Supervalu Inc. (SVU), one of the largest grocery chains in the United States, delivered diminutive earnings for the first quarter of fiscal 2011. Quarterly earnings of 43 cents a share plunged 22% compared with 55 cents posted in the year-ago period. However, the earnings result outpaced the Zacks Consensus Estimate by a penny.
On a reported basis, including one-time items, earnings came in at 31 cents a share versus 53 cents delivered in the prior-year quarter.
Supervalu re-affirms fiscal 2011 adjusted earnings of $1.75−$1.95 per share, well above the current Zacks Consensus Estimate of $1.74 per share. However, the company lowered the fiscal 2011 reported earnings to $1.61−$1.81 per share from $1.65-$1.85 per share previously, reflecting 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 9.2% to $11,545 million in the quarter, compared with $12,715 million in the prior-year period, as both Retail Food and Supply Chain Services segments experienced negative sales growth. Revenue also came below the Zacks Consensus Estimate of $11,632 million.
For fiscal 2011, the company anticipates net sales of $38 billion. Same-store sales (excluding fuel), is expected to decline about 5%; and traditional food distribution business sales to dip by 3%, 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 22.5%, marginally above 22.4% registered in the prior-year quarter, demonstrating effective promotional spending partially offset by investments.
Segment Details
Net sales at Retail Food (77.5% of the total sales in the quarter) slipped 9.6% to $8,951 million in the quarter compared with to $9,900 million in the prior-year quarter. Results followed a same-store sales decline of 7.2% and the negative impact of retail market exits.
Retail square footage dipped 6.1% year over year in the quarter. However, excluding the impact of market exits and store closures, retail square footage grew 0.8% in the quarter from the prior-year quarter.
Net sales at Supply Chain Services (22.5% of the total sales in the quarter) slipped 7.9% to $2,594 million in the quarter compared with $2,815 million in the prior-year quarter, reflecting Target to transition some of the volume to self-distribution.
Other Financial Update
Supervalu exited the quarter with cash and cash equivalents of $198 million, and long-term debt and capital lease obligations of $6,720 million. The company plans to reduce debt by $600 million in fiscal 2011. At the end of the quarter, total debt to capital stood at 72%.
The company’s cash flow from operations was $337 million in the quarter, down compared with $492 million in the prior year, demonstrating higher working capital and lower net income.
Supervalu spent $173 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 ended the quarter with 4,270 stores. Supervalu’s shares maintain a Zacks #4 Rank, which translates into a short-term Sell recommendation. Our long-term recommendation for the stock remains Neutral.
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