Q4 2011 Earnings Call
April 14, 2011 10:00 am ET
Kenneth Levy - Vice President of Investor Relations
Craig Herkert - Chief Executive Officer, President and Director
Sherry Smith - Chief Financial Officer, Principal Accounting Officer and Executive Vice President
Edward Kelly - Crédit Suisse AG
Jonathan Feeney - Janney Montgomery Scott LLC
John Heinbockel - Guggenheim Securities, LLC
Meredith Adler - Barclays Capital
Ajay Jain - UBS
Karen Short - BMO Capital Markets U.S.
Mark Wiltamuth - Morgan Stanley
Mike Otway - Jefferies & Company, Inc.
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Thank you, Concetta. I want to welcome everyone to SUPERVALU's Fourth Quarter 2011 Earnings Conference Call. Joining me on today's call are Craig Herkert, Chief Executive Officer and President; and Sherry Smith, EVP and Chief Financial Officer. Following prepared remarks, we will open up the call for your questions. I would ask that you limit yourself to one question and one follow-up so that we can accommodate as many people as possible. 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 risks and uncertainties related to such statements are detailed in our most recent 10-K filing. A replay of today's call will be available on our corporate website at www.supervalu.com.
With that, I will now turn the call over to Craig Herkert.
Thanks, Ken, and good morning, everyone. I'm pleased to report that SUPERVALU's fourth quarter earnings of $0.44 per share came in stronger than expected and lifted full year EPS to $1.39. While we continued to experience pressure on top line sales, they were in line with our internal forecast. Identical store sales are not what we want them to be, but we have improved the ability to manage our margin and have made steady progress on rightsizing our cost structure.
As you saw in this morning's press release, our margin rebounded significantly from the prior quarter and was generally in line with last year's level. This rebound is the result of early successes that are coming from the business transformation plan we launched late last year. One element of this plan is improving our promotional planning and execution capabilities. We began implementing new tools and processes in the fourth quarter, which helped us correct over promotion that weighed on third quarter results and delivered earnings slightly ahead of our plan.
Q4 IDs were down 5%, about what we expected. Again, this quarter, our Northeast banners weighed down overall IDs. Excluding these banners, IDs were a negative 3.5%. I would also note that results in Chicago were below the corporate average while Save-A-Lot IDs were flat for the quarter. We did see modest amounts of inflation in the quarter and were successful in passing it through to retail prices. We also took advantage of opportunities to forward buy inventory, which helps us lock in lower cost of goods in advance of vendor price ranges. While our IDs were unchanged from Q3, they remain disappointing and are clearly not what we had anticipated they would be when we started the year. Addressing this erosion in our top line is the highest priority for me and my management team. Until we reverse this negative trend, we will not be able to take full advantage of our lower cost structure or capitalize in the many positive operational changes underway at SUPERVALU.
Looking back, I want to underscore that F'11 was an important year for SUPERVALU. We solidified our core leadership, strengthened our culture and instilled a greater operational discipline across the organization. I know we have much work ahead, but I believe it is important to take inventory of the progress we have made.
As with any company in a turnaround, the challenges, pace of change and retooling that is required often get overlooked, so let me take a few minutes to recap our most noteworthy actions this year. First and foremost, we developed a detailed plan for SUPERVALU that aligns traditional retail, Save-A-Lot and supply chain services around the shared vision to become America's Neighborhood Grocer. This plan will turn around our traditional Retail business while also focusing on growing supply chain and accelerating the expansion of Save-A-Lot. It requires us to adopt a new shared culture across SUPERVALU of one company winning for the customers and committed to growth.
To better communicate our strategy both internally and externally, we created what we call the eight plays to win, which I will speak to in more depth shortly. As we developed our strategy, we decided to divest a number of non-strategic assets, selling the bigg's and BRISTOL FARMS retail chains and our traditional retail stores in Connecticut as well as Total Logistics Control. In all, we shed about 80 stores, half by divestiture and half that were closed due to underperformance.
We also accelerated debt paydown, reducing total debt by more than $880 million, which exceeded our original plan by nearly $300 million. Throughout the enterprise, we are streamlining operations and removing duplication. These foundational changes are fostering better coordination and enabling us to improve the overall experience of our customers.
In the past 12 months alone, we removed over $175 million of expenses. These are permanent structural savings and a testament to the tough decisions we are making to rightsize infrastructure and hold business units accountable for their spending. We also took the initial steps to implement fair pricing plus promotion by lowering prices on key items across our network of stores. We have brought management of private brands in-house and improved sales penetration by 145 basis points to 19.3% in Q4.