Record Q1 Earnings Tempered by Sluggish Same-store Sales for Supervalu

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Record Q1 Earnings Tempered by Sluggish Same-store Sales for Supervalu

MINNEAPOLIS -- Record profits in its latest quarter weren't enough to prevent Supervalu here from taking a hit on Wall Street, due to sluggish same-store sales that some analysts interpreted yesterday as a sign that the mega-grocer is falling behind its top counterparts, rivals Kroger and Safeway.

The supermarket firm’s same-store sales growth was 1.2 percent for the first quarter of fiscal 2008, which ended June 16. Same store sales for the stores that Supervalu had acquired from Albertsons more than a year ago were edged up 1.7 percent in the quarter while identical sales for stores in existence prior to the acquisition decreased 0.4 percent.

This performance compared poorly to the latest reported same-store sales at Kroger and Safeway, which were 6 percent and 4.5 percent for their quarters respectively.

Shares of Supervalu on the New York Stock Exchange closed yesterday at $43.70, down $3.68 or almost 8 percent, on rampantly high volume trading compared with the day before. At one point, the share price had dipped to $42.81.

Jeff Noddle, Supevalu’s chairman and c.e.o., said during a conference call yesterday that the same store sales performance reflected inflationary costs pressuring consumer spending, as well as tough competition in certain markets and industry-wide price reductions for some generic drugs.

"We are seeing fuel prices rise again, and in certain food categories, the impact of corn costs has created short-term volatility, particularly in meat and dairy," Noddle said.

In April, Supervalu had targeted food inflation at about 2 percent, but has since boosted its estimate to moderately higher than that, said Noddle. "While inflation is somewhat higher than we have seen in recent history, our objective remains to pass on the cost increases, and to date the market has been rational in this regard. As always, we strive to maintain an appropriate balance between managing our costs and maintaining the best value for our customers."

Noddle also said the company plans to make significant investment in certain markets, including new products/lines and an aggressive remodeling program, but declined to offers specifics during the analyst call.

Commenting on a tentative labor agreement reached in Southern California Monday night along with other supermarket chains, Noddle called the new contract "a good balance” that “came in very close to what we anticipated."

The same store sales performance stood in stark contrast to the retailer’s profit and overall sales posted for the quarter. Sales were $13.3 billion compared to $5.8 billion in the first quarter of fiscal 2007, while net earnings of $148 million compared favorably to $87 million reported last year.

Earnings per share for the quarter were $0.69 compared to $0.57 last year, a 21 percent increase.

Supervalu said first quarter results included after-tax charges of approximately $17 million, or $0.08 per share, relating to its completing the acquisition of Albertsons’ on June 2, 2006.

“As we pass the one year mark of the acquisition of Albertsons’ premier retail properties which transformed Supervalu into a $44 billion coast-to-coast retail powerhouse, we are on track,” said Noddle. “On all fronts, this was a highly successful first year which sets the foundation for the next two years of our journey following the acquisition.”

Noddle said his company has begun to execute its business plans and maximize the full potential of the merger’s synergies. He said he was “confident that our second year as a transformed company will continue to generate value for our shareholders.”

First quarter net sales for Supervalu’s retail food segment hit a record $10.4 billion, vs. $2.9 billion last year.

Reported retail operating earnings for the first quarter were a record $449 million, or 4.3 percent of sales. Last year’s first quarter reported operating earnings were $128 million, or 4.4 percent of sales. Last year’s first quarter reported operating earnings included the benefit of approximately $10 million pre-tax, or approximately 40 basis points, from the sale of a minority partnership interest in two retail stores in the Northwest.

As of June 16, 2007, Supervalu’s retail store network of 2,464 stores included approximately 878 combination stores, 407 food stores, and 1,179 limited assortment food stores. Included in this total are 855 licensed limited assortment food stores and 121 fuel centers. Total owned retail square footage at the end of the first quarter of fiscal 2008 was approximately 71 million square feet, which increased approximately three percent exclusive of store closings.