-tax loss in last year’s third quarter. Income tax expense in the third quarter includes $3 million of net provisions related to certain tax positions. The tax rate for the third quarter of fiscal 2012 reflects the impact of the impairment charges, the majority of which was not deductible for tax purposes. Excluding these items, the tax rate for the third quarter of fiscal 2013 was 38.7 percent and the tax rate for the third quarter of fiscal 2012 was 37.4 percent.

Diluted weighted-average shares outstanding for the third quarter were 214 million shares compared to 212 million shares last year. For the third quarter of fiscal 2012, diluted loss per share is computed using the basic weighted-average number of shares outstanding and excludes all outstanding stock options and restricted stock as their effect is anti-dilutive when applied to a loss. As of January 7, 2013, SUPERVALU had 213 million shares outstanding.

Retail Food

Third quarter Retail Food net sales were $4.96 billion compared to $5.36 billion last year, a decline of 7.4 percent, primarily reflecting identical store sales of negative 4.5 percent and the disposition of a majority of the Company’s retail fuel centers which contributed $112 million in sales in the third quarter of fiscal 2012.

Retail Food operating earnings were $84 million and included a net $21 million pre-tax benefit comprised of $41 million related to a cash settlement received from credit card companies which was partially offset by charges of $20 million related to previously announced store closures. For the third quarter of fiscal 2012, Retail Food operating loss was $818 million, including $907 million in pre-tax non-cash goodwill and intangible asset impairment charges. Excluding these benefits and charges in both years, third quarter Retail Food operating earnings were $63 million, or 1.3 percent of net sales compared to $89 million, or 1.7 percent of net sales last year. The change in Retail Food operating earnings as a percent of net sales was primarily due to increased promotional activity, an increased level of continued investment in competitive pricing, and the deleveraging impact of negative identical store sales which were partially offset by a lower LIFO charge and the favorable impact of higher generic drug sales in the Company’s pharmacies.

Save-A-Lot

Third quarter Save-A-Lot net sales were $966 million compared to $982 million last year, a decrease of 1.6 percent, reflecting the impact from network identical store sales of negative 4.1 percent and recently announced store closures partially offset by the benefit from 20 net new stores being operated at the end of the third quarter of fiscal 2013.

Save-A-Lot operating earnings in the third quarter were $28 million and included $10 million in pre-tax charges primarily related to previously announced store closure costs. Excluding these costs, Save-A-Lot operating earnings for the third quarter were $38 million, or 3.9 percent of net sales compared to $59 million, or 6.1 percent of net sales last year. The decline in operating earnings as a percent of net sales was primarily attributable to lower gross margin rates attributable to competitive price investments and the de-leveraging impact of negative identical store sales.

Independent Business

Third quarter Independent Business net sales were $1.99 billion compared to $1.99 billion last year.

Independent Business operating earnings in the third quarter were $49 million, or 2.5 percent of net sales, compared to $66 million, or 3.3 percent of net sales last year. The decline in Independent Business operating earnings as a percent of net sales was primarily attributable to gross margin investment.

Cash flows

Third quarter net cash flows used in operating activities were $57 million compared to $61 million last year, reflecting the Company’s historically higher inventory levels at the end of the third quarter. Fourth quarter operating cash flows historically reflect the inventory reduction associated with the holiday selling season. Third quarter cash flows used in investing activities were $52 million compared to $82 million last year, reflecting lower payments for capital expenditures. Third quarter cash flows from financing activities were $117 million compared to $124 million last year.

Year-to-date net cash flows from operating activities were $357 million compared to $518 million in the prior year. Year-to-date net cash flows used in investing activities were $360 million compared to $285 million last year, reflecting lower proceeds from asset sales and higher payments for capital expenditures. Year-to-date cash flows from financing activities were $1 million compared to a use of $209 million last year, reflecting a higher level of debt reduction in the prior year.

Outlook

The Company currently expects debt reduction for fiscal 2013 to be approximately $400 million. Cash capital spending is projected to be approximately $500 million, including expenditures for technology, maintenance of fleet and facilities, new Save-A-Lot stores, and approximately 40 store remodels.

