SuperValu Inc. (SVU)

SVU 
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SUPERVALU, Inc. (SVU)

F1Q10 Earnings Call

July 28, 2009 10:00 am ET

Executives

David Oliver – Vice President, Investor Relations

Craig Herkert – Chief Executive Officer

Pamela K. Knous – Chief Financial Officer

Analysts

Meredith Adler - Barclays Capital

Susan Anderson for Deborah Weinswig - Citigroup

Edward Kelly - Credit Suisse

Simeon Gutman - Canacord Adams

Scott Mushkin – Jefferies & Co.

John Heinbockel - Goldman Sachs

Radina Russell for Charles Grom - J.P. Morgan

Jason Whitmer - Cleveland Research

Mark Wiltamuth - Morgan Stanley

Charles Cerankosky – Northcoast Research

Neill Currie - UBS (US)

Presentation

Operator

At this time I would like to welcome everyone to the SUPERVALU first quarter fiscal 2010 earnings call. (Operator Instructions) I will now turn the call over to your host, David Oliver, SUPERVALU Vice President, Investor Relations.

David Oliver

SUPERVALU 's call today is Web cast and will be available for replay on our Web site. Today on the call are Craig Herkert, SUPERVALU 's Chief Executive Officer, and Pam Knous, Executive Vice President and Chief Financial Officer.

As you know, the information presented and discussed today includes forward-looking statements which are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. The risk and uncertainties related to such statements are detailed in our fiscal 2009 10-K.

After today's prepared remarks, we have a question-and-answer session. As in prior quarters, I will be available after the call for additional questions.

Craig Herkert

Good morning everyone. Let me begin today by stating that it's exciting to come home to the grocery retailer where I began my career more than 30 years ago. And it's terrific to have joined SUPERVALU and those banners where I spent so much of my time learning this business.

In my initial two months with the company I've seen associates with a high level of energy, enthusiasm, and optimism toward the future. A business built on the same core values, standards, fashion, urgency, integrity, and focus that I have embraced my entire career; an outstanding retail asset base with great potential and a sophisticated supply chain supporting not only our retail but many of our country's finest independent retailers. I knew this when I joined SUPERVALU but it is great to get confirmation first hand.

As you are well aware, a large amount of heavy lifting has taken place at SUPERVALU over the past three years. During that time management has expended considerable time and energy on bringing two excellent companies together.

Now our primary focus turns to the customer. The customer is our first priority today and always. Yes, a lot has been accomplished but much still remains to position us to effectively compete in the marketplace.

The good thing is we have the right people, resources, and know-how to address the challenges ahead and part of these challenges can be seen in the results we've just issued and our lower earnings guidance for the year. These numbers are clearly not acceptable and it is our responsibility to make them better.

As I prepared for today's call, I surmised there were two questions we would like to [answered.] First, why were the first quarter results below the expectations outlined in the company's fourth quarter, and what were the additional observations on the business. You will note these two items do not include any longer-term vision for SUPERVALU.

Being on the job for only 64 days now, I am not yet in a position to address the larger question, however, following a comprehensive business review, which includes visiting our stores and supply chain operations, as well as talking with associates, independent retailers, suppliers, and the board, I will have more to say shortly.

My plan is to share a new vision as part of our second quarter earnings call scheduled in October. I can confidently say to you today that this vision will build upon the tremendous assets and associates that make up our business.

This morning we reported diluted earnings per share of $0.53. This weaker financial performance was driven by the continuing difficult economic environment as well as investments we are making in price and higher levels of promotional spending.

Since providing guidance on our fourth quarter earnings call, consumers have become even more value-focused and cautious in their spending, which has made predicting their behavior more difficult.

This prompted us to make heavier than anticipated investments in margin, some of which proved to be ineffective. This is not an excuse for our performance but the facts and events as we understand them today.

Having said that, allow me to provide some additional color on the quarter. First, let's look at inflation, or in this case, disinflation. During the quarter, disinflation occurred at a greater rate over a single quarter than most of us have ever experienced, with inflation moving from over 5% in the fourth quarter to slightly more than 2% in our first quarter.

If you recall, the company had commented that it expected the rate of inflation to decline over the course of the year, however, the decline came much earlier in the year and was much more significant than we projected, and is today actually lower than the 2% we originally expected to reach in the back half of the year.

Our experience tracks with the decline in food-at-home inflation per the Bureau of Labor Statistics, which went from more than 4% in March to less than 1% in June. For the balance of the year we expect inflation will remain around the 2% level.

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