) posted adjusted earnings per share of 13 cents in the third
quarter of fiscal 2014, ended Nov 30, 2013, which was in line
with the Zacks Consensus Estimate. The results were much better
than the loss of 7 cents suffered by the company in the
prior-year quarter. Adjusted earnings exclude an after-tax
chargeof $3 million.
The better-than-expected results were due to higher operating
margins in all its segments following effective cost-reduction
Revenues and Margins
Supervalu's total sales dipped 1.0% year over year to $4.01
billion as positive identical store sales in Save-A-Lot network
was more than offset by negative identical store sales in the
retail food segment. Sales were in line with the Zacks Consensus
Estimate of $4.01 billion.
Gross margin inflated 120 basis points (bps) to 14.3% in the
quarter on the back of higher fees earned under the transition
services agreements (TSA) compared with the last year.
During the third quarter, SVU received $48 million under the
TSA compared with $10 million last year, due to higher number of
stores and distribution centers covered under the agreements.
Net sales at
declined 2.6% to $1.06 billion in the third quarter of fiscal
2014 from $1.09 billion in the prior-year quarter. Results were
affected by a same-store sales decline of 1.9% due to its price
investments and aggressive pricing by its peers. Operating margin
in the segment inflated 150 bps to 2.2% in the reported quarter
due to the benefit of cost reduction initiatives, including lower
Net sales at
increased 2.6% to $991 million compared with $966 million in the
year-ago quarter. The increase was due to positive identical
store sales in the Save-A-Lot network of 1.7%. Identical store
sales for corporate stores within the Save-A-Lot network were
positive 5.4%. Save-A-Lot's operating margin inflated 30 bps to
4.1% driven by benefits of cost reduction initiatives.
Save-A-Lot 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 3.7% year over year to $1.91 billion in the quarter from
$1.99 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 30 bps to 3.0% during the
quarter backed by higher level of professional services income
and strong expense management.
Other Financial Update
Cash and cash equivalents of Supervalu were $72.0 million as
of Nov 30, 2013, versus $81.0 million as of Sep 7, 2013.
Long-term debt and capital lease obligations remained flat at
$2.9 billion as of Nov 30, 2013, compared with the previous
Other Stocks to Consider
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 the category has reported decent sales in the past. The fresh
saw-cut meat program, organized at all the Save-a-Lot stores,
also helped the company post better comps in the first half of
The company embarked on a fair price promotion strategy (bring
down price 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 coming
Supervalu currently carries a Zacks Rank # 3 (Hold). Other
stocks in the retail sector worth considering include
Con Agra Foods Inc.
Mondelez International Inc.
Green Mountain Coffee Roasters Inc.
). All these stocks carry a Zacks Rank #2 (Buy).
CONAGRA FOODS (CAG): Free Stock Analysis
GREEN MTN COFFE (GMCR): Free Stock Analysis
MONDELEZ INTL (MDLZ): Free Stock Analysis
SUPERVALU INC (SVU): Free Stock Analysis
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