SUPERVALU Announces Second Quarter Fiscal 2013 Res SUPERVALU Announces Second Quarter Fiscal 2013 Results
•Cash flow from operations of $188 million in second quarter and $415 million year-to-date
•Net loss per share, including charges, of $0.52 in quarter; $0.00 earnings per share excluding charges
•EBITDA of $1.65 billion before charges for the 52 weeks ended September 8, 2012
•Debt reduction anticipated to be in the range of $400 to $450 million for the year
•New $1.65 billion asset-based revolving credit facility and $850 million term loan completed
•Company provides update on strategic review
MINNEAPOLIS--(BUSINESS WIRE) --Oct. 18, 2012-- SUPERVALU INC. (NYSE: SVU) today reported second quarter fiscal 2013 net sales of $8.0 billion compared to $8.4 billion last year. The net loss for the second quarter totaled $111 million, or $0.52 per diluted share, including predominantly non-cash net charges of $111 million after-tax, or $0.52 per diluted share. These net charges are comprised of intangible asset impairment charges ($45 million after-tax, or $0.21 per diluted share), charges related to the previously announced store closures net of a gain on sale of assets ($25 million after-tax, or $0.12 per diluted share), other asset impairment charges ($23 million after-tax, or $0.11 per diluted share), the write-off of unamortized costs related to the senior secured credit facilities which were replaced by the recent debt refinancing ($14 million after-tax, or $0.06 per diluted share), and other employee-related costs ($4 million after-tax, or $0.02 per diluted share). When adjusted for these items, second quarter net earnings were $0.00 per diluted share compared to $60 million, or $0.28 per diluted share last year. [See table 1 for a reconciliation of GAAP (actual) and non-GAAP (adjusted) results appearing in this release]. Year-to-date net cash flows from operating activities were $415 million and EBITDA before charges for the 52 weeks ended September 8, 2012 was $1.65 billion.
“We have accomplished a number of important steps since I became president and chief executive officer mid-way through the second quarter, including the successful refinancing of our credit facility, restructuring our executive leadership team, and announcing the closure of 60 stores,” said Wayne Sales, SUPERVALU’s president, chief executive officer, and chairman. “Our team is aggressively focused on four key strategic imperatives necessary to improve our business: driving profitable retail sales, growing Save-A-Lot, building our network of successful independent retailers, and reducing costs. I am excited by the progress we have made in defining our key strategies and specific initiatives within each segment of our business.”
Sales continued, “We recently completed our price repositioning at Jewel-Osco and are pleased with the initial results. Price is only one part of an overall plan to build traffic and drive customer engagement. However, as we measure these results, we are also assessing our on-going approach to price investments, our value proposition and how we go to market. As such, the timing of repositioning half our stores will extend past the end of fiscal 2013. At the same time, we are moving quickly on initiatives that will remove significant cost from our business, efforts that will make us more competitive in the future. And, although we have much to do, I am encouraged every day by the quality of our team members and their commitment to our success.”
“I am pleased that the Company continues to generate substantial cash flow. Year-to-date, we have generated more than $400 million in cash flow from operations and, including the proceeds from asset sales, will generate between $900 and $950 million in fiscal 2013. We will use this to reduce our outstanding debt and keep our stores fresh and appealing,” concluded Sales.
Second Quarter Results
Second quarter net sales were $8.0 billion compared to $8.4 billion last year, a decline of 4.6 percent. The decrease in net sales primarily reflects both a decline in identical store sales and the disposition of a majority of the Company’s retail fuel centers which contributed $158 million in sales in the second quarter of fiscal 2012. Identical store sales were influenced by the stressed consumer, the competitive environment, and continued investment in achieving competitive pricing.
Gross profit margin for the second quarter was $1.72 billion, or 21.4 percent of net sales, compared to $1.87 billion or 22.2 percent of net sales last year. The decrease in gross margin as a percent of net sales reflects the negative rate impact from additional promotional activity, an increased level of continued investment in competitive pricing, and a change in business mix which was partially offset by the rate benefit from lower fuel sales (approximately 30 basis points) and a lower LIFO charge.