Conference Call

A conference call to review the third quarter results is scheduled for 9:00 a.m. central time today. The call will be webcast live at www.supervaluinvestors.com (click on microphone icon). A replay of the call will be archived at www.supervaluinvestors.com. To access the website replay go to the "Investors" link and click on "Presentations and Webcasts."

About SUPERVALU INC.

SUPERVALU INC. is one of the largest companies in the U.S. grocery channel with annual sales of approximately $35 billion. SUPERVALU serves customers across the United States through a network of approximately 4,350 stores composed of 1,068 traditional retail stores, including 778 in-store pharmacies; 1,329 Save-A-Lot stores, of which 946 are operated by licensee owners; and 1,950 independent stores serviced primarily by the Company's food distribution business. SUPERVALU has approximately 125,000 employees. For more information about SUPERVALU visit www.supervalu.com.

CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

Except for the historical and factual information contained herein, the matters set forth in this news release, particularly those pertaining to SUPERVALU’s expectations, guidance, or future operating results, and other statements identified by words such as "estimates," "expects," "projects," "plans," and similar expressions are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including competition, ability to execute initiatives, substantial indebtedness, impact of economic conditions, labor relations issues, escalating costs of providing employee benefits, regulatory matters, food and drug safety issues, self-insurance, legal and administrative proceedings, information technology, severe weather, natural disasters and adverse climate changes, the continuing review of goodwill and other intangible assets, accounting matters and other risk factors relating to our business or industry as detailed from time to time in SUPERVALU's reports filed with the SEC. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this news release. Unless legally required, SUPERVALU undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

SUPERVALU INC. and Subsidiaries                
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS                
(Unaudited)                
                 
                 
    Fiscal Quarter Ended       Fiscal Quarter Ended    
    December 1, 2012       December 3, 2011    
(In millions, except per share data)   (12 weeks)   % of net sales   (12 weeks)   % of net sales
                 
Net sales   $ 7,913   100.0 %   $ 8,327     100.0 %
Cost of sales     6,234   78.8 %     6,518     78.3 %
Gross profit     1,679   21.2 %     1,809     21.7 %
                 
Selling and administrative expenses     1,522   19.3 %     1,610     19.3 %
Goodwill and intangible asset impairment charges     -   0.0 %     907     10.9 %
Operating earnings (loss)     157   2.0 %     (708 )   (8.5 )%
                 
Interest expense, net     126   1.6 %     119     1.4 %
Earnings (loss) before income taxes     31   0.4 %     (827 )   (9.9 )%
Income tax provision (benefit)     15   0.2 %     (77 )   (0.9 )%
                 
Net earnings (loss)   $ 16   0.2 %   $ (750 )   (9.0 )%
                 
                 
Net earnings (loss) per share                
Basic   $ 0.08       $ (3.54 )    
Diluted   $ 0.08       $ (3.54 )    
Weighted average number of shares outstanding                
Basic     212         212      
Diluted     214         212      
                       

 

SUPERVALU INC. and Subsidiaries                
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS                
(Unaudited)                
                 
                 
    Fiscal Year-to-Date Ended     Fiscal Year-to-Date Ended  
    December 1, 2012       December 3, 2011    
(In millions, except per share data)   (40 weeks)   % of net sales   (40 weeks)   % of net sales
                 
Net sales   $ 26,542     100.0 %   $ 27,869     100.0 %
Cost of sales     20,818     78.4 %     21,728     78.0 %
Gross profit     5,724     21.6 %     6,141     22.0 %
                 
Selling and administrative expenses     5,325     20.1 %     5,446     19.5 %
Goodwill and intangible asset impairment charges     74     0.3 %     907     3.3 %
Operating earnings (loss)     325     1.2 %     (212 )   (0.8 )%
                 
Interest expense, net     422     1.6 %     394     1.4 %
Loss before income taxes     (97 )   (0.4 )%     (606 )   (2.2 )%
Income tax provision (benefit)     (43 )   (0.2 )%     10     0.0 %
                 
Net loss   $ (54 )   (0.2 )%   $ (616 )   (2.2 )%
                 
                 
Net loss per share                
Basic   $ (0.26 )       $ (2.91 )    
Diluted   $ (0.26 )       $ (2.91 )    
Weighted average number of shares outstanding                
Basic     212           212      
Diluted     212           212      

Original source: Supervalu