SuperValu Inc. (SVU)

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Start Time: 07:30

End Time: 08:33

SUPERVALU, Inc. (SVU)

F2Q11 (Qtr End 09/11/10) Earnings Call

October 19, 2010 pm ET

Executives

Ken Levy - IR

Craig Herkert - President and CEO

Sherry Smith - SVP, Finance.

CFO

Analysts

Deborah Weinswig - Citi

Mark Wiltamuth - Morgan Stanley

Meredith Adler - Barclays Capital

Neill Currie - UBS

Scott Mushkin - Jefferies & Company

John Heinbockel - Goldman Sachs

Ajay Jain - Hapoalim Securities USA Inc

Radina Russell - JPMorgan

Karen Short - BMO Capital Markets

Presentation

Operator

Good morning. My name is Kenisha, and I will be your conference operator today. At this time, I would like to welcome everyone for the SUPERVALU Second Quarter Fiscal 2011 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session. (Operator Instructions). Thank you, Mr. Ken Levy, you may begin your conference.

Ken Levy

Thank you, Kenisha. I want to welcome everyone today to SUPERVALU’s Second Quarter 2011 Earnings Conference Call.. Joining me on today's call are Craig Herkert, Chief Executive Officer and President; and Sherry Smith, Senior Vice President of Finance.

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 supervalu.com.

With that, I will now turn the call over to Craig Herkert.

Craig Herkert

Thanks Ken, and good morning everybody. This morning SUPERVALU reported adjusted net income of $59 million and adjusted diluted earnings per share of $0.28 excluding a non-cash impairment and other charges. We continue to generate strong cash flows and now expect to pay down $650 million of debt by fiscal year-end. Free cash flow for the quarter was a strong $285 million and we have reduced debt by $512 million through Q2. Sales for the quarter were $8.7 billion and ID sales were negative 5.9%, excluding Shaw’s which was impacted by a labor dispute.

These results are disappointing to me and my leadership team and frankly given this forward and anticipated economic recovery, we see a longer time line for our corporate initiatives to gain attraction. Consequently, we are revising downward our full year guidance to a range of $1.40 to $1.60.

The economy continues to provide a headwind to our efforts. In spite of near record low interest rates meant to drive spending, the mindset of our customers remains decisively cautious with an ongoing focus on price. We find a continuing sluggishness of the private sector employment has made any uplift in grocery spending difficult. Remember that the bulk of our retail footprint is in large metropolitan areas where unemployment remains above the national average.

While the results this quarter were below our internal projections, we did make steady progress on some of our key strategic goals, which are geared towards positioning us for improving the long-term performance of this company. So, rather than spend my time on today's call looking backward, I would like to use this time to give you an update on where we are in the transformation that is currently underway. Sherry will provide more insight into our second quarter performance and revised guidance later on the call.

About a year ago, I introduced our vision for SUPERVALU to become America’s neighborhood grocer, and I remain convinced that there is an absolute need for well-run neighborhood grocery stores. We know this from our many longstanding relationships with our great independent retailers across the country. They know their customers intimately, stock products to satisfy local taste and operate with the efficiency of a family owned business.

At the core of this vision is our unwavering focus on operating as one company winning for our costumers. This means our stores will be merchandised locally, carry fresh perishables and relevant regional brands and cater to the fundamental needs of the shoppers who call these neighborhoods home. We will leverage the scale of SUPERVALU’s 4,300 store network to economically buy product, but assort based on customer preferences and execute at a local level, region by region, neighborhood by neighborhood, and importantly store by store.

This focus and discipline around hyper-local retailing will make our stores more compelling for the customers we serve. To this end, SUPERVALU began taking initial steps late last year to realign its business, clarify accountability and refocus priorities on customer-centric measures. Over the past 12 months, this organization has aligned key reporting structures as it added several new senior leaders.

We secured flexible long-term funding, we reviewed our store portfolio and monetized select non-core assets. When completed our culture will have shifted to one that is singularly focused on anticipating and meeting the needs of our customers. Through our traditional retail operations and independent partners we will deliver the freshest meat and produce, unmatched assortment of fairly priced products, great promotions, and a no hassle customer oriented experience. This commitment to our customers who underscore what SUPERVALU stands for and give us a more favorable position in the minds of our customers, something that has waned in the recent quarters.

To guide us, we have developed a detailed action plan that is now being put into motion. The near term impact will be a more robust understanding of our key business metrics, which will enhance our ability to measure real time result and react to ongoing business trends. Over the long-term, this intense focus around doing the right thing for our customers will pay off in terms of increased loyalty, top line growth end profitability.

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