Miller Exits As SVU Chairman; Earnings Gain, Sales Decline

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Net interest expense for the third quarter was $52 million compared to $63 million last year. The decrease in interest expense was primarily driven by lower average rates and lower outstanding balances on the company’s senior notes.

Third quarter “Independent Business” net sales were $1.91 billion compared to $1.99 billion last year, a decrease of 3.7 percent, primarily due to lower sales to existing customers, including military, and two larger lost customers partly offset by net new business, Supervalu noted.

“Independent Business” operating earnings in the third quarter were $53 million, or 2.8 percent of net sales, and included $4 million of net pre-tax charges related to a multi-employer pension plan withdrawal charge, asset impairment, and other net charges, offset in part by a gain from the sale of a property. When adjusted for these net charges, “Independent Business” operating earnings in the third quarter were $57 million, or 3.0 percent of net sales. Last year’s “Independent Business” operating earnings in the third quarter were $51 million, or 2.6 percent of net sales, and included $1 million in pre-tax severance charges. When adjusted for this charge, “Independent Business” operating earnings in last year’s third quarter were $52 million, or 2.7 percent of net sales. The increase in “Independent Business” adjusted operating earnings was primarily attributable to a higher level of professional services income and strong expense management, the company stated.

Third quarter Save-A-Lot net sales were $991 million compared to $966 million last year, an increase of 2.6 percent, reflecting the impact from network identical store sales of positive 1.7 percent. Identical store sales for corporate stores within the Save-A-Lot network were positive 5.4 percent.

Save-A-Lot operating earnings in the third quarter were $40 million, or 4.1 percent of net sales. Last year’s Save-A-Lot operating earnings in the third quarter were $27 million, or 2.7 percent of net sales, and included $10 million in pre-tax charges primarily related to store closure charges. When adjusted for these charges, Save-A-Lot operating earnings in last year’s third quarter were $37 million, or 3.8 percent of net sales. Supervalu explained that the increase in Save-A-Lot adjusted operating earnings was primarily attributable to the benefits of cost reduction initiatives.

Third quarter “Retail Food” net sales were $1.06 billion compared to $1.09 billion last year, a decline of 2.6 percent, primarily reflecting identical store sales of negative 1.9 percent.

“Retail Food” operating earnings in the third quarter were $24 million, or 2.2 percent of net sales, and included $1 million in pre-tax income related to a reduction of previously accrued severance costs. When adjusted for this item, “Retail Food” operating earnings in the third quarter were $23 million, or 2.2 percent of net sales. Last year’s “Retail Food” operating earnings were $17 million, or 1.5 percent of net sales, and included a $10 million pre-tax gain related to a cash settlement from credit card companies partly offset by a $1 million pre-tax asset impairment charge. When adjusted for these items, last year’s “Retail Food” operating earnings in the third quarter were $8 million, or 0.7 percent of net sales. The increase in “Retail Food” adjusted operating earnings was primarily driven by the benefit of cost reduction initiatives, including lower depreciation expense, according to Supervalu.

Third quarter fees received under the TSA were $48 million compared to $10 million last year, reflecting a higher number of stores and distribution centers covered under the agreements and $4 million of the one-year transition fee earned under the TSA. Net corporate operating loss in the third quarter was $12 million and included a $1 million pre-tax contract breakage charge. When adjusted for this item, net corporate operating loss in the third quarter was $11 million. Last year’s net corporate operating loss in the third quarter was $65 million. The reduction in corporate operating loss was primarily driven by incremental fees received under the TSA, which covered administrative costs remaining in continuing operations, and cost reduction initiatives. Last year’s loss included administrative costs of the disposed operations that were not covered by the previous TSA.

Year-to-date fiscal 2014 net cash flows used in operating activities were $172 million compared to $22 million last year, reflecting higher cash tax payments and working capital in the current year. Year-to-date net cash flows used in investing activities were $42 million compared to $192 million last year, reflecting lower levels of capital expenditures. Year-to-date net cash flows provided by financing activities were $147 million compared to $42 million last year, reflecting proceeds received from the issuance of common stock to Symphony Investors net of payments for debt financing costs.

After the downsizing earlier this year, Supervalu currently has annual sales of approximately $17 billion. The company now serves of 3,358 stores composed of 1,834 independent stores serviced primarily by the company’s food distribution business, 1,334 Save-A-Lot stores, of which 954 are operated by licensee owners; and 190 traditional retail grocery stores. The Eden Prairie-based company employs approximately 35,000 associates.

And just before presstime, Supervalu also announced that it would be closing its Milton, WV food distribution center. The warehouse, which employs approximately 90 workers, has been operating in that west-central West Virginia town for nearly 40 years. It appears that distribution from the Milton depot would be folded into Supervalu’s larger warehouse in New Stanton, PA. That change is expected to take effect sometime in April.