Last updated on March 25th, 2021 at 07:24 pm
Supervalu today reported second quarter fiscal 2017 consolidated net sales of $3.87 billion and net earnings from continuing operations of $30 million, or $0.11 per diluted share, which included a net $2 million after-tax gain, comprised of a fee received from a supply agreement termination, partially offset by store closure charges and costs as well as costs related to the potential separation of Save-A-Lot. When adjusted for these items, second quarter fiscal 2017 net earnings from continuing operations were $28 million, or $0.10 per diluted share.
Net earnings from continuing operations for last year’s second quarter were $31 million, or $0.11 per diluted share, which included $6 million in after-tax costs related to the potential separation of Save-A-Lot and severance costs. When adjusted for these items, second quarter fiscal 2016 net earnings from continuing operations were $37 million, or $0.13 per diluted share.
“As we expected, the transformation of our business continues to take time, but I am optimistic about our ability to grow our wholesale business by adding new customers, securing long-term supply agreements with existing customers and expanding overall product sales to all customers,” said president and CEO Mark Gross. “We expect wholesale sales in the second half of this year to be higher than last year as we add new customers, grow our base business, and cycle select customer losses from last year.”
Second quarter net sales were $3.87 billion vs. $4.06 billion last year, a decrease of $197 million or 4.8 percent. Total net sales within the wholesale segment decreased 5.5 percent. Retail identical store sales were negative 5.9 percent. Save-A-Lot network identical store sales were negative 5.2 percent. Identical store sales for corporate stores within the Save-A-Lot network were negative 5.0 percent. Fees earned under transition services agreements (TSAs) in the second quarter were $41 million compared to $48 million last year.
Gross profit for the second quarter was $562 million, or 14.5 percent of net sales and included net costs of $1 million related to store closures. When adjusted for this item, gross profit was $563 million, or 14.6 percent of net sales. Last year’s second quarter gross profit was $583 million, or 14.4 percent of net sales. The gross profit rate increase compared to last year is primarily due to higher product margin rates and new Save-A-Lot corporate stores.
Selling and administrative expenses in the second quarter were $474 million and included a fee received from a supply agreement termination of $9 million, partially offset by $3 million in costs and charges related to store closures and $1 million in costs related to the potential separation of Save-A-Lot. When adjusted for these items, selling and administrative expenses were $479 million, or 12.4 percent of net sales.
Selling and administrative expenses in last year’s second quarter were $489 million and included $4 million of costs related to the potential separation of Save-A-Lot and $4 million of severance costs. When adjusted for these items, second quarter fiscal 2016 selling and administrative expenses were $481 million, or 11.9 percent of net sales. The increase in the selling and administrative expense rate compared to last year is primarily due to the deleveraging impact of lower sales and new Save-A-Lot corporate stores, partially offset by lower pension expense.
Net interest expense for the second quarter was $41 million. Last year’s second quarter interest expense was $44 million. The decrease in interest expense was driven by lower average debt balances.
Income tax expense was $18 million, or 36.2 percent of pre-tax earnings, for the second quarter, compared to an income tax expense of $19 million, or 40.0 percent of pre-tax earnings, in last year’s second quarter.
Second quarter wholesale net sales were $1.73 billion, compared to $1.83 billion last year, a decrease of 5.5 percent. The net sales decrease is primarily due to stores from the prior year no longer supplied by the company, partially offset by increased sales to new stores operated by existing customers and new customers.
Wholesale operating earnings in the second quarter were $58 million, or 3.3 percent of net sales, and included a fee received from a supply agreement termination of $9 million. When adjusted for this item, wholesale operating earnings were $49 million, or 2.8 percent of net sales, flat to last year’s wholesale operating earnings in the second quarter that represented 2.7 percent of net sales.
Second quarter Save-A-Lot net sales were $1.06 billion vs. $1.09 billion last year, a decrease of 2.8 percent. The net sales decrease reflects network identical store sales of negative 5.2 percent, partially offset by new corporate and licensed stores.
Save-A-Lot operating earnings in the second quarter were $22 million, or 2.1 percent of net sales. Last year’s Save-A-Lot operating earnings in the second quarter were $32 million, or 3.0 percent of net sales. The decrease in Save-A-Lot operating earnings was driven by higher employee-related costs and increased promotional costs, partially offset by higher product margin rates.
Second quarter retail net sales were $1.03 billion vs. $1.09 billion last year, a decrease of 5.4 percent. The net sales decrease reflects identical store sales of negative 5.9 percent, partially offset by sales from new stores.
Retail operating loss in the second quarter was $12 million, or negative 1.2 percent of net sales, and included $4 million of store closure charges and costs. When adjusted for this item, retail operating loss was $8 million. Last year’s retail operating earnings were $10 million, or 0.9 percent of net sales. The decrease in retail operating earnings was driven by lower sales and higher employee-related costs due to new corporate stores.
On Oct. 17, Supervalu announced it had reached an agreement with Onex Corp. to sell its Save-A-Lot business. This transaction is anticipated to be completed by Jan. 31. As a result of the agreement, the company anticipates presenting the Save-A-Lot business being disposed as discontinued operations for all periods within future earnings releases.
