Jewel-Osco parent Supervalu returns to 3Q profit on cost controls
MINNEAPOLIS -- Grocery chain Supervalu Inc. returned to a fiscal third-quarter profit Tuesday on tighter cost controls and stabilizing profit margins as it revamps its strategy in order to lure back frugal shoppers.
The results, combined with the company's decision to maintain its 2010 earnings outlook, sent shares up 93 cents, or 7.2 percent, to $13.85 in premarket trading.
Supervalu, based in Minneapolis, has been hurt as budget-conscious consumers have traded down, bought fewer items and stuck mainly to the items on their shopping lists. To get shoppers to its stores, the grocer recently said it would cut prices, reorganize operations and add more of its low-priced Save-A-Lot stores.
The company, which also runs Albertsons and Jewel-Osco stores, earned $109 million, or 51 cents per share, for the period ended Dec. 5. That compares with a loss of $2.94 billion, or $13.95 per share, last year, which included hefty goodwill and asset impairment charges of $14.57 per share.
The performance topped the expectations of analysts surveyed by Thomson Reuters, who predicted a profit of 40 cents per share These estimates normally exclude one-time items.
CEO and President Craig Herkert, a former Wal-Mart Stores Inc. executive who took over as Supervalu's CEO last spring, said in a statement that controlling expenses and stabilizing margins have been two of his top priorities.
The efforts showed in the third quarter, as Supervalu lowered its selling and administrative expenses to $1.75 billion from $1.92 billion. Net interest expense declined to $131 million from $143 million on lower interest rates and reduced borrowing. Gross margins were flat as a percentage of sales.
Sales fell 9 percent to $9.22 billion, missing Wall Street's revenue estimate of $9.43 billion.
The company reported its retail food net sales slipped 9 percent to $7.1 billion on store closings, its departure from the Salt Lake City market and a 6.5 percent decline in sales at stores open at least a year.
This figure is a key indicator of retailer performance since it measures growth at existing stores rather than newly opened ones.
Supply chain services net sales dropped 9 percent to $2.1 billion, mostly because customer Target Corp. switched some of its supply to self-distribution.
Supervalu still expects a fiscal 2010 profit of $1.95 to $2.05 per share and foresees adjusted earnings in a range of $2.01 to $2.11 per share. The adjusted guidance excludes costs mostly related to store closings.
Analysts anticipate 2010 earnings of $1.86 per share.
But the company lowered its outlook for 2010 sales at stores open at least a year. It now expects to report a 5 percent decline in the key sales figure, compared with its prior forecast for a 4 percent dropoff.
Supervalu has about 4,290 stores.