Monday, January 3, 2011

Supervalu (NYSE: SVU): Q4 Earnings Preview 2010

Supervalu Inc. (NYSE: SVU), the fourth US largest grocer, is scheduled to release fiscal third-quarter earnings before the market open on Tuesday, January 11, 2011. Analysts, on average, expect the company to report earnings of 32 cents per share on revenue of $8.73 billion. In the year-ago period, the company reported earnings of 46 cents per share on revenue of $9.22 billion.

Supervalu Inc., together with its subsidiaries, operates retail food stores in the United States. Supervalu conducts its retail operations under the Acme, Albertsons, Bristol Farms, Cub Foods, Farm Fresh, Hornbacher’s, Jewel-Osco, Lucky, Save-A-Lot, Shaw’s, Shop ’n Save, Shoppers Food & Pharmacy and Star Market banners as well as in-store pharmacies under the Osco and Sav-on banners. Supervalu serves customers across the United States through a network of approximately 4,280 stores composed of approximately 1,160 traditional retail stores, including 813 in-store pharmacies; 1,210 hard-discount stores, of which 876 are operated by licensee owners; and 1,910 independent stores serviced primarily by the company's traditional food distribution business.

In the preceding fiscal second quarter, the Eden Prairie, Minnesota-based company's net loss was second quarter loss of $1.47 billion, or $6.94 per share, compared to a profit of $74 million, or 35 cents per share last year. On an adjusted basis, the company earned 28 cents per share in the latest quarter.  Revenue dropped to $8.66 billion from $9.46 billion. Analysts, on average, expected the company to report earnings of 29 cents per share on revenues of $8.74 billion. 

At iuts last earnings call in October, the company cut its fiscal 2011 earnings outlook. The company said that it now expects a net loss in fiscal 2011 in the range of $5.94 to $5.74 per share on a GAAP basis and adjusted earnings of $1.40 to $1.60 per diluted share when excluding non-cash impairment changes and certain other costs. Previously, the company anticipated GAAP earnings of $1.61 to $1.81 and adjusted earnings of $1.75 to $1.95 per share. However, the company increased its debt reduction goal to $650 million this fiscal year. For fiscal 2011, the company anticipates net sales of $38 billion. Same-store sales (excluding fuel), is expected to decline about 5.5%; and traditional food distribution business sales to dip by 3.5%

Grocery stores have been seeing mixed results of late. Although many are managing to boost sales, outlooks are not rising due to stubbornly low margins. Competition in the grocery industry has been fierce during and since the recession as penny-wise consumers have been increasingly focused on price. The rise in commodity prices has exacerbated the issue, leaving companies with the unpleasant decision of passing the cost onto customers or absorbing it themselves.

Supervalu has also been struggling with its debt load. Moody’s recently cut its rating on Supervalu further into junk territory. The company has been selling under-performing assets in order to generate cash. This helps both accelerate debt payments and make the company more profitable. Recently, Supervalu announced that it has sold Total Logistic Control (TLC), a wholly owned subsidiary, to Ryder System R.

The company is experiencing success with its Save-A-Lot banner, and therefore plans to spend capital to open a number of such stores in the coming year. For fiscal 2011, the company estimates capital expenditure of about $700 million, including 60 to 75 major store remodels, 30 to 40 minor remodels, 2 replacement stores and approximately 100 hard-discount stores, including licensed locations.  

In terms of stock performance, Supervalu shares have lost nearly 30% over the past year.

Full Disclosure: None.
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