Supervalu Inc. (SVU), one of the largest grocery chains in the United States, delivered diminutive earnings for the second quarter of fiscal 2011. Quarterly earnings of 28 cents a share plunged 20% compared with $0.35 posted in the year-ago period. Earnings also missed the Zacks Consensus Estimate by a penny.
Supervalu lowered its full-year 2011 earnings guidance. The company now expects fiscal 2011 adjusted earnings to be in the range of $1.40 to $1.60 per share, which is below the Zacks Consensus Estimate of $1.71. Previous guidance was in the range of $1.75-$1.95 per share. The lower guidance reflects the unfavorable impact of retail market exits in Connecticut and Cincinnati and a labor dispute at Shaw’s, a subsidiary.
Revenue and Margins
Supervalu’s total sales dipped 8.5% to $8,656 million in the quarter, compared with $9,461 million in the prior-year period, as both Retail Food and Supply Chain Services segments experienced negative sales growth.
For fiscal 2011, the company anticipates net sales of $38 billion. Same-store sales (excluding fuel), is expected to decline about 5.5%; and traditional food distribution business sales to dip by 3.5%, portraying the impact of the previously announced plans by Target Corp. (TGT) to transition some of the volume to self-distribution and the divesture of its subsidiary Ukrop’s.
Supervalu’s gross margin came at 22.3%, marginally above 22.1% registered in the prior-year quarter, demonstrating effective promotional spending partially offset by investments.
Segment Details
Net sales at Retail Food (77.3% of the total sales in the quarter) slipped 9.7% to $6.7 billion in the quarter compared with to $7.4 billion in the prior-year quarter. Results followed a same-store sales decline of 5.9% and the negative impact of retail market exits.
Retail square footage dipped 3.1% year over year in the quarter. However, excluding the impact of market exits and store closures, retail square footage grew 0.9% in the quarter from the prior-year quarter.
Net sales at Supply Chain Services (22.7% of the total sales in the quarter) slipped 4.2% to $2.0 billion in the quarter compared with $2.1 billion in the prior-year quarter, reflecting Target to transition some of the volume to self-distribution and the loss of Ukrop’s business due to acquisition by a competitor.
Other Financial Update
Supervalu exited the quarter with cash and cash equivalents of $203 million, and long-term debt and capital lease obligations of $6.6 billion. The company plans to reduce debt by $650 million in fiscal 2011. At the end of the quarter, total debt to capital stood at 82%.
The company’s cash flow from operations was $754 million year-to-date, down compared with $840 million in the prior year, demonstrating reduced earnings which was partially offset by lower working capital requirement.
Supervalu spent $139 million in the reported quarter to remodel stores and upgrade technology. For fiscal 2011, the company estimates capital expenditure of about $700 million, including 60 to 75 major store remodels, 30 to 40 minor remodels, 2 replacement stores and approximately 100 hard-discount stores, including licensed locations.
Based in Eden Prairie, Minnesota SUPERVALU Inc. is one of the leading companies in the United States grocery market. Supervalu’s shares maintain a Zacks #4 Rank, which translates into a short-term Sell recommendation.
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