Lower everyday prices, more discount stores and something that amounts to a new slogan -- "America's neighborhood grocer" -- that's what emerged from Supervalu's earnings call Tuesday as freshman CEO Craig R. Herkert laid out his vision for the grocery giant.
Still saddled with debt from its 2006 Albertsons deal and with sales sliding, Herkert cautioned that his fixes for Supervalu won't come from a "magic elixir," or a "single pill." Sales, he added, won't immediately return to the robust levels of just two years ago.
His vision, delivered in just his second earnings call since Supervalu named the former Wal-Mart executive CEO in May, came against a backdrop of sobering numbers for the Eden Prairie operator of supermarket chains such as Cub Foods, Jewel-Osco and Shaw's.
Earnings for the second quarter ended Sept. 12 were down 42 percent from a year ago to $74 million, or 35 cents per share. They beat analysts' expectations by two cents per share.
Sales for the quarter totaled $9.5 billion, down 6.9 percent from last year. Same-store sales fell 4.8 percent in the quarter, the company said.
Herkert lowered guidance for fiscal 2010, dropping the range from $1.95 to $2.15 per share to $1.95 to $2.05 per share. He now projects a 4 percent drop in same-store sales for the year, compared to a previous projection of 3 percent.
The company also plans to pay down $700 million of its current debt of $8.1 billion by the end of the fiscal year.
Prices out of whack
To stop the slide in sales, Herkert announced a massive expansion of the company's Save-A-Lot banner, a discount supermarket with 1,200 locations across the country. He said Supervalu will double the number of locations within five years.
The target customer for Save-A-Lot earns less than $45,000 a year, a group that, according to Herkert, makes up half of all consumers in the United States. He's making the stores cheaper and easier to own for licensees, doing everything from redesigning the store layout to using used equipment. To pay for the new Save-A-Lot stores, the company announced it will cut the dividend in half to 8.75 cents per share, which shareholders will see on the March 1 dividend payment.
Herkert's long-term vision sees Supervalu's sales growing 4 percent annually, with earnings growing 10 percent.
Herkert was critical of the company's pricing, saying everyday prices on some items had crept too high.
"This has taken a decade to get out of whack," he said, adding that it will take a long period of negotiations to change prices.
Food prices fell 0.2 percent over the past year, according to the Consumer Price Index, the first 12-month decrease since 1967. Prices for dairy, meat, fruits and vegetables have fallen significantly, according to the federal government's survey of consumer prices.
Analysts say higher unemployment will force more consumers to economize, making it harder for retailers to find profit in the grocery aisles.
Herkert provided several examples of ways the company could save money, including shrinking the number of brands for any one product to both ease consumer confusion and get better volume discounts from suppliers.
It was clear that Herkert has walked the aisles of his stores in the past few months. He singled out, as an example of bad retailing, a sale for a salty snack he saw in a Supervalu store: "Three for $5." Aside from making for some awkward math for consumers, the sale hid the lower price for a single package. And no one would want to buy three of these snacks at once, Herkert said.
He said the company's future will rely on it acting as a single entity and not a business made of separate parts.
"We will be America's neighborhood grocer," he said.
Supervalu shares closed 27 cents higher Tuesday at $17.20.
Matt McKinney • 612-673-7329
