posted better than expected first-quarter fiscal 2015
results.Adjusted earnings per share of 18 cents surpassed the Zacks
Consensus Estimate by a penny. The results were also better than
the prior-year quarter's earnings of 14 cents by 28.6%. Adjusted
earnings exclude an after-tax charge of $2 million. Share price
increased 2.7% to $9.12 in response to the results.
The upswing in profits resulted from higher operating margins in
all its segments following effective cost-reduction
Supervalu Inc - Earnings Surprise |
Revenues and Margins
SUPERVALU's total sales remained approximately flat year over
year at $5.23 billion as positive identical store sales in the
Save-A-Lot network and retail food segment were offset by decline
in the Independent business. Sales, however, surpassed the Zacks
Consensus Estimate of $5.18 billion by 1.0%.
Gross profit slipped 5.4% to $752.0 million and gross margin
shrank 80 basis points (bps) to 14.4% in the quarter due to lower
fees received under the Transition Services Agreement (TSA) and
higher price discounts given during the quarter. The TSA are
agreements under which SUPERVALU provides support services to
Albertsons LLC. It relates to sale of several of SUPERVALU's major
brands, such as Albertson's and Acme to Cerberus Capital. SUPERVALU
collects a consulting fee for providing certain transition services
to the brands' new owners.
Selling and administrative expenses as a percent of sales shrank
70 bps to 11.8% driven by the benefits of cost reduction
initiatives and lower surplus property charges.
Net sales at
remained flat with the prior-year quarter at $1.43 billion in the
reported quarter. Same-store sales recorded a gain of 0.6%. Strong
traffic at the stores improved same-store sales during the quarter.
Operating margin in the segment inflated 40 bps to 2.1% in the
reported quarter due to the benefit of cost reduction initiatives,
including lower depreciation expense.
Net sales at
stores increased 6.5% to $1.35 billion in the year-ago quarter due
to 5.6% positive same-store sales across the network. Same-store
sales for corporate stores within the Save-A-Lot network were 7.2%.
Save-A-Lot's operating margin shrank 110 bps to 3.4% due to
incremental investments in fair price promotion strategy.
Save-A-Lot's results this quarter continued to reflect the
benefits from the fresh cut meat program started in the previous
Net sales at the
declined 2.6% year over year to $2.40 billion in the quarter from
$2.46 billion a year ago. Lower sales to existing customers,
including military, and the loss of two larger customers were
partly offset by net new business. Sales also declined due to the
completion of transition of an Albertson store to self distribution
business during the quarter. The Independent business' operating
margin, however, remained flat at 2.8% during the quarter backed by
lower bad debt expenses and cost reduction initiatives.
During the third quarter, SUPERVALU received $58 million under
the TSA compared with $84 million last year, due to higher number
of stores and distribution centers covered under the
Other Financial Update
Cash and cash equivalents of SUPERVALU were $90.0 million as of
Jun 14, 2014, versus $83.0 million as of Feb 22, 2014. Long-term
debt and capital lease obligations were $2.5 billion as of Jun 14,
2014 compared to $2.7 billion as of Feb 22, 2014.
Save-a-Lot stores, which are being revamped, remain the major
growth driver for SUPERVALU. The company is focusing on the 'fresh
from farm' department at these stores as it reported decent sales
in the past. The fresh saw-cut meat program organized at all the
Save-a-Lot stores also aided comps in the first half of fiscal
The company embarked on a fair price promotion strategy
(lowering prices to competitive level) in fiscal 2013. Although the
strategy has been quite well received and we expect the program to
help the company gain market share in the longer term, we are
concerned that it may pressure margins in the near term.
Other Stocks to Consider
SUPERVALU currently carries a Zacks Rank #3 (Hold). Better
ranked stocks in the retail sector worth considering include
Swisher Hygiene Inc
), Treehouse Foods Inc. (
) and Pinnacle Foods Inc. (
). While Treehouse Foods sports a Zacks Rank #1 (Strong Buy),
Swisher Hygiene and Pinnacle Foods have a Zacks Rank #2 (Buy).
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