SUPERVALU Reports First Quarter Fiscal 2014 Results

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SUPERVALU Reports First Quarter Fiscal 2014 Results

First quarter highlights:

1.Closed on the sale of five retail banners.
2.Refinanced $400 million in bonds and extended maturity to 2021.
3.Reduced the rate of sales decline in all three business segments.
4.Decentralized retail operations.
5.Lowered administrative costs.


MINNEAPOLIS--(BUSINESS WIRE)-- SUPERVALU INC. (NYS: SVU) today reported first quarter fiscal 2014 net sales of $5.16 billion and net earnings of $85 million, or $0.34 per diluted share.

Net loss from continuing operations for the first quarter of fiscal 2014 was $105 million, or $0.43 per diluted share, and included $139 million in after-tax charges, or $0.57 per diluted share, primarily related to current and previous financing activities, employee severance, and asset impairments. When adjusted for these charges, first quarter fiscal 2014 net earnings from continuing operations was $34 million, or $0.14 per diluted share. Net income from discontinued operations in the first quarter, which totaled $190 million or $0.77 per diluted share, included the benefits from the finalization of tax related matters and a favorable adjustment to the previously recorded loss on sale of five retail grocery banners in the first quarter. In the first quarter of fiscal 2013, the net loss from continuing operations was $18 million, or $0.08 per diluted share. [See tables 1-2 for a reconciliation of GAAP and non-GAAP (adjusted) results appearing in this release.]

"Our first quarter was highlighted by a renewed focus on driving sales and cash in all segments of our business and I'm pleased with the progress we made, especially the sequential improvement in sales trends from the fourth quarter of fiscal 2013 in each of our business segments," said Sam Duncan, SUPERVALU's president and chief executive officer. "We have a good foundation, strong leadership team, improved debt maturity profile, and achievable goals across each operating segment."

"In the Independent Business, we reduced the rate of sales decline from the fourth quarter in spite of lower military sales. Our first National Retail Advisory Group meeting was very successful and we continue to talk with potential new customers," added Duncan.

"Save-A-Lot also showed improved ID sales trends across its store network and within its corporate stores while lowering the inside margin," Duncan continued. "Save-A-Lot has made great strides on bettering its perishable offering and its overall in-store merchandising."

Duncan concluded with, "Finally, our Retail Food banners posted a 110 basis point improvement in ID sales trends over last quarter. We have completed the transition to the decentralized operating model and are focused on driving store execution and standards."

First Quarter Results - Continuing Operations

First quarter net sales were $5.16 billion compared to $5.24 billion last year, a decline of 1.5 percent. The decrease in net sales primarily reflects a decline in identical store sales of negative 3.0 percent for Retail Food and negative 1.9 percent for Save-A-Lot. Identical store sales for corporately operated stores within the Save-A-Lot network were negative 1.2 percent.

Gross profit margin for the first quarter was $712 million, or 13.8 percent of net sales, compared to $707 million, or 13.5 percent of net sales last year. The increase in gross margin as a percent of net sales reflects lower infrastructure costs in the current year as a result of cost reduction initiatives partially offset by investment in price.

Selling and administrative expenses in the first quarter were $630 million, or 12.2 percent of net sales, and included $58 million in charges primarily related to employee severance and asset impairments. Excluding these charges, selling and administrative expenses in the first quarter were $572 million, or 11.1 percent of net sales. Selling and administrative expenses in the first quarter of fiscal 2013 were $673 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, benefit of the transition services fees in fiscal 2014 covering related costs, and lower depreciation expense.

Net interest expense for the first quarter was $249 million which included $169 million in charges and costs related to current and previous financing activities. Excluding these charges and costs, net interest expense in the first quarter was $80 million compared to $73 million last year. The increase in interest expense was primarily driven by a higher average rate and balance on the Company's term loans partially offset by lower average balances on its senior notes.

