Deflation a Drag on Supervalu in Q3

Overall sales were down 1.4 percent for Supervalu Inc. in the third quarter of its 2017 fiscal year, with wholesale operations boosting a drop in retail sales amid an $11 million net loss from continuing operations.

Q3 total net sales were $3 billion, compared with $3.05 billion last year, a decrease of $42 million. Adjusted net earnings from continuing operations were $14 million, or 5 cents per diluted share, compared with $16 million a year ago.

“The successful sale of Save-A-Lot early in the fourth quarter provides Supervalu with additional flexibility to operate and grow our business,” said President/CEO Mark Gross. “Additionally, our wholesale team has done a tremendous job delivering for our customers. It is a significant accomplishment that we increased wholesale sales compared to last year, given the sales lost at the end of fiscal 2016. Unfortunately, in our retail segment, we have not been able to overcome persistent deflation, competitive impacts and other factors. It takes time to change customers’ shopping habits, but our team is dedicated to improving our results."

Supervalu completed the sale of its successful hard-discount Save-A-Lot banner last Dec. 5 for $1.4 billion to an affiliate of Toronto-based Onex Corp.

“Early in the fourth quarter, we used the majority of the proceeds from the sale of Save-A-Lot to reduce our outstanding debt by approximately $1.1 billion,” said COO/CFO Bruce Besanko. “We have also taken steps to reduce our pension plan obligations through a successful lump-sum buyout of certain plan participants that resulted in the pension settlement charge this quarter. In addition, we made a $25 million cash contribution to the pension plan."

Besanko added: “Given the many moving parts from the sale of Save-A-Lot, we are managing the business for the next several quarters by reference to pro forma adjusted EBITDA. For the third quarter, pro forma adjusted EBITDA was $114 million, $18 million less than last year’s third quarter, reflecting the challenging operating environment across the grocery industry.”

Wholesale

Q3 wholesale net sales were $1.91 billion, compared with $1.90 billion last year, an increase of 0.2 percent. Supervalu credits the boost to sales to new customers and increased sales to new stores operated by existing customers, partly offset by stores from the prior year no longer supplied by the company.

Wholesale operating earnings in Q3 were $52 million, or 2.7 percent of net sales, versus $54 million a year ago, the decrease primarily driven by higher employee and trucking costs.

Retail

Q3 retail net sales were $1.06 billion, compared with $1.10 billion last year, a decrease of 3.4 percent. The net sales decrease reflects a 5.7 percent drop in same-store sales and closed stores, partly offset by sales from acquired and new stores.

Retail operating loss in the third quarter was $14 million, including  a $15 million goodwill impairment charge and $1 million of store closure charges and costs. Retail operating earnings were $2 million, or 0.2 percent of net sales. versus $21 million a year ago.

Net corporate operating loss in Q3 was $37 million, including a $41 million pension settlement charge.

Minneapolis-based Supervalu Inc. serves customers across the United States through a network of 2,067 stores composed of 1,850 stores operated by wholesale customers serviced primarily by the company’s food distribution business, 195 traditional retail grocery stores operated under five retail banners, and 22 stores under the Shop 'N Save name in Maryland, Pennsylvania, Virginia and West Virginia.