Supervalu Inc. on Thursday reported its second quarter fiscal 2014 results—and perhaps the biggest news dealt with the company’s Save-A-Lot banner, whose corporate-operated stores experienced a 4.6 percent increase in identical store sales.
Sam Duncan, president and CEO of Supervalu, said on a conference call Thursday morning that corporate stores have revamped their meat and produce departments, helping lead to the positive ID store sales. Those efforts, he said, will continue across the banner’s network of stores.
In overall Save-A-Lot network news, second quarter net sales for the banner were $972 million compared to $973 million last year, a decrease of 0.1 percent, reflecting the impact from network identical store sales of negative 0.3 percent partially offset by the impact from new stores.
Save-A-Lot operating earnings in the second quarter were $32 million, or 3.3 percent of net sales, and included a $5 million pre-tax charge related to a legal settlement. When adjusted for this charge, Save-A-Lot operating earnings were $37 million, or 3.7 percent of net sales. Last year’s Save-A-Lot operating earnings in the second quarter were $17 million, or 1.8 percent of net sales, and included $16 million in pre-tax charges primarily related to store closures. When adjusted for these charges, Save-A-Lot operating earnings in last year’s second quarter were $33 million, or 3.5 percent of net sales.
Supervalu as a whole reported net sales of $3.95 billion and net earnings of $40 million.
Net earnings from continuing operations for the quarter were $39 million and included $9 million in after-tax income related to the previous sale of a distribution center and a $3 million after-tax charge related to a legal settlement. When adjusted for these items, second quarter fiscal 2014 net earnings from continuing operations was $33 million. Net loss from continuing operations for last year’s second quarter was $56 million, which included $36 million in after-tax charges primarily related to the write-off of unamortized loan costs, asset impairments and store closures. When adjusted for these items, last year’s second quarter net loss from continuing operations was $20 million. Net income from discontinued operations in the second quarter of fiscal 2014 was $1 million.
“Similar to what we outlined in the first quarter, we remain focused on delivering steady improvements in our business each and every quarter,” said Sam Duncan, Supervalu’s president and CEO. “While our end goal won’t be achieved overnight, I am encouraged with our results this quarter and, more importantly, the way we are achieving these results by building a strong foundation that is focused on our customers.”
Continuing operations
Second quarter net sales were $3.95 billion compared to $3.94 billion last year, an increase of 0.2 percent. Net sales for all periods now include fees earned under the transition services agreements (TSA) with Albertsons LLC and New Albertsons Inc. Fees earned in the second quarter were $62 million compared to $10 million last year. Total sales within the Independent Business segment decreased 1.6 percent. Identical store sales in the Save-A-Lot network were negative 0.3 percent. Identical store sales for corporate stores within the Save-A-Lot network were positive 4.6 percent. Identical store sales in the Retail Food segment were negative 0.9 percent.
Gross profit margin for the second quarter was $577 million, or 14.6 percent of net sales, compared to $529 million, or 13.4 percent of net sales last year. Gross profit for all periods now include fees earned under the TSA. The increase in gross profit was driven by the increase in fees earned under the TSA compared to last year as well as the benefit of lower infrastructure costs in the current year as a result of cost reduction initiatives, partly offset by investment in price.
Selling and administrative expenses in the second quarter were $465 million, or 11.8 percent of net sales, and included a $14 million pre-tax gain related to the sale of a distribution center and a $5 million pre-tax expense for a legal settlement. When adjusted for these items, selling and administrative expenses in the second quarter were $474 million, or 12.0 percent of net sales. Last year’s second quarter selling and administrative expenses were $541 million, or 13.7 percent of net sales, and included $36 million of pre-tax charges related to store closures, asset impairments, and employee severance. When adjusted for these charges, last year’s selling and administrative expenses were $505 million, or 12.8 percent of net sales. The decline in selling and administrative expenses was primarily driven by the benefits from the company’s cost-cutting initiatives and lower depreciation expense. Selling and administrative expenses in all periods no longer include a reduction attributable to TSA fees earned.
Net interest expense for the second quarter was $51 million compared to $75 million last year. Last year’s interest expense included $22 million in pre-tax charges related to writing-off the unamortized loan costs associated with the company’s previous senior secured credit facility. When adjusted for these charges, last year’s interest expense was $53 million. The decrease in interest expense was primarily driven by lower average rates and lower outstanding balances on the company’s senior notes.
Supervalu’s income tax expense was $22 million, or 36.1 percent of pre-tax earnings, for the second quarter, compared to an income tax benefit of $31 million, or 35.6 percent of pre-tax loss in last year’s second quarter.
Independent Business
Second quarter Independent Business net sales were $1.84 billion compared to $1.87 billion last year, a decrease of 1.6 percent, primarily due to lower sales to existing customers, including military, offset in part by net new business.
Independent Business operating earnings in the second quarter were $73 million, or 3.9 percent of net sales, and included a $14 million pre-tax gain related to the sale of a distribution center. When adjusted for this gain, Independent Business operating earnings in the second quarter were $59 million, or 3.2 percent of net sales. Last year’s Independent Business operating earnings in the second quarter were $52 million, or 2.8 percent of net sales. The increase in Independent Business operating earnings was primarily attributable to higher gross margins and lower logistics costs.
Retail Food
Second quarter Retail Food net sales were $1.07 billion compared to $1.09 billion last year, a decline of 1.1 percent, primarily reflecting identical store sales of negative 0.9 percent. The sequential improvement in identical store sales was driven by the impact of incremental price investments, according to Supervalu.
Retail Food operating earnings in the second quarter were $7 million, or 0.7 percent of net sales. Last year’s Retail Food operating loss was $5 million, or 0.5 percent of net sales, and included $17 million in pre-tax charges primarily related to asset impairments. When adjusted for these charges, last year’s Retail Food operating earnings in the second quarter were $12 million, or 1.1 percent of net sales. The decline in Retail Food adjusted operating earnings was primarily driven by incremental investment in price and store labor partially offset by the benefit from the company’s cost cutting initiatives and lower depreciation expense.
Corporate
Second quarter fees received under the TSA were $62 million compared to $10 million last year, reflecting a higher number of stores and distribution centers covered under the agreements and a portion of the one-year transition fee earned under the TSA. Net corporate operating income in the second quarter was zero compared to a net operating loss of $76 million last year, which included $3 million of charges for employee severance. When adjusted for these charges, last year’s net corporate operating loss was $73 million. The reduction in corporate operating loss was driven primarily by incremental fees received under the TSA which covered administrative costs remaining in continuing operations. Last year’s expense included administrative costs of the disposed operations that were not covered by the previous TSA.