Selling and administrative expenses in the second quarter were $1.69 billion, or 21.0 percent of net sales, including $87 million in net pre-tax charges primarily related to store closures, asset impairments, and employee-related costs partially offset by the gain on sale of assets. Excluding these items, selling and administrative costs were $1.60 billion, or 19.9 percent of net sales, including an approximate 30 basis point negative impact from lower fuel sales. In the second quarter of fiscal 2012, selling and administrative costs were $1.66 billion, or 19.7 percent of net sales last year. The 10 basis point decrease in the adjusted selling and administrative expense rate as a percent of net sales in the second quarter of fiscal 2013 reflects a change in business mix which was partly offset by the impact of higher corporate reserves related to surplus properties.
Net interest expense for the second quarter was $141 million and 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. Excluding this charge, net interest expense was $119 million. In the second quarter of fiscal 2012, net interest expense was $120 million. During the quarter, the Company refinanced its senior secured credit facilities with a $1.65 billion asset-based revolving credit facility and an $850 million term loan, secured by a portion of the Company’s real estate and equipment.
SUPERVALU’s income tax benefit was $71 million, or 38.8 percent of pre-tax loss, for the second quarter, compared to income tax expense of $36 million, or 37.4 percent of pre-tax income in last year’s second quarter.
Diluted weighted-average shares outstanding for the second quarter were 212 million shares compared to 213 million shares last year. For the second quarter of fiscal 2013, diluted loss per share is computed using the basic weighted-average number of shares outstanding and excludes all outstanding stock options and restricted stock as their effect is anti-dilutive when applied to a loss. As of October 12, 2012, SUPERVALU had 214 million shares outstanding.
Retail Food
Second quarter Retail Food net sales were $5.20 billion compared to $5.61 billion last year, a decline of 7.3 percent, primarily reflecting identical store sales of negative 4.3 percent and the disposition of a majority of the Company’s retail fuel centers which contributed $158 million in sales in the second quarter of fiscal 2012.
Retail Food operating loss was $83 million and included $142 million in net pre-tax charges related to intangible and other asset impairments, previously announced store closures and employee-related costs which were partially offset by the gain on sale of assets in conjunction with the previously announced store closures. Excluding these items, Retail Food operating earnings were $59 million, or 1.1 percent of net sales. For the second quarter of fiscal 2012, Retail Food operating earnings were $127 million, or 2.3 percent of net sales last year. The change in Retail Food operating earnings as a percent of net sales was primarily due to increased promotional activity, an increased level of continued investment in competitive pricing, and the deleveraging impact of negative identical store sales which were partially offset by cost reduction initiatives and a lower LIFO charge.
Save-A-Lot
Second quarter Save-A-Lot net sales were $973 million compared to $972 million last year, an increase of 0.1 percent, reflecting the benefit from 47 net new stores being operated at the end of the second quarter of fiscal 2013, offset by the impact from network identical store sales of negative 3.7 percent.
Save-A-Lot operating earnings in the second quarter were $18 million and included $16 million in pre-tax charges primarily related to store closure costs. Excluding these costs, Save-A-Lot operating earnings were $34 million, or 3.5 percent of net sales. For the second quarter of fiscal 2012, Save-A-Lot operating earnings were $50 million, or 5.1 percent of net sales last year. The decline in operating earnings as a percent of net sales was primarily attributable to lower gross margin rates attributable to competitive price investments and additional administrative costs to support its growth strategy.
Independent Business
Second quarter Independent Business net sales were $1.87 billion compared to $1.85 billion last year, an increase of 1.1 percent, primarily due to higher sales to existing customers.
Independent Business operating earnings in the second quarter were $50 million, or 2.7 percent of net sales, compared to $56 million, or 3.1 percent of net sales last year. The decline in Independent Business operating earnings as a percent of net sales was primarily attributable to gross margin investment.
Cash flows
Year-to-date net cash flows from operating activities were $415 million compared to $580 million in the prior year. Year-to-date net cash flows used in investing activities were $307 million compared to $203 million last year, reflecting higher payments for capital expenditures. Year-to-date cash flows used in financing activities were $117 million compared to $334 million last year, reflecting a higher level of debt reduction in the prior year.
Outlook
The Company currently expects debt reduction for fiscal 2013 to be in the range of $400 to $450 million. Cash capital spending is projected to be in the range of $450 to $500 million, including expenditures for technology, maintenance of fleet and facilities, new Save-A-Lot stores, and approximately 40 store remodels.
Strategic Review Update
The Company’s previously announced review of strategic alternatives is proceeding. The Company has received a number of indications of interest and is in active dialogue with several parties. There can be no assurance that this process will result in any transaction or any change in the Company’s overall structure or its business model.
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