Cost cutting helps profits at smaller Supervalu

  • Article by: MIKE HUGHLETT , Star Tribune
  • Updated: January 9, 2014 - 8:57 PM

The grocery company saw weak sales at its traditional supermarkets, but good results at the Save-A-Lot discount chain.

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Supervalu reported a profit for its third fiscal quarter that ended in December, continuing its turnaround from losses in 2012.

Photo: Ariana Lindquist, Bloomberg

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Supervalu’s turnaround journey went sideways during the company’s latest quarter.

The Eden Prairie-based company’s crown jewel, its Save-A-Lot chain, showed solid sales growth. And Supervalu’s profits matched analysts’ expectations as cost cutting buoyed the bottom line.

Still, sales fell at its wholesale grocery operation as Supervalu lost two significant customers. And a key sales gauge for its traditional supermarkets, which include the Twin Cities’ Cub Foods, deteriorated from the previous quarter.

CEO Sam Duncan, who will mark a year at Supervalu Inc.’s helm next month, told analysts that Supervalu is improving on all fronts, including through such customer-friendly moves as lower prices at chains like Cub.

“During the quarter, we made progress on a number of important initiatives in all three business segments,” Duncan told analysts Thursday.

Duncan took over after Supervalu sold its largest grocery chains, essentially halving the size of the company. The sale was precipitated by a fall in Supervalu’s stock to around $2 per share, a 30-year low.

The company’s shares closed Thursday at $6.84, down 19 cents, or 2.7 percent.

Supervalu posted third-quarter net earnings of $31 million or 12 cents per share, up from 8 cents per share a year ago. Adjusted for one-time charges, Supervalu’s third-quarter profits were 13 cents per share, in line with the average estimate of analysts polled by Thomson Reuters.

Supervalu’s third-quarter results from 2012 included earnings of 15 cents per share for discontinued operations — the grocery chains the company sold in 2013.

Revenue in the latest quarter was $4.01 billion, down from $4.05 billion a year ago and below analysts’ estimates of $4.05 billion.

Supervalu’s third quarter was filled with “mixed trends,” Goldman Sachs stock analyst Stephen Grambling wrote in a research note.

On the positive side, all three of Supervalu’s divisions recorded increases in operating profits, even though sales fell in two of them. Second, Supervalu’s national Save-A-Lot chain, a discounter along the lines of Aldi, had a 1.7 percent increase in same-store sales.

It was the first time since 2012’s fourth quarter that Save-A-Lot’s same-store sales were positive. Analysts are betting on Save-A-Lot for Supervalu’s future growth. “One of the real highlights of this quarter was the sales momentum we continue to see at Save-A-Lot,” Duncan told analysts.

But sales in wholesale grocery distribution fell 3.7 percent compared with a year ago, as Supervalu lost two larger customers and saw less business from existing customers, including the military.

After last year’s deal, Supervalu ended up with five grocery chains, including Cub. Same-store sales at those stores fell 1.9 percent over last year’s third quarter, compared with a 0.9 percent decline in the second quarter.

Supervalu’s same-store sales at its traditional grocery stores haven’t risen in several years. But Duncan told analysts the company is well into a long-term plan to turn that trend around.

Supervalu has improved meat and produce sections and lowered prices on critical price-sensitive categories like dairy and bread. “Customer response has been excellent,” Duncan told analysts.

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