Supervalu Misses, Trims Outlook - Analyst Blog

Supervalu Inc. (SVU), one of the largest grocery chains in the United States, delivered lower-than-expected third-quarter 2011 earnings. The quarterly earnings of 24 cents a share plunged 52.9% compared with 51 cents posted in the year-ago period. The quarterly earnings also missed the Zacks Consensus Estimate of 31 cents.

Consequently, Supervalu lowered its full-year 2011 earnings guidance.  On the back of softer results and trimmed guidance the shares of Supervalu plummeted 10.6% to $7.68 in pre-market trading.

The company now expects fiscal 2011 adjusted earnings to be in the range of $1.25 to $1.35 per share, which is below the Zacks Consensus Estimate of $1.46. Previous guidance was in the range of $1.40 to $1.60 per share. Supervalu now expects fourth quarter 2011 earnings between 30 cents and 40 cents, which remain below the Zacks Consensus estimate of 45 cents.

On a reported basis including one-time items, Supervalu posted loss per share of 95 cents compared to 51 cents earned in the prior-year quarter.

Revenue and Margins

Supervalu's total sales dipped 5.9% to $8,673 million in the quarter, compared with $9,216 million in the prior-year period. The reported revenue fell short of the Zacks Consensus Estimate of $8,726 million.

For fiscal 2011, the company anticipates net sales of $38 billion. Identical store sales (excluding fuel), is expected to decline about 6.0%; and traditional food distribution business sales to dip by 3.5%, portraying the impact of Target Corp.'s (TGT) plan to allocate some of the volume for self-distribution and Ukrop's exit from its customer list

Supervalu's gross margin contracted 90 basis points to 21.5% on account of a shift in business segment mix and rise in promotional expenditure.

Segment Details

Net sales at Retail Food (75.8% of the total sales in the quarter) slipped 7.7% to $6,573 million in the quarter compared to $7,120 million in the prior-year quarter. Results followed an identical store sales decline of 4.9% and the adverse impact of retail market exits.

Retail square footage dipped 4.1% year over year in the quarter. However, excluding the impact of market exits and store closures, retail square footage grew marginally by 1.0% in the quarter.

Net sales at Supply Chain Services (24.2% of the total sales in the quarter) increased 0.2% to $2,100 million in the quarter compared with $2,096 million in the prior-year quarter.

Other Financial Update

Supervalu exited the quarter with cash and cash equivalents of $186 million, and long-term debt and capital lease obligations of $6,901 million with a shareholders' equity of $1,261 million. The company plans to reduce debt by $850 million in fiscal 2011. 

The company's cash flow from operations were $651 million year-to-date, down compared with $798 million in the prior year, demonstrating lower earnings.

Supervalu spent $142 million in the quarter versus $156 million in the prior year. In the quarter under review, the company carried out 20 major rehauls, 6 minor remodelling and  completed 1 new traditional supermarket and 39 new Save-A-Lot locations.

The company forecasted capital expenditure of $700 million for fiscal 2011, which includes 75 to 85 primary store remodels, 15 to 25 minor remodels, 3 replacement stores and about 100 new hard-discount stores.

Based in Eden Prairie, Minnesota Supervalu's shares maintain a Zacks #5 Rank, which translates into a short-term ‘Strong Sell' recommendation. Currently we maintain a ‘Neutral' rating on the Stock.

 
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