Investors like what they hear from new Supervalu CEO

New Supervalu Inc. Chief Executive Sam Duncan's first public pronouncements included yet more unpleasant news about the embattled company's recent past, but investors bought into his vision for the future.

Supervalu's shares soared 12 percent, or 65 cents, after Duncan spoke Wednesday, hitting a high — $6.01 — not seen in a year. It was the 10th-largest increase among stocks in the Russell 2000 index, a widely followed small-cap stock index. The firm's shares traded below $2 in July as the magnitude of Supervalu's troubles hit home with investors.

The company Wednesday posted a big fourth-quarter loss and its downward sales spiral continued. Duncan, in a conference call with stock analysts, acknowledged that Supervalu's crown jewel — its discount Save-A-Lot chain — has suffered from a crisis of confidence among its own licensees.

And Eden Prairie-based Supervalu revealed that its increasingly important food wholesale business had been hurt by uncertainty surrounding the company since it put itself up for sale last summer.

But Duncan outlined plans to revitalize Save-A-Lot and the wholesale business, as well as to pump up Supervalu's five remaining regional supermarket chains — including Cub Foods in the Twin Cities — by decentralizing their management.

"This company has a solid asset base and great potential," Duncan told analysts.

Duncan was named CEO in January in conjunction with Supervalu's sale of its four-largest supermarket chains to an investment group led by Cerberus Capital Management for $3.3 billion. The veteran retailer officially took over the job in early February, inheriting a company about half as big as it used to be, yet still vexed by its competition.

For its continuing operations, Supervalu recorded a fourth-quarter loss of $179 million, or $0.85 per share, including $149 million in one-time charges. Even excluding those charges, Supervalu's continuing operations posted a loss of $30 million or 14 cents per share compared with a 2 cent-per-share profit a year ago.

Supervalu's fourth-quarter revenue for continuing operations was $3.89 billion, down 2.3 percent from a year earlier.

Despite the lousy numbers, Supervalu's underlying operating performance was better than expected, Citigroup stock analyst Deborah Weinswig wrote in a research note.

Comparable-store sales at Save-A-Lot and the company's five remaining regional supermarket chains, while down 2.3 percent and 4.1 percent respectively, didn't fall as much as Citigroup expected.

Save-A-Lot, which now makes up 25 percent of Supervalu's revenue, is regarded as the company's best bet for future sales and profit growth — yet it has posted several consecutive weak quarters. The bulk of the national discount chain's 1,331 stores are owned by licensees, rather than by Supervalu itself.

At a recent "town hall" meeting in St. Louis — Save-A-Lot's headquarters — Duncan met with 20 licensees who together owned about 400 stores. The talk was "frank and blunt," he said, and "it became apparent we had largely lost our way and were no longer true to what the hard discount format should be." The chain's costs had gotten out of line.

"Moving forward, our focus will be on being a low-cost operator," Duncan said. Several new initiatives are underway at Save-A-Lot, including strengthening the chain's core private-label business through better packaging, merchandising and advertising.

Duncan told analysts he has also met with as many of the independent retailers that are customers of the wholesale business as possible, as that area will now comprise almost half of the firm's sales. Duncan said he wanted to "reassure them they are a vitally important part of this company."

Supervalu is creating a national "advisory board," a platform for feedback from independent grocers — an "exciting first for Supervalu," Duncan said.

Supervalu disclosed that uncertainty related to the sale process has discouraged prospective new wholesale customers, which led to a 1.3 percent decline in fourth quarter wholesale sales compared with a year ago.

Leaders of chains like Cub will have much more leeway in executing marketing, merchandising and other operating plans — decisions that before would have been made at Supervalu's headquarters.

"There is no way anybody here in Minneapolis should tell somebody at Farm Fresh, for example, [a Supervalu chain] in Virginia, the type of ad items they need to run in their ads for their customers," Duncan told analysts. "It just won't work."

Staff writer Steve Alexander contributed to this report.

Mike Hughlett • 612-673-7003