Supervalu Inc. (SVU), one of the largest grocery chains in the United States, delivered higher-than-expected first quarter 2012 earnings on July 26, 2011. The quarterly earnings of 35 cents a share dipped 18.6% compared with 43 cents posted in the year-ago period. The quarterly earnings surpassed the Zacks Consensus Estimate of 33 cents.
Consequently, Supervalu reaffirmed its full-year 2012 earnings guidance. The company now expects fiscal 2012 adjusted earnings to be in the range of $1.20 to $1.40 per share. The Zacks Consensus Estimate of $1.23 lies in the lower end of the guidance range given by the company.
Revenue and Margins
Supervalu’s total sales dipped 3.74% to $11,113 million in the quarter, compared with $11,545 million in the prior-year period. The reported revenue fell short of the Zacks Consensus Estimate of $13,924 million.
For fiscal 2012, the company anticipates net sales of $37 billion. Identical store sales growth, excluding fuel, is projected to be in the range of negative 1.5 % to 2.5 %.
Supervalu’s operating earnings contracted from $301 million in the previous year to $201 million in the first quarter of 2012. Gross margin contracted 40 basis points to 22.1% on account of a higher LIFO charge, the impact of higher fuel sales, as well as the mixed impact resulting from the divestiture of Total Logistic Control in the fourth quarter of fiscal 2011.
Segment Details
Net sales at Retail Food (77.5% of the total sales in the quarter) slipped 3.8% to $8,612 million in the quarter compared to $8,951 million in the prior-year quarter. Results followed a 3.9% decline in the same-stores sales and adverse impacts of market exits.
Retail square footage dipped 2.1% year over year in the quarter. However, excluding the impact of market exits and store closures, retail square footage grew marginally by 1.8% in the quarter.
Net sales at Supply Chain Services (22.5% of the total sales in the quarter) slipped marginally to $2,501 million in the quarter compared with $2,594 million in the prior-year quarter.
Other Financial Update
Supervalu exited the quarter with cash and cash equivalents of $172 million, and long-term debt and capital lease obligations of $6,260 million with a shareholders’ equity of $1,415 million. The company plans to reduce debt by $500 million to $550 million in fiscal 2012.
The company’s cash flow from operations was $245 million year-to-date, down compared with $337 million in the prior year, demonstrating lower earnings.
Supervalu spent $133 million in the quarter on investing activities versus $83 million in the prior year. In the quarter under review, the company remodeled 11 stores and opened 18 new Save-A-Lot locations.
The company forecasted capital expenditure of $700 million to $750 million for fiscal 2012, which includes 55 to 75 primary store remodels and 210 Save-A-Lot stores, including licensed locations.
Recommendation
Supervalu operates in a highly competitive market. Moreover, labor unions pose inherent risks for the company and potential labor related issues remain a concern. Supervalu faces stiff competition from Wal-Mart Stores Inc. (WMT), The Kroger Co. (KR) and Safeway Inc. (SWY).
Currently, we prefer to rate the stock as Underperform. Further, Supervalu holds the Zacks #4 Rank, which translates into a short-term Sell rating.
KROGER CO (KR): Free Stock Analysis Report
SUPERVALU INC (SVU): Free Stock Analysis Report
SAFEWAY INC (SWY): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment