Value trend leads to Supervalu earnings decline

by Eric Schroeder
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MINNEAPOLIS — The intense focus of consumers on value hindered Supervalu Inc.’s earnings during the first quarter. Net income for the retailer in the quarter ended June 20 was $113 million, equal to 53c per share on the common stock, down 31% from $162 million, or 76c per share, in the same period a year ago. Supervalu said the year-over-year decline reflected the continuing difficult economic environment as well as investments in price and higher levels of promotional spending.

"…Consumers have become even more value focused and cautious in their spending, which has made predicting their behavior even more difficult," said Craig Herkert, chief executive officer, during a conference call with financial analysts on July 28. "This prompted us to make heavier than anticipated investments in margins, some of which proved to be ineffective. This is not an excuse for our performance but the facts and events as we understand them today."

Operating earnings within the company’s retail food business were $311 million in the first quarter, down 22% from $399 million in the same period a year ago.

Net sales, meanwhile, fell 5% to $12,715,000 from $13,347,000. Retail food sales, which account for approximately 78% of total sales, eased 4% to $9,900,000.

"Current conditions have made being thrifty cool once again, and we’re seeing this in our customer’s cautious purchasing behavior," Mr. Herkert said. "The average number of items per basket is down about one-half (an) item from the fourth quarter and trading down behavior is changing the composition of the items that remain.

"For many, what was an essential just a few quarters ago is now more likely a discretionary purchase, and trade-down continues at a higher year-over-year rate than originally expected. If the item is not on sale in our stores it is far more likely to remain on the shelf."

Looking ahead to fiscal 2010, Mr. Herkert said full-year earnings per share are expected to be in the range of $2.01 to $2.21, down from earlier guidance of $2.50 to $2.65.

"We anticipate recent trends and the pressures the consumer is facing will continue in the near term," Mr. Herkert said. "This is reflected in our outlook for the balance of the year."

In a separate announcement, Supervalu said it has reached agreement to sell the majority of its Albertsons stores located in Utah to Associated Food Stores. The sale, which would result in approximately $150 million in after-tax proceeds, would include 36 Albertsons stores in Utah and their respective pharmacies and fuel centers. Supervalu said it would continue to operate three St. George-area stores.

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