Supervalu Posts Q3 Increases in All Three Business Units

Supervalu Inc. posted its best financial performance in years during its 2014 third quarter, results of which showed increases in all three of its business units. The Eden Prairie, Minn.-based wholesale distributor reported a 4.7 percent comparable sales gain of $4.2 billion vs. $4 billion in the year-ago period.

With Q3 earnings ringing in at 18 cents per share – which surpassed analysts' estimates by 4 cents per share – the Minneapolis-based company’s Save-A-Lot division's same-store sales surged 7 percent, while its Retail Food segment gained a healthy 2.3 percent, on par with a 2.4 percent sales lift for its Independent Business segment.

Results for the company's fiscal Q3 included a $36 million after-tax pension settlement charge and $1 million in after-tax debt refinancing and net information technology intrusion costs. When adjusted for these items, Q3 net earnings from continuing operations were $49 million ($0.18 per diluted share). Net earnings from continuing operations for last year’s third quarter were $33 million ($0.12 per diluted share) and included $3 million in after-tax net charges and costs comprised of a multiemployer pension plan withdrawal charge, asset impairment, contract breakage, and other costs, offset in part by a gain from the sale of a property and the reduction of previously accrued severance costs. When adjusted for these items, Q3 net earnings from continuing operations were $36 million ($0.13 per diluted share).

Declaring it "passed an important milestone" with upward sales gains in all three of its business segments for the first time in many years, Supervalu's President and CEO Sam Duncan said: “I’m very encouraged to see our Independent Business segment post higher sales compared to last year’s third quarter, and I remain pleased with the continued progress we are making in our retail stores."

Duncan continued: "Save-A-Lot had another good quarter from a sales perspective while also delivering a higher operating margin compared to the second quarter. Overall, the third quarter provided many positives for us to build on during the final quarter of our fiscal year.”

Q3 Results - Continuing Operations

Q3 net sales were $4.20 billion compared to $4.01 billion last year, an increase of 4.8 percent. Identical store sales in the Save-A-Lot network were positive 6.9 percent while same-store sales for corporate stores within the Save-A-Lot network jumped 8.5 percent. Meantime, same-store sales in the Retail Food segment were up 2.3 percent, while total sales within the Independent Business segment increased 2.4 percent. Fees earned under the Transition Services Agreements (“TSA”) in the third quarter were $43 million compared to $48 million last year.

Retail Food

Q3 Retail Food net sales were $1.12 billion compared to $1.06 billion last year. The increase was primarily due to newly acquired stores and identical store sales of positive 2.3 percent.

Retail Food operating earnings in Q3 were $28 million, or 2.5 percent of net sales. Last year’s Retail Food operating earnings were $25 million, or 2.3 percent of net sales, and included $1 million of income related to a reduction in previously accrued severance costs. When adjusted for this item, Retail Food operating earnings in Q3 were $24 million, or 2.3 percent of net sales. The increase in Retail Food adjusted operating earnings was primarily due to lower depreciation, occupancy, and employee-related costs, partly offset by incremental investments to lower prices to customers and a higher LIFO charge.

Independent Business

Independent Business net sales in Q3 were $1.96 billion compared to $1.91 billion last year, an increase of 2.4 percent, primarily due to increased sales to existing customers and new accounts partly offset by lost accounts, including one New Albertson’s Inc. banner that completed the transition to self-distribution.

Independent Business operating earnings in Q3 were $60 million, or 3.1 percent of net sales. Last year’s Independent Business operating earnings in Q3 were $53 million, or 2.8 percent of net sales and included $4 million in net charges related to a multiemployer pension withdrawal charge, asset impairment, and other charges, offset in part by a gain from the sale of a property. When adjusted for these items, Independent Business operating earnings in Q3 were $57 million, or 3 percent of net sales.

Save-A-Lot

Q3 Save-A-Lot net sales were $1.08 billion compared to $991 million last year, an increase of 8.9 percent, primarily reflecting the impact from network identical store sales of positive 6.9 percent and new store openings. Identical store sales for corporate stores within the Save-A-Lot network were positive 8.5 percent.

Save-A-Lot operating earnings in Q3 were $34 million, or 3.2 percent of net sales. Last year’s Save-A-Lot operating earnings in Q3 were $40 million, or 4.1 percent of net sales. The decrease in Save-A-Lot operating earnings was primarily due to higher advertising, employee, and occupancy costs.