SUPERVALU Reports Second Quarter Fiscal 2014 Results

SUPERVALU Reports Second Quarter Fiscal 2014 Results

Second quarter highlights:

• New management team finalized

• Continued reduction in the rate of sales decline in Retail Food and Save-A-Lot

• ID sales for corporate stores in the Save-A-Lot network positive 4.6%

MINNEAPOLIS--(BUSINESS WIRE)-- SUPERVALU INC. (NYS: SVU) today reported second quarter fiscal 2014 net sales of $3.95 billion and net earnings of $40 million, or $0.15 per diluted share.

Net earnings from continuing operations for the second quarter of fiscal 2014 was $39 million, or $0.15 per diluted share, 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, or $0.13 per diluted share. Net loss from continuing operations for last year's second quarter was $56 million, or $0.26 per diluted share, 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, or $0.09 per diluted share. Net income from discontinued operations in the second quarter of fiscal 2014 was $1 million. [See tables 1-4 for a reconciliation of GAAP and non-GAAP (adjusted) results appearing in this release.]

"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 chief executive officer. "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."

Second Quarter Results - 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%. 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.

Save-A-Lot

Second quarter Save-A-Lot net sales 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. Identical store sales for corporate operated stores within the Save-A-Lot network were positive 4.6 percent.

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.

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.

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.

Cash flows - Continuing Operations

Year-to-date fiscal 2014 net cash flows used in operating activities were $120 million compared to net cash provided from operating activities of $47 million last year, reflecting higher cash tax payments and working capital in the current year. Year-to-date net cash flows used in investing activities were $29 million compared to $145 million in the prior year, reflecting lower levels of capital expenditures. Year-to-date net cash flows provided by financing activities were $116 million compared to a use of $88 million in the prior year, reflecting proceeds received from the issuance of common stock to Symphony Investors net of payments toward debt financing costs.

Discontinued Operations

On January 10, 2013, the Company announced it had reached a definitive agreement for the sale of five retail grocery banners (Albertsons, Acme, Jewel-Osco, Shaw's and Star Market). This transaction was completed on March 21, 2013. The results from these banners are presented as discontinued operations for all periods and include the operating results and charges related to these stores.

Conference Call

A conference call to review the second quarter results is scheduled for 7:00 a.m. central time today. The call will be webcast live at www.supervaluinvestors.com (click on microphone icon). A replay of the call will be archived at www.supervaluinvestors.com. To access the website replay go to the "Investors" link and click on "Presentations and Webcasts."

About SUPERVALU INC.
SUPERVALU Inc. is one of the largest grocery wholesalers and retailers in the U.S. with annual sales of approximately $17 billion. SUPERVALU serves customers across the United States through a network of approximately 3,420 stores composed of 1,900 independent stores serviced primarily by the Company's food distribution business, 1,334 Save-A-Lot stores, of which 957 are operated by licensee owners; and 191 traditional retail grocery stores. Headquartered in Minnesota, SUPERVALU has approximately 35,000 employees. For more information about SUPERVALU visit www.supervalu.com.

CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

Except for the historical and factual information contained herein, the matters set forth in this news release, particularly those pertaining to SUPERVALU's expectations, guidance, or future operating results, and other statements identified by words such as "estimates," "expects," "projects," "plans," and similar expressions are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including competition, ability to execute initiatives, substantial indebtedness, impact of economic conditions, labor relations issues, escalating costs of providing employee benefits, regulatory matters, food and drug safety issues, self-insurance, legal and administrative proceedings, information technology, severe weather, natural disasters and adverse climate changes, tax matters, the continuing review of goodwill and other intangible assets, accounting matters, the effect of the sale of the New Albertsons banners, fluctuations in our common stock price and other risk factors relating to our business or industry as detailed from time to time in SUPERVALU's reports filed with the SEC.You should not place undue reliance on these forward-looking statements, which speak only as of the date of this news release.Unless legally required, SUPERVALU undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.