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Supervalu Q2 Earnings Fall On Charges

MINNEAPOLIS -- Second quarter earnings for Supervalu here plunged 57 percent, on charges related to the sale of 20 corporate stores in Pittsburgh, start-up costs for new stores, and losses from Hurricane Katrina.

The retailer/distributor posted net income of $33.8 million, or 24 cents per diluted share in the quarter ended Sept. 10, 2005, versus earnings of $78.5 million, or 55 cents a share, in the same period last year. Excluding the charges, Supervalu's second-quarter results beat Wall Street's expectations, which were projected to be 49 cents per share on revenue of $4.52 billion.

Sales were a mixed bag. Supervalu's net sales hit $4.6 billion, up 2.2 percent from $4.5 billion a year ago. In the retail food segment, second quarter net sales were $2.5 billion, flat with last year's second quarter. Supervalu said its sales performance reflects new store openings, substantially offset by the impact of store closings, primarily at Save-A-Lot; as well as a more competitive retail environment.

Comparable store sales growth for the quarter was down 1.6 percent, and included flat comparable store sales at company-operated Save-A-Lot stores. When adjusted for planned in-market store expansion, second quarter comparable store sales were down 1.1 percent. Save-A-Lot licensed stores continued to experience sales softness. The planned sale of 20 Pittsburgh area stores was excluded from the same store sales calculation.

Total retail square footage, including licensed stores, increased by approximately 3 percent from last year's second quarter, with Save-A-Lot's total square footage increasing by approximately 3.4 percent.

"We are pleased that when excluding the charges in the quarter, we matched last year's record second quarter earnings per share performance, despite the soft sales environment," said Jeff Noddle, Supervalu's chairman and c.e.o. "As the impact of higher fuel prices continues to unfold across the consumer spending landscape, we are refining our merchandising programs across our network to improve sales performance. In addition, our supply chain services operation continues its progress with next generation strategies including supply chain technology investments, W. Newell & Co. produce, and third party logistics. We are confident that these programs lay the groundwork for sales improvement."

The company in September said it expected many of the Pittsburgh Shop 'n Save locations to be acquired by existing Shop 'n Save independent operators who currently operate 55 stores throughout Western Pennsylvania. A Supervalu spokeswoman said the sale plans are proceeding but declined further comment due to insufficient available information.

Supervalu's fiscal 2006 store development plans, including licensee stores, are projected to be approximately 65 to 75 extreme value stores and approximately 10 to 12 new regional banner stores.

Supervalu estimates that regional banner major and minor remodels are estimated at take place at 40 stores and projects total store closings for the year to be approximately 52, primarily Save-A-Lot stores as well as the stores associated with the 20 corporate Pittsburgh stores.

New store activity since last year's second quarter, including licensed stores, resulted in 79 new stores, opened and acquired, and 39 store closings for a total of 40 net new store openings. During the last 12 months, new store openings include 69 extreme value stores and 10 regional banner stores. Store closings for the last 12 months include 36 extreme value stores and three regional banner stores.

Despite the challenging retail environment, Noddle said, "We are confident that the many initiatives we have underway will be strong contributors to our future progress. We remain committed to achieving our new 18 percent long term return on invested capital goal."
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