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Supervalu's Sales Down, Earnings Up for FY05

MINNEAPOLIS -- Striking a self-congratulatory note for its performance in a challenging climate for the grocery industry, Supervalu yesterday posted net sales of $19.5 billion for the fiscal 2005 year, compared with $20.2 billion last year; and net earnings of $385.8 million vs. $280.1 million last year.

The wholesalerretailer said basic earnings per share were $2.86, as opposed to $2.09 last year; and diluted earnings per share were $2.71, compared with $2.01 last year.

For the fourth quarter, which ended Feb. 26, 2005. Supervalu reported overall net sales of $4.6 billion, compared with $5.0 billion last year; net earnings of $92.9 million vs. $95.6 million last year; basic earnings per share of 69 cents, as opposed to 71 cents last year; and diluted earnings per share of 65 cents compared with 67 cents last year.

Last year's fourth quarter contained an extra week, contributing about $360 million of net sales, $9.9 million of net earnings, and seven cents of basic and diluted earnings per share, the company said.

"Supervalu continues to deliver strong results," said Supervalu's chairman and c.e.o., Jeff Noddle, in a statement. "Fiscal 2005 set a record net earnings level as diluted earnings per share grew 35 percent, and when eliminating this year's one-time gain on the sale of WinCo and last year's extra week, fiscal 2005 diluted earnings per share increased 16 percent. We implemented sizable initiatives during the year, maintained a strict basis-point discipline that supports our competitive customer offerings, invested for growth and returns, and improved our overall financial condition.

We are excited about our strong position in an ever-changing grocery retail and supply chain environment, and believe our highly complementary business model allows Supervalu to successfully participate and grow," Noddle said.

Supervalu's fourth-quarter net sales for its retail operations were $2.6 billion, compared with $2.8 billion last year. The decline in net sales was mainly due to last year's extra week in the quarter, which contributed about $185 million in net sales; and a higher level of store closings this latest period, which fully offset new store growth. Comparable-store sales were -0.8 percent in the fourth quarter, vs. last year's 12-week comparable store sales growth of 2.5 percent. When adjusted for planned in-market store expansion, fourth-quarter comparable-store sales were -0.3 percent, the company said.

Comparable-store sales at Save-A-Lot were positive in the fourth quarter. Total retail square footage, including licensed stores, went up about 4.2 percent from last year's fourth quarter, with Save-A-Lot's total square footage growing about 6.4 percent.

New-store activity since last year's fourth quarter, including licensed stores, encompassed 104 new stores opened and acquired, and 38 store closings. During fiscal 2005, net new stores opened included 62 extreme-value stores and four regional banner stores.

Fiscal 2005 store closings included 35 Save-A-Lot stores and three regional banner stores. As of Feb. 26, Save-A-Lot, including its licensees, operated 1,287 stores, of which 466 were combination stores, in comparison with 199 combination stores at the end of fiscal 2004.

Fourth-quarter distribution net sales for Supervalu were $2.0 billion vs. $2.3 billion last year. The decline in sales was mainly attributable to the absence of last year's extra week in the quarter, which contributed approximately $177 million in net sales; and customer attrition, including the transition of three large customers to other suppliers, which more than offset new business growth of around 3 percent. The acquisition of Total Logistics, Inc. was completed Feb. 7, and overall results were immaterial to the fourth quarter.

Supervalu's fiscal 2006 outlook includes the following business assumptions:

--Consumer spending will continue to be pressured by higher fuel prices and modest food inflation.
--Comparable-store sales, reflecting planned in-market store expansion, are projected to increase by approximately one percent for the year.
--Store development plans, including licensees, will be approximately 90 to 110 new extreme-value food combination stores; approximately 100 extreme-value combination store conversions; approximately 10 to 12 new regional banner stores; and approximately 40 regional banner major and minor store remodels.
--Zero Zone, a refrigeration case and system manufacturer, will be divested, since it is noncore to the company's food retail and supply chain service businesses. Zero Zone was acquired Feb. 7, together with Total Logistics, Inc., a third-party logistics company.

Additionally, during yesterday's conference call, Noddle spoke about three important initiatives that Supervalu was working on for 2006: using the recent acquisition of Total Logistics to create new supply chain solutions and become more involved in third-party logistics, as exemplified by the company's extended relationship with Kroger, for whom Supervalu now manages four warehouses; the creation of a national produce business model, starting in the Midwest with a single state-of-the-art facility in Champaign, Ill. that will serve an eight-state area, with the goal of turning product around within one day of arrival -- two to three times faster than the national average; and internal process improvement through a "significant" investment in retrofitting a distribution center over an 18-month period with new technology to increase the accuracy and efficiency of handling product.

"Supervalu continues to transform itself. We look forward to sharing our progress on these initiatives and others in development, as the year unfolds," Noddle noted. "With the achievement of 15 percent return on invested capital, we are now establishing a new long-term return-on-invested-capital goal of 18 percent, reflecting the long-term potential of our business."

Also during yesterday's call, Supervalu e.v.p. and c.f.o. Pam Knous noted that the company had maintained its 85 percent rate of new or newly remodeled stores, resulting in a store fleet in excellent shape.

Supervalu's retail store network comprises 1,549 stores in 40 states, including 1,287 Save-A-Lot extreme-value food stores; 408 owned Save-A-Lot stores; 879 licensed Save-A-Lot stores; and 262 regional banners, including Cub Foods, Shop 'n Save, Shoppers Food & Pharmacy, bigg's, Farm Fresh, Scott's Foods and Hornbacher's stores. Supervalu also serves as primary supplier to about 2,300 stores and Supervalu's own regional banner store network, while serving as secondary supplier to about 700 stores.
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