Supervalu Inc. (SVU), one of the largest grocery chains in the United States, delivered in-line fiscal third quarter 2012 earnings. Supervalu Inc.’s earnings per share (EPS) of 24 cents shot up 125.5% compared to a loss of 94 cents posted in the year-ago period. The quarterly earnings were in line with the Zacks Consensus Estimate in the quarter.
Consequently, Supervalu updated its full-year 2012 earnings guidance. The company now expects fiscal 2012 adjusted earnings to be in the range of $1.20 to $1.30 per share. The Zacks Consensus Estimate of $1.24 lies at the middle of the guidance range provided by the company.
Supervalu’s total sales dipped 3.98% to $8,327 million in the quarter, compared with $8,673 million in the prior-year period. The reported revenue missed the Zacks Consensus Estimate of $8,429 million.
For fiscal 2012, the company anticipates net sales of $36.1 billion compared with prior estimates of $36.5 billion. Identical store sales growth, excluding fuel, is projected to be in the range of a negative 2.5% to 3.0%.
Supervalu reported an operating loss of $750 million during the quarter, compared with a loss of $202 million in the previous-year quarter. Gross margin expanded 20 basis points to 22.2% on account of benefits of promotional effectiveness, which were partially offset by retail price investments and a higher LIFO charge.
Segment Details
Net sales at Retail Food (76.1% of the total sales in the quarter) slipped 3.5% to $6,341 million in the quarter, compared with $6,573 million in the prior-year quarter. Results followed a 2.9% decline in same-store sales and adverse impacts of market exits.
Retail square footage dipped 1.5% year over year in the quarter. However, excluding the impact of market exits and store closures, retail square footage grew marginally by 1.5% in the quarter.
Net sales at Supply Chain Services (23.9% of the total sales in the quarter) slipped marginally to $1,986 million in the quarter compared with $2,100 million in the prior-year quarter.
Other Financial Update
Supervalu exited the quarter with cash and cash equivalents of $196 million, and long-term debt and capital lease obligations of $6,203 million, with a shareholders’ equity of $745 million. The company plans to reduce debt by $525 million to $550 million in fiscal 2012.
The company’s cash flow from operations was $518 million year to date, compared with $651 million in the prior-year quarter, demonstrating changes in working capital on the back of higher forward-buy inventory levels.
Supervalu spent $285 million in the quarter on investing activities, versus $310 million in the prior year.
The company forecasted capital expenditure of $700 million to $725 million for fiscal 2012, which includes 80 to 90 primary store remodels and 80 to 90 Save-A-Lot stores, including licensed locations.
Recommendation
Supervalu operates in a highly competitive market. Moreover, labor unions pose inherent risks for the company and potential labor related issues remain a concern. Supervalu faces stiff competition from Wal-Mart Stores Inc. (WMT), The Kroger Co. (KR) and Safeway Inc. (SWY).
Currently, we prefer to rate the stock as Neutral. Further, Supervalu holds the Zacks #2 Rank, which translates into a short-term Buy rating.
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