Supervalu Q2 Food Sales Down 9.7%

Supervalu’s second-quarter fiscal 2011 retail food net sales were $6.7 billion compared to $7.4 billion last year, a decrease of 9.7 percent, which the Minneapolis-based retailer blames on the impact of a 6.4 percent drop in same-store sales and previously announced market exits.

“Our sales performance continues to reflect a difficult operating environment,” said Craig Herkert, Supervalu CEO and president. “As the company moves into the next phase of its business transformation, we remain focused on our customers and taking actions that will better meet their needs. I remain confident that we have the correct strategy in place to achieve long term success.”

Excluding the retailer’s East Coast-based Shaw’s chain, which was impacted by a labor dispute settled early in the quarter, same-store sales were down 5.9 percent. Adjusted second-quarter fiscal 2011 net earnings were $59 million or 28 cents per diluted share, versus Q2 2010 net sales of $9.5 billion and net earnings of $74 million, or 35 cents per diluted share.

Supply chain services net sales were $2 billion compared to $2.1 billion last year, a decrease of 4.2 percent, primarily reflecting Target’s transition to self-distribution and the loss of Ukrop’s as a customer due to acquisition by a competitor. Retail food net sales in the second quarter of fiscal 2011 represented 77.3 percent of net sales compared to 78.3 percent last year. Gross profit margin in the second quarter was $1.9 billion, or 22.3 percent of net sales, compared to $2.1 billion or 22.1 percent last year.

Q2 retail food operating loss was $1.441 billion. When adjusted for the $1.6 billion impairment expense and $17 million in pre-tax charges primarily related to the impact of the labor dispute at Shaw’s as well as employee-related costs, retail food operating earnings were $176 million, or 2.6 percent of net sales. Last year’s retail food operating earnings were $188 million, or 2.5 percent of net sales.

Capital spending for the second quarter was $139 million compared to $158 million in the prior year. In the second quarter, the company completed 24 major remodels, two minor remodels and one new traditional supermarket, as well as 18 new Save-A-Lot locations. Year-to-date capital spending was $312 million compared to $396 million in the prior year.

“It will take longer than originally anticipated to realize the benefit of the marketing, merchandising and operational initiatives that we continue to build upon,” Herkert said. Management now expects a net loss in fiscal 2011 in the range of $5.94 to $5.74 and adjusted earnings of $1.40 to $1.60 per diluted share.

Supervalu Inc. operates 4,280 stores composed of approximately 1,160 traditional retail stores, including 813 in-store pharmacies; 1,210 hard-discount stores; and 1,910 independent stores serviced primarily by the company’s traditional food distribution business.