Sales, earnings continue to fall at Supervalu

Supervalu Inc.'s sales and profit continued to fall during the summer months, the company said Wednesday, but executives said they expect its wholesale business to begin to rebound soon.

Investment analysts were expecting poor results from the Eden Prairie-based grocery wholesaler and retailer. Supervalu shares fell 8.76 percent Wednesday to $4.58.

"Supervalu still managed to disappoint relative to widespread anticipation of what would be a bad quarter," said Ajay Jain, senior research analyst at Pivotal Research Group in New York.

Chief Executive Mark Gross said the company is fighting the effects of deflation, reduced government assistance to the poor and new competitors for its retailers. "We're doing things to offset those challenging headwinds," he said. "Our guidance remains the same."

Supervalu said its adjusted profit was $28 million, or 10 cents a share, during the three months that ended Sept. 10, the second quarter of its fiscal year. That was down from $37 million, or 13 cents, in the same period a year ago.

Sales fell nearly 5 percent to $3.87 billion from $4.06 billion a year ago.

Sales in the wholesale division, the company's biggest operating unit, fell 5.5 percent to $1.73 billion.

The results came two days after Supervalu announced the sale of its Save-A-Lot discount store chain to Onex, a Toronto-based investment firm, for $1.37 billion. Comparable-store sales in that business fell 5.2 percent in the latest reporting period.

That deal is part of a gradual shift at Supervalu to place more emphasis on its wholesale business. Asked during the earnings call if the company might consider making its focus wholesale exclusively, Chief Operating Officer and CFO Bruce Besanko said that retail and wholesale are integrated businesses that work better together. "There is a benefit to using retail as a test kitchen. A lot of our learning and sophistication come from retail," he said.

Gross said that an initiative is in place to deliver fresher produce, in line with a broader industry trend that has seen giants like Wal-Mart and Meijer also focus on fresh foods.

"We want to be known as a produce wholesaler rather than a wholesaler that sells produce," Gross said.

On a nonadjusted basis, the company's profit amounted to $30 million, or 11 cents a share. That includes a $2 million after-tax gain from a fee received from a supply agreement termination. The overall gain was partly offset by store closure charges and costs related to the plan to sell Save-A-Lot.