Taking Stock

Print Friendly

SVU Earnings Up, But Negative Sales Trend Continues; Miller Leads Fastest Annual Meeting In Recent Memory 

If you weren’t already aware of Supervalu chairman Bob Miller’s no-nonsense approach to business, a microcosm of it could be witnessed at the company’s annual shareholder’s meeting which was held at the Sheraton Hotel in Times Square on July 16. The meeting began at 11:30 a.m. and, according to several sources, the confab ended 11 minutes later. Miller reportedly discussed some business issues, but gave no speech at the sparsely attended event about the company’s future plans or initiatives.

The bigger news came two days later when Supervalu announced its 2014 first quarter financials, the first full period under the new management regime led by Miller and CEO Sam Duncan.

And although the company earned $85 million on sales of $5.16 billion (up from $41 million in the same period last year), other key metrics continued their negative trends.

For the record, here’s a closer view of the numbers with the requisite positive spin from chief executive Duncan.

Net loss from continuing operations for the first quarter of fiscal 2014 was $105 million, or $0.43 per diluted share, and included $139 million in after-tax charges, or $0.57 per diluted share, primarily related to current and previous financing activities, employee severance, and asset impairments. When adjusted for these charges, first quarter fiscal 2014 net earnings from continuing operations was $34 million, or $0.14 per diluted share.

Net income from discontinued operations in the first quarter, which totaled $190 million or $0.77 per diluted share, included the benefits from the finalization of tax related matters and a favorable adjustment to the previously recorded loss on sale of five retail grocery banners in the first quarter. In the first quarter of fiscal 2013, the net loss from continuing operations was $18 million, or $0.08 per diluted share.

“Our first quarter was highlighted by a renewed focus on driving sales and cash in all segments of our business and I’m pleased with the progress we made, especially the sequential improvement in sales trends from the fourth quarter of fiscal 2013 in each of our business segments,” said Duncan. “We have a good foundation, strong leadership team, improved debt maturity profile, and achievable goals across each operating segment.”

“In the ‘Independent Business’ (segment), we reduced the rate of sales decline from the fourth quarter in spite of lower military sales. Our first national retail advisory group meeting was very successful and we continue to talk with potential new customers,” added Duncan.

“Save-A-Lot also showed improved ID sales trends across its store network and within its corporate stores while lowering the inside margin,” Duncan continued. “Save-A-Lot has made great strides on bettering its perishable offering and its overall in-store merchandising.”

Duncan concluded with, “Finally, our ‘Retail Food’ banners posted a 110 basis point improvement in ID sales trends over last quarter. We have completed the transition to the decentralized operating model and are focused on driving store execution and standards.”

First quarter net sales were $5.16 billion compared to $5.24 billion last year, a decline of 1.5 percent. The decrease in net sales primarily reflects a decline in identical store sales of negative 3.0 percent for ‘Retail Food” and negative 1.9 percent for Save-A-Lot. Identical store sales for corporately operated stores within the Save-A-Lot network were negative 1.2 percent.

Gross profit margin for the first quarter was $712 million, or 13.8 percent of net sales, compared to $707 million, or 13.5 percent of net sales last year. The increase in gross margin as a percent of net sales reflects lower infrastructure costs in the current year as a result of cost reduction initiatives partially offset by investment in price.

First quarter “Independent Business” net sales were $2.46 billion compared to $2.48 billion last year, a decrease of 0.6 percent.

“Independent Business” operating earnings in the first quarter were $55 million, or 2.3 percent of net sales, and included $14 million in pre-tax costs and charges primarily related to employee severance. Excluding these costs and charges, Independent Business operating earnings in the first quarter were $69 million, or 2.8 percent of net sales. Independent Business operating earnings in the first quarter of fiscal 2013 were $68 million, or 2.7 percent of net sales.

First quarter Save-A-Lot net sales were $1.27 billion compared to $1.29 billion last year, a decrease of 1.6 percent, reflecting the impact from network identical store sales of negative 1.9 percent. Identical store sales for corporately operated stores within the Save-A-Lot network were negative 1.2 percent.

Save-A-Lot operating earnings in the first quarter were $52 million, or 4.1 percent of net sales, and included $5 million in pre-tax asset impairment charges and employee severance costs. Excluding these charges and costs, Save-A-Lot operating earnings were $57 million, or 4.5 percent of net sales, compared to $59 million, or 4.5 percent of net sales last year. Save-A-Lot operating earnings reflect incremental price investment during the quarter offset by cost reduction initiatives.

At SVU’s “Retail Food” segment, net sales were $1.43 billion compared to $1.47 billion last year, a decline of 2.9 percent, primarily reflecting identical store sales of negative 3.0 percent. Identical store sales were driven by competitive pressures and the impact of incremental price investments, the company said.

“Retail Food” operating earnings were $25 million, or 1.7 percent of net sales, and included $18 million in pre-tax employee severance costs, vendor contract breakage costs, and asset impairment charges. Excluding these costs and charges, “Retail Food” operating earnings were $43 million, or 3.0 percent of net sales. Last year’s “Retail Food” operating earnings were $9 million, or 0.6 percent of net sales. The improvement in “Retail Food” operating earnings was driven by the benefit from the company’s cost cutting initiatives and lower depreciation expense.

Supervalu’s overall first quarter net sales were $5.16 billion compared to $5.24 billion last year, a decline of 1.5 percent. The decrease in net sales primarily reflects a decline in identical store sales of negative 3.0 percent for “Retail Food” and negative 1.9 percent for Save-A-Lot. Identical store sales for corporately operated stores within the Save-A-Lot network were negative 1.2 percent.

In related news, the beleaguered firm also announced that its last two director’s slots have been filled. In addition to CEO Duncan, Supervalu has elected Eric G. Johnson, president and chief executive officer of Baldwin Richardson Foods Company.

“I am very pleased that Eric has joined the Supervalu board of directors,” said Miller. “He will bring a unique perspective to the group as both an entrepreneur and as a major producer of products and ingredients to the food industry.”

“I am also happy to announce that Eric’s appointment brings to a completion our director search and allows Sam to become an active participant on our board going forward,” the non-executive chairman concluded. Johnson is president and chief executive officer of Baldwin Richardson Foods Company, one of the largest African-American owned businesses in the food industry..

The Supervalu board now consists of 11 members.

It’s still early in the game and clearly Duncan and Miller need more time to change the view. However, even at this early date with most of the administrative and infrastructure tightening, the proof is in improving sales at its retail banners and maintain its independent retailer base, which will be no easy task going forward.