SUPERVALU's income tax benefit was $62 million, or 37.1 percent of pre-tax loss, for the first quarter, compared to an income tax benefit of $21 million, or 53.8 percent of pre-tax loss in last year's first quarter. The income tax benefit for both fiscal years reflects the loss from continuing operations.

Independent Business

First quarter Independent Business net sales were $2.46 billion compared to $2.48 billion last year, a decrease of 0.6 percent.

Independent Business operating earnings in the first quarter were $55 million, or 2.3 percent of net sales, and included $14 million in pre-tax costs and charges primarily related to employee severance. Excluding these costs and charges, Independent Business operating earnings in the first quarter were $69 million, or 2.8 percent of net sales. Independent Business operating earnings in the first quarter of fiscal 2013 were $68 million, or 2.7 percent of net sales.

Save-A-Lot

First quarter Save-A-Lot net sales were $1.27 billion compared to $1.29 billion last year, a decrease of 1.6 percent, reflecting the impact from network identical store sales of negative 1.9 percent. Identical store sales for corporately operated stores within the Save-A-Lot network were negative 1.2 percent.

Save-A-Lot operating earnings in the first quarter were $52 million, or 4.1 percent of net sales, and included $5 million in pre-tax asset impairment charges and employee severance costs. Excluding these charges and costs, Save-A-Lot operating earnings were $57 million, or 4.5 percent of net sales, compared to $59 million, or 4.5 percent of net sales last year. Save-A-Lot operating earnings reflect incremental price investment during the quarter offset by cost reduction initiatives.

Retail Food

First quarter Retail Food net sales were $1.43 billion compared to $1.47 billion last year, a decline of 2.9 percent, primarily reflecting identical store sales of negative 3.0 percent. Identical store sales were driven by competitive pressures and the impact of incremental price investments.

Retail Food operating earnings were $25 million, or 1.7 percent of net sales, and included $18 million in pre-tax employee severance costs, vendor contract breakage costs, and asset impairment charges. Excluding these costs and charges, Retail Food operating earnings were $43 million, or 3.0 percent of net sales. Last year's Retail Food operating earnings were $9 million, or 0.6 percent of net sales. The improvement in Retail Food operating earnings was driven by the benefit from the Company's cost cutting initiatives and lower depreciation expense.

Corporate

Corporate expenses totaled $50 million and included $21 million in costs and charges primarily related to employee severance. Excluding these costs and charges, corporate expenses were $29 million compared to $102 million last year. The reduction in corporate expenses was driven primarily by incremental fees received under the Transition Services Agreements 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 Transition Services Agreement.

Cash flows - Continuing Operations

First quarter fiscal 2014 net cash flows used in operating activities were $103 million compared to $11 million in the prior year, reflecting higher levels of working capital in the current year. Net cash flows used in investing activities were $14 million compared to $94 million the prior year, reflecting lower levels of capital expenditures. Net cash flows provided by financing activities were $66 million compared to a use of $15 million the prior year, reflecting proceeds received in the first quarter of fiscal 2014 from the issuance of common stock to Symphony Investors net of payments toward debt financing costs.

Discontinued Operations / Transaction Closing / Refinancing

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. In conjunction with the closing of the transaction, the Company refinanced its prior secured term loan, its former asset-based revolving credit facility, its previous accounts receivable financing facility, and its senior notes due to mature in 2014 with a new $1.5 billion secured term loan and a new $1.0 billion asset-based revolving credit facility.

On May 16, 2013, the Company completed the refinancing of its existing $1.5 billion secured term loan agreement. The amendment reduced the interest rate margin from 5.0 percent to 4.0 percent and reduced the LIBOR floor from 1.25 percent to 1.00 percent for LIBOR based loans. This also expanded the Company's ability to increase the secured term loan, subject to certain conditions, by up to $500 million (previously $250 million).

