Cerberus Will Acquire Albertsons, Acme, Jewel-Osco, Shaw’s, Star Market From Supervalu

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On that same day, Supervalu announced its third quarter earnings and, while it managed a small profit ($16 million vs. a loss of $750 million in last year’s third quarter), the overall metrics remained the same as they’ve been for the past five years.

Net sales for the period ended December 1, 2012 were $7.9 billion compared to $8.3 billion last year. The $16 million profit, or $0.08 per diluted share, included a$26 million after-tax gain related to a cash settlement received from credit card companies which was partially offset by $15 million in net after-tax charges primarily related to previously announced store closures. Third quarter net cash flows used in operating activities were $57 million compared to $61 million last year, reflecting the company’s historically higher inventory levels at the end of the third quarter.

Third quarter net sales were $7.9 billion compared to $8.3 billion last year, a decline of 5.0 percent. The decrease in net sales primarily reflects a decline in identical store sales of negative 4.5 percent for retail food and negative 4.1 percent for Save-A-Lot network identical store sales, the disposition of a majority of the company’s retail fuel centers which contributed $112 million in sales in the third quarter of fiscal 2012, and the impact of previously announced store closures. Identical store sales were influenced by the stressed consumer, the competitive environment, and continued investment in achieving competitive pricing.

Gross profit margin for the third quarter was $1.68 billion, or 21.2 percent of net sales, compared to $1.81 billion or 21.7 percent of net sales last year. The decrease in gross margin as a percent of net sales reflects the negative rate impact from additional promotional activity, an increased level of continued investment in competitive pricing, and a change in business mix which was partially offset by the rate benefit from lower fuel sales (approximately 20 basis points), a lower LIFO charge, and the favorable impact of higher generic drug sales in the company’s pharmacies.

Selling and administrative expenses in the third quarter were $1.52 billion, or 19.3 percent of net sales, including a $19 million net pre-tax benefit comprised of income related to a cash settlement received from credit card companies which was partially offset by net charges primarily related to previously announced store closures. Excluding these items, third quarter selling and administrative costs were $1.54 billion, or 19.5 percent of net sales compared to$1.61 billion, or 19.3 percent of net sales last year. The 20 basis point increase in the adjusted selling and administrative expense rate as a percent of net sales in the third quarter of fiscal 2013 reflects a 20 basis point negative impact from lower fuel sales. The impact from sales deleveraging was offset by the company’s cost reduction initiatives.

Net interest expense for the third quarter was $126 million compared to $119 million last year. The increase is primarily related to a higher average interest rate compared to last year associated with the company’s refinanced secured term-loan facility.

Supervalu’s income tax expense was $15 million, or 48.4 percent of pre-tax income, for the third quarter, compared to an income tax benefit of $77 million, or 9.3 percent of pre-tax loss in last year’s third quarter. Income tax expense in the third quarter included $3 million of net provisions related to certain tax positions. The tax rate for the third quarter of fiscal 2012 reflects the impact of the impairment charges, the majority of which was not deductible for tax purposes. Excluding these items, the tax rate for the third quarter of fiscal 2013 was 38.7 percent and the tax rate for the third quarter of fiscal 2012 was 37.4 percent.

Diluted weighted-average shares outstanding for the third quarter were 214 million shares compared to 212 million shares last year. For the third quarter of fiscal 2012, diluted loss per share is computed using the basic weighted-average number of shares outstanding and excludes all outstanding stock options and restricted stock as their effect is anti-dilutive when applied to a loss. As of January 7, 2013, Supervalu had 213 million shares outstanding.

Third quarter retail food net sales were $4.96 billion compared to $5.36 billion last year, a decline of 7.4 percent, primarily reflecting identical store sales of negative 4.5 percent and the disposition of a majority of the company’s retail fuel centers which contributed $112 million in sales in the third quarter of fiscal 2012.

Retail food (corporate chains and regional retail banners) operating earnings were $84 million and included a net $21 million pre-tax benefit comprised of $41 million related to a cash settlement received from credit card companies which was partially offset by charges of $20 million related to previously announced store closures. For the third quarter of fiscal 2012, Retail food operating loss was $818 million, including $907 million in pre-tax non-cash goodwill and intangible asset impairment charges. Excluding these benefits and charges in both years, third quarter Retail food operating earnings were $63 million, or 1.3 percent of net sales compared to $89 million, or 1.7 percent of net sales last year. The change in Retail food operating earnings as a percent of net sales was primarily due to increased promotional activity, an increased level of continued investment in competitive pricing, and the deleveraging impact of negative identical store sales which were partially offset by a lower LIFO charge and the favorable impact of higher generic drug sales in the company’s pharmacies.

Third quarter Save-A-Lot net sales were $966 million compared to $982 million last year, a decrease of 1.6 percent, reflecting the impact from network identical store sales of negative 4.1 percent and recently announced store closures partially offset by the benefit from 20 net new stores being operated at the end of the third quarter of fiscal 2013.

Save-A-Lot operating earnings in the third quarter were $28 million and included $10 million in pre-tax charges primarily related to previously announced store closure costs. Excluding these costs, Save-A-Lot operating earnings for the third quarter were $38 million, or 3.9 percent of net sales compared to $59 million, or 6.1 percent of net sales last year. The decline in operating earnings as a percent of net sales was primarily attributable to lower gross margin rates attributable to competitive price investments and the de-leveraging impact of negative identical store sales.

Third quarter independent business net sales remained flat at $1.99 billion.

Independent business operating earnings in the third quarter were $49 million, or 2.5 percent of net sales, compared to $66 million, or 3.3 percent of net sales last year. The decline in independent business operating earnings as a percent of net sales was primarily attributable to gross margin investment.

Third quarter net cash flows used in operating activities were $57 million compared to $61 million last year, reflecting the company’s historically higher inventory levels at the end of the third quarter. Fourth quarter operating cash flows historically reflect the inventory reduction associated with the holiday selling season. Third quarter cash flows used in investing activities were $52 million compared to $82 million last year, reflecting lower payments for capital expenditures. Third quarter cash flows from financing activities were $117 million compared to $124 million last year.

Year-to-date net cash flows from operating activities were $357 million compared to $518 million in the prior year. Year-to-date net cash flows used in investing activities were $360 million compared to $285 million last year, reflecting lower proceeds from asset sales and higher payments for capital expenditures. Year-to-date cash flows from financing activities were $1 million compared to a use of $209 million last year, reflecting a higher level of debt reduction in the prior year.

Supervalu said it expects debt reduction for fiscal 2013 to be approximately $400 million. Cash capital spending is projected to be approximately $500 million, including expenditures for technology, maintenance of fleet and facilities, new Save-A-Lot stores, and approximately 40 store remodels.