Kemp To Retire, Supervalu Grows Sales; Earnings Impacted By Holiday ‘Pressures’
Kevin Kemp, president of Supervalu’s East Region and a 28-year veteran of the company, will retire at the end of the SVU’s fiscal year late next month. At presstime, the company had not named his successor, but announced that current senior VPs of sales/operations Joe Della Noce and Mark Gossett will take the helm of the division on an interim basis. The region will continue to be headquartered in Mechanicsville, VA.
Since being named president of the company’s $6.8 billion region in 2006, in his low-key, conservative style, Kemp, 61, has done a fine job of guiding the wholesaler through corporate management changes and challenging issues that not only affected Supervalu but the entire wholesale grocery industry. I admired Kevin for his integrity, candor and steely passion – he really cares deeply about the independent retailers that Supervalu services. I wish him well in all his future endeavors.
Kemp’s retirement comes at a critical time for Supervalu-East, which is relocating its other Mid-Atlantic warehouse from Denver, PA to Harrisburg, PA (after Albertsons, the owner of the Denver facility, announced last year that it will take possession of that depot). The company also plans to open its third “Market Centre” depot in Carlisle, PA that will focus on handling natural/organic, specialty and ethnic products.
Supervalu also released its third quarter financials earlier this month and, all told, it was kind of a mixed bag. The Eden Prairie, MN-based wholesale grocer, which also operates more than 200 corporate retail stores, reported a 31 percent increase in net sales in its third quarter of 2017 to $3.94 billion, compared to $3 billion during the same period last year. Net earnings were $18 million, or $0.46 per diluted per share, which was in line with analysts’ estimates. A tax benefit pushed earnings up to $23 million, or $0.61 per share.
Supervalu’s wholesale division once again paced the company’s gains with a 52 percent increase in net sales to $2.89 billion thanks to new store sales and the company’s Unified Grocers business, which it acquired last summer. However, wholesale earnings slipped 11.5 percent, to $46 million, due to “the mixed impact of the acquired Unified Grocers business contributing to operating earnings at a lower percent of net sales and higher trucking and logistics costs,” according to the company. Supervalu’s retail sales continued to struggle in the third quarter, with identical-store sales down 3.5 percent, including a 3.4 percent decrease in traffic and a decline in average basket size of 10 basis points. Overall retail sales fell 4.1 percent in the quarter, to $1.02 billion.
“With the influx of significant new business in certain distribution centers, we experienced a larger-than-anticipated increase in expenses, but we’re encouraged by the work we are doing to address those costs and believe they are manageable going forward,” Supervalu CEO Mark Gross said in a statement. “We remain committed to investing in our wholesale business to drive future growth.”
Some of those expenses which impacted earnings were the cost of leasing additional warehouse space, increases in trucking capacity expense and employee overtime. Wholesale sales now represent 73 percent of total sales at Supervalu, up from 63 percent a year ago.
Supervalu completed its acquisition of Associated Grocers of Florida shortly after the December 2 close of the quarter.
The retail segment operating loss totaled $6 million, including $3 million in charges and costs related to store closures. The year-ago retail operating loss totaled $14 million, which included $15 million in goodwill impairment charges and $1 million for charges and costs related to store closures.
In his follow-up conference call with financial analysts, Gross said some retail banners are performing better than others, and that the company would continue to invest in those that are performing better and will minimize its investments in those that are performing poorly. He did not specify which corporately-owned retail divisions were performing “better.”
“Every asset has got to be productive, and we’ll fully support and invest in those that will give a return to our shareholders,” he said.
Gross is continuing to keep his focus on growing wholesale by adding new customers, increasing purchases with existing retailers and creating purchasing opportunities with independents that are not currently primary Supervalu customers. And that brings us back to corporate retail, which seems clearly in play. However, it’s not going to be easy to sell whole divisions (banners) or even large blocks of stores within a banner given the tremendous overstoring and competition that currently exists in virtually all markets. And the hope that perhaps some of those stores that are eventually sold will continue to utilize SVU as primary supplier might also be difficult to achieve. As I’ve said earlier, Gross has some tough decision ahead, but I believe he’s handling the challenges deftly thus far.
No pain, no gain!