Minneapolis-based grocery giant Supervalu has posted net sales of US$5.8bn for the Q1 2003, ended 15 June 2002.
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Net earnings were US$77.2m, and diluted earnings per share were US$0.57. Total EBITDA was US$261.2m, or 4.5% of sales, up 80 basis points from last year’s Q1.
Jeff Noddle, chairman and CEO, said: “I am pleased with our ability to generate improving EBITDA margins across the board over last year’s Q1, starting FY 2003 on solid ground.
Supervalu’s ability to deliver on our profit goal, despite a sluggish sales environment, demonstrates that the business momentum generated last year continued into the Q1 as we continue to manage the business for improved returns.”
Noddle continued: “In May, we completed the acquisition of Deals – Nothing Over a Dollar, introducing a general merchandising strategy into our Save-A- Lot extreme value food store operation. A single price point, general merchandise retailer, Deals will complement our existing Save-A-Lot model as we develop both our retrofit and prototype combo store plans during the year. Our price superstores and traditional supermarkets also contributed to our strong retail earnings performance. In distribution, we continue to improve our ability to leverage a smaller asset base against significant volume, ultimately driving efficiencies in that business.”
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By GlobalDataThe company reaffirms its outlook for earnings per share for FY 2003, ending 22 February 2003, will be US$2.20 to US$2.35. The corresponding earnings per share outlook for the Q2 ending 7 September 2002 is US$0.48 to US$0.53.
Segment results
For the Q1, retail food sales were US$2.8bn, flat with 2001’s Q1. Excluding the impact of retail operations exited last year, total retail sales increased about 4%. Comparable sales for the Q1 were negative 1.1%, impacted by approximately 120 basis points in planned cannibalisation within key expansion markets and a slower than anticipated recovery in the US economy. Reflecting the lack of inflation in Supervalu’s market basket of goods, the company expects comparable sales for the year to be flat to slightly positive.
New store activity in the quarter, opened and acquired, resulted in 71 new stores including two price superstores, 16 Save-A-Lot owned and licensed extreme value food stores and 53 Deals – Nothing Over a Dollar stores.
Retail food operating earnings for the Q1 were US$129.1m, 47.4% up on 2001’s Q1. Operating margins increased 150 basis points year on year, reflecting merchandising execution in price superstore markets and continued growth at Save-A-Lot. EBITDA for the retail segment was US$175.4m or 6.2% of sales, up 26.3% from US$138.9m or 4.9% of sales in 2001’s Q1.
For the Q1, food distribution sales were US$3bn, a decrease of about US$1.1bn year on year. Food distribution sales declined in the quarter due to customer losses, primarily the exit of the Kmart contract that terminated 30 June 2001, the absence of Genuardi’s volume, as well as, restructuring activities.
Distribution operating earnings for the Q1 were US$57.2m, down from US$75.8m year on year. Despite the planned sales decline, distribution operating margins for the Q1 basically held last year’s level, driven by additional efficiency initiatives. EBITDA for the segment was US$97.1m in the Q1, or 3.2% of sales, up 10 basis points from 2001’s Q1.
Other Items
During the Q1, Supervalu finalised a three-year, unsecured US$650m credit facility and completed a US$300m 10-year note offering. It used US$173m of the proceeds from the 10-year note offering to redeem higher interest rate notes due in 2004. The company will also retire a US$300m bond that matures in November of this year using proceeds earmarked from its convertible notes issued in November of last year.
Total debt to capital, adjusted for invested cash balances, was about 52.7%, compared to 54.3% at year-end. Net interest expense during the quarter declined to US$51.8m primarily reflecting lower borrowing levels. The effective tax rate for the Q1 was 37%, reflecting the implementation of FAS 142.
Diluted average shares for the quarter were 136.1 million shares, up 2.7% from 2001’s Q1 reflecting the dilutive impact of outstanding stock options. In the event Supervalu’s stock price reaches the convertible notes’ conversion trigger price of US$33.96 in the Q2, the company would be required to include an additional 7.8m shares in its diluted shares outstanding calculation for the subsequent quarter. At the end of the Q1, SUPERVALU had 134m shares of common stock outstanding.
Q1 capital spending was US$153.9m, including US$6.2m in capitalised leases, primarily funding retail store expansion and remodeling; technology enhancements; and the acquisition of Deals – Nothing Over a Dollar. Store expansion plans for FY 2003 are projected at 10 to 15 price superstores and 150 to 170 Save-A-Lot extreme value stores. FY 2003 total capital spending is projected at around US$500 to US$525m.
