Supervalu Q4 Wholesale Sales Up 3%; Retail Sales Dip 3.2%

In the wake of tendering the sale of its Save-A-Lot business, Supervalu Inc.’s fourth-quarter financial performance – and adjacent $577 million gain in fiscal 2017 – depicts a brighter outlook for its core wholesale business, while its retail operations continue to struggle.

The Minneapolis-based company’s wholesale net sales rose 3 percent to $1.79 billion in the fourth quarter ending Feb. 25, compared with $1.74 billion last year. According to the company, its stronger wholesale performance was primarily attributable “to sales to new customers and increased sales from new stores operated by existing customers, partially offset by stores from the prior year no longer being supplied by the company.”

Wholesale operating earnings in the fourth quarter rose to $64 million, or 3.6 percent of net sales, versus $50 million, or 2.9 percent of net sales, a year ago, driven by higher gross margins and vendor allowances.

Supervalu’s fourth-quarter retail net sales, meanwhile, decreased by 3.2 percent to $1.07 billion, compared with $1.11 billion last year, in turn generating negative same-store sales of 5.8 percent.

A retail operating loss in the fourth quarter of $27 million included a $41 million asset impairment charge. When adjusted, retail operating earnings were $14 million, or 1.3 percent of net sales, versus $30 million, or 2.7 percent of net sales, a year ago. The decrease in retail operating earnings, as adjusted, was driven by the impact of lower sales, and higher employee costs partly due to acquired and new stores.

"We finished fiscal 2017 with momentum in our wholesale business and an improved balance sheet resulting from the sale of Save-A-Lot,” noted Supervalu President and CEO Mark Gross. Citing the recent deal to acquire Unified Grocers as a promising opportunity to fuse “two great companies to create one of the nation’s leading grocery wholesale organizations,” Gross said that Supervalu is concurrently “working to fundamentally improve the shopping experience in our retail stores, and with new leadership and renewed passion … [is] focused on changing our operating results. I remain optimistic for growth and believe strongly in the path our team is pursuing to achieve it.”

Corporate Results

Fourth-quarter fees earned under services agreements were $42 million, compared with $44 million last year. The company’s $2 million net corporate operating loss in Q4 included $1 million of costs related to a pension settlement charge, which, when adjusted, produced a net corporate operating loss of $1 million. In comparison, last year’s Q4 corporate operating loss of $5 million included $6 million in store closure charges and costs. The company said that the decrease in net corporate operating earnings, as adjusted, was primarily driven by higher employee costs, partly offset by lower pension expense.

Continuing Operations

Fiscal 2017 net cash flows provided by operating activities of continuing operations were $308 million, versus $245 million last year, primarily reflecting lower levels of cash used toward operating assets and liabilities. Fiscal 2017 net cash flows used in investing activities of continuing operations were $198 million, compared with $187 million last year, primarily reflecting an increase in capital spending. Fiscal 2017 net cash flows used in financing activities of continuing operations were $1,106 million, compared with $192 million last year, primarily reflecting the required debt prepayments as part of the Save-A-Lot sale.

With annual sales of about $12 billion, Supervalu serves customers across the United States through a network of 2,363 stores, including 1,902 stores operated by wholesale customers serviced primarily by the company’s food distribution business, and 217 traditional retail grocery stores operated under five retail banners in six geographic regions.