On May 21, 2013, the Company issued $400 million aggregate principal amount of 6.750% Senior Notes due 2021. The Company used the net proceeds to fund the purchase price of the $372 million aggregate principal amount of the Company's outstanding 8.000% Senior Notes due 2016 tendered and accepted by the Company for purchase pursuant to its previously announced modified "Dutch Auction" tender offer.

Conference Call

A conference call to review the first quarter results is scheduled for 9:00 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, 1,332 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, 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.

    
SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
Fiscal Quarter EndedFiscal Quarter Ended

(In millions, except per share data)

June 15, 2013June 16, 2012
 (16 weeks) 

% of Net sales

 (16 weeks) 

% of Net sales

 
Net sales$5,158100.0

 %

$5,237100.0

 %

Cost of sales  4,446  86.2

 %

  4,530  86.5

 %

Gross profit71213.8

 %

70713.5

 %

Selling and administrative expenses  630  12.2

 %

  673  12.8

 %

Operating earnings821.6

 %

340.7

 %

Interest expense, net  249  4.8

 %

  73  1.4

 %

Loss from continuing operations before income taxes(1)(167)(3.2)%(39)(0.7)%
Income tax benefit  (62) (1.2)%  (21) (0.4)%
Net loss from continuing operations(1)(105)(2.0)%(18)(0.3)%
Income from discontinued operations, net of tax  190  3.7

 %

  59  1.1

 %

Net earnings $85  1.7

 %

 $41  0.8

 %

 

Basic net earnings (loss) per share:

Net loss per share from continuing operations$(0.43)$(0.08)
Net earnings per share from discontinued operations $0.78    $0.27   
Net earnings per share $0.35    $0.19   
 

Diluted net earnings (loss) per share:

Net loss per share from continuing operations$(0.43)$(0.08)
Net earnings per share from discontinued operations $0.77    $0.27   
Net earnings per share $0.34    $0.19   
 
Weighted average number of shares outstanding:
Basic246212
Diluted250214
 
(1)Results for the quarter ended June 15, 2013 include net costs and charges of $227 before tax ($139 after tax, or $0.57 per diluted share), comprised of non-cash financing cost charges of $98 before tax ($60 after tax, or $0.24 per diluted share), refinancing costs of $71 before tax ($44 after tax, or $0.18 per diluted share), severance costs and accelerated stock-based compensation charges of $39 before tax ($24 after tax, or $0.10 per diluted share), non-cash asset impairment and other charges of $14 before tax ($9 after tax, or $0.04 per diluted share), and contract breakage and other costs of $5 before tax ($2 after tax, or $0.01 per diluted share).
 

 
SUPERVALU INC. and Subsidiaries
CONDENSED CONSOLIDATED SEGMENT FINANCIAL INFORMATION
(Unaudited)
        
Fiscal Quarter EndedFiscal Quarter Ended
June 15, 2013June 16, 2012
(In millions)    (16 weeks)    (16 weeks)
 
Net sales
Independent Business$2,463$2,478
% of total47.8%47.3%
Save-A-Lot1,2661,287
% of total24.5%24.6%
Retail Food1,4291,472
% of total     27.7%     28.1%
Total net sales

$

5,158

$

5,237
      100.0%     100.0%
 
Operating earnings
Independent Business(1)

$

55

$

68
% of sales2.3%2.7%
Save-A-Lot(2)5259
% of sales4.1%4.5%
Retail Food(3)259
% of sales1.7%0.6%
Corporate(4)     (50)     (102)
Total operating earnings8234
% of sales1.6%0.7%
Interest expense, net(5)     249      73 
Loss from continuing operations before income taxes(167)(39)
Income tax benefit     (62)     (21)
Net loss from continuing operations(105)(18)
Income from discontinued operations, net of tax     190      59 
Net earnings    $85     $41 
 
 
LIFO charge
Independent Business$1$-
Retail Food     (1)     2 
Total LIFO charge    $-     $2 
 
Depreciation and amortization
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