) fourth-quarter fiscal 2014 adjusted earnings per share of 18
cents surpassed the Zacks Consensus Estimate of 16 cents by
12.5%. The results were much better than a loss of 11 cents
reported in the prior-year quarter. Adjusted earnings exclude an
after-tax charge of $8 million. Share price increased 11.4% to
$7.54 on Apr 23, 2014 after the announcement of the earnings
The better-than-expected results were due to higher operating
margins in all its segments following effective cost-reduction
Revenues and Margins
SUPERVALU' total sales went up 1.3% year over year to $3.95
billion as positive identical store sales in the Save-A-Lot
network and retail food segment. Sales were ahead of the Zacks
Consensus Estimate of $3.88 billion by 1.8%.
Gross profit went up 5.9% to $590.0 million due to lower cost
of sales. Gross margin inflated 60 basis points (bps) to 14.9% in
the quarter on the back of higher fees earned under the
transition services agreements (TSA) compared with the last year
and lower infrastructure costs.
Selling and administrative expenses as a percent of sales
shrank 170 bps to 11.7% driven by the benefits of cost reduction
initiatives and lower surplus property charges.
During the third quarter, SVU received $46 million under the
TSA compared with $9 million last year, due to higher number of
stores and distribution centers covered under the agreements.
Net sales at
remained flat with the prior-year quarter at $1.09 billion in the
reported quarter. Same-store sales recorded a gain of 0.2% -
first time since 2008. Strong traffic in the stores improved
same-store sales during the quarter. Operating margin in the
segment inflated 220 bps to 3.5% in the reported quarter due to
the benefit of cost reduction initiatives, including lower
Net sales at
stores increased 3.1% to $999 million from $969 million in the
year-ago quarter. The increase was due to positive same-store
sales in the Save-A-Lot network of 2.1%. Same-store sales for
corporate stores within the Save-A-Lot network were positive
3.5%. Save-A-Lot's operating margin shrank 70 bps to 4.3% 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 that the company started
in the previous quarter.
Net sales at the
declined 0.6% year over year to $1.82 billion in the quarter from
$1.83 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. The Independent business'
operating margin, however, inflated 50 bps to 3.2% during the
quarter backed by lower bad debt expenses and cost reduction
Fiscal 2014 adjusted earnings per share of 58 cents surpassed
the Zacks Consensus Estimate of 56 cents by 3.4%. The results
were much better than a loss of 36 cents suffered by the company
in the prior-year quarter.
Total sales went up 0.5% year over year to $17.2 billion and
also ahead of the Zacks Consensus Estimate of $17.0 billion by
Other Financial Update
Cash and cash equivalents of SUPERVALU were $83.0 million as
of Feb 22, 2014, versus $72.0 million as of Nov 30, 2013.
Long-term debt and capital lease obligations were $2.7 billion as
of Feb 22, 2014 compared to $2.9 billion as of Nov 30, 2013.
Save-a-Lot stores remain the major growth driver for SUPERVALU
and it is in the process of revamping these stores. The company
is focusing on the 'fresh from farm' department in 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 2014.
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
Other Stocks to Consider
SUPERVALU currently carries a Zacks Rank #2 (Buy). Other
stocks in the retail sector worth considering include
B&G Foods Inc.
Treehouse Foods Inc.
McCormick & Company, Inc.
). All these stocks carry the same Zacks Rank as SUPERVALU.
B&G FOODS CL-A (BGS): Free Stock Analysis
MCCORMICK & CO (MKC): Free Stock Analysis
SUPERVALU INC (SVU): Free Stock Analysis
TREEHOUSE FOODS (THS): Free Stock Analysis
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