Supervalu Q1 Profits Drop 41%; Sales Down 9.6%

First-quarter profits plummeted nearly 41 percent to $67 million at Supervalu, Inc., while net food sales dropped nearly 10 percent, results blamed in part on exiting two major markets and a lengthy labor dispute.

“While we are putting in place the right programs to best serve our customers, we are disappointed with our first-quarter sales performance,” Craig Herkert, Supervalu president and CEO, said Tuesday when discussing the grocer’s inaugural fiscal 2011 results. “We continue to control our margins well and take costs out of the business, and are pleased to reaffirm our full-year earnings guidance before one-time items.”

First-quarter retail food net sales were $9 billion, compared with $9.9 billion last year, a decrease of 9.6 percent, primarily reflecting a 7.2 percent drop in identical-store sales and earlier market exits in Connecticut and Cincinnati. Excluding Shaw’s -- Supervalu’s chain in Massachusetts affected by a long labor action during the quarter – identical-store sales dropped 6.5 percent. Supervalu attributed its same-store sales performance on a sluggish economy and heightened competition.

The Minneapolis-based grocer estimates its net sales for the 52-week fiscal year will be around be $38 billion, with same-store sales expected to decline about 5 percent. Sales in the company’s traditional food distribution business are expected to decline 3 percent, primarily reflecting the final transition of the Target Corp. volume to self-distribution and the acquisition of Ukrop’s by a competitor.

Supervalu anticipates capital spending of about $700 million, including 60 to 75 major store remodels, 30 to 40 minor remodels, two replacement stores, and about 100 hard-discount stores.

Retail food net sales in the first quarter of fiscal 2011 represented 77.5 percent of net sales, compared with 77.9 percent last year. Supply chain services net sales in the first quarter of fiscal 2011 represented 22.5 percent of net sales, compared with 22.1 percent last year.

Gross profit margin in the first quarter was $2.6 billion, or 22.5 percent of net sales, compared with $2.8 billion or 22.4 percent last year. The company said its increase in gross margin as a percent of net sales was due to more effective promotional spending, partially offset by investments in price.

Supervalu operates 4,270 store,s including 1,160 traditional retail stores, 820 in-store pharmacies, 1,190 hard-discount stores, and 1,920 independent stores serviced primarily by the company’s traditional food distribution business.