Supervalu profit fell but met expectations

Supervalu's second-quarter financial performance met Wall Street's estimates, as sales surged at its Save-A-Lot discount grocery chain and profits improved at such traditional supermarket operations as Cub Foods.

Still, the Eden Prairie company's stock fell almost 5 percent Thursday, most likely because price cutting and somewhat higher costs at Save-A-Lot dinged the bottom line of the low-price chain.

Eden Prairie-based Supervalu posted adjusted net profits of $32 million, or 11 cents per share, down from $34 million, or 13 cents per share, for the same time last year. Analysts polled by Thomson Reuters on average were expecting 11 cents per share.

Supervalu recorded sales of $4.02 billion for the quarter ending Sept. 6, 2 percent above analysts' forecast of $3.95 billion. In last year's second quarter, Supervalu had revenues of $3.95 billion.

"I am pleased with the progress we have made in quarters one and two," Supervalu CEO Sam Duncan told stock analysts on a conference call Thursday. Duncan was appointed as Supervalu CEO 19 months ago with a mission to reverse the company's decline.

He has made some progress by decentralizing Supervalu's conventional supermarkets and beefing up Save-A-Lot, a national chain with limited operations in Minnesota. Supervalu's fiscal second-quarter performance "suggests that the company's turnaround continues to take hold," Oppenheimer stock analyst Rupesh Parikh wrote in a research note.

During its second quarter, Supervalu recorded $1 million in one-time costs — net of insurance — associated with a computer breach at over 1,000 of its grocery and liquor stores, including 60 in Minnesota. Hackers in August busted into a Supervalu computer system that contained customer information.

Supervalu's top-line growth during the second quarter was impressive, though it's not been translated into operating profit growth, Goldman Sachs analyst Stephen Grambling wrote in a research note Thursday.

That could particularly be seen at Save-A-Lot, which posted $1.05 billion in sales, up a heady 8 percent over a year ago. However, Save-A-Lot's adjusted operating profits of $26 million were down from an adjusted $37 million a year ago.

The decline reflects price cutting at Save-A-Lot, as well as higher advertising and "shrink" costs. In the grocery business, shrink partly refers to inventory lost due to spoilage, which has risen at Save-A-Lot after it rolled out full-scale meat counters.

Supervalu's conventional supermarket chains — Cub Foods is its largest — had a good quarter, posting earnings of $20 million, up from only $7 million a year ago.

The division posted revenues of $1.1 billion compared with $1.07 billion a year ago. Its same-store sales were up for the third straight quarter, albeit modestly, after years of continual decline. Same-stores sales are an important gauge that accounts for recently closed and opened stores.

Mike Hughlett • 612-673-7003