Supervalu returns to profit in 2Q, lowers outlook

[October 20, 2011]  NEW YORK (AP) -- Supervalu Inc. returned to a profit in its second quarter to beat expectations, but lowered the high end of its full-year outlook on concerns about the economy's impact on shoppers.

The grocery store operator, like its peers, continues to face the complications of the current economic environment. Consumers want to spend less, but food prices are up. Meanwhile, the company must manage the realities of its turnaround efforts.

"It comes as no surprise that shoppers continue to show signs of thrift," Supervalu CEO Craig Herkert said Wednesday. "Consumer confidence remains low, and unemployment remains high. As long as Americans continue to express broad financial concerns, personal spending will be constrained. We can't change this macro trend, but we can and will position our business to respond."

Supervalu reported that it earned $60 million, or 28 cents per share, for the fiscal quarter that ended Sept. 10. That compares with a loss of $1.47 billion, or $6.94 per share, a year ago when it was dragged down goodwill, impairment charges and other items. Removing those items, earnings were flat year-over-year at 28 cents per share.

Total revenue dropped 3 percent to $8.43 billion.

The results beat the 20 cents per share on revenue of $8.36 billion that analysts surveyed by FactSet expected.

Supervalu, which operates its namesake chain, Jewel-Osco, Albertsons and other supermarkets, said its retail food sales fell to $6.6 billion from $6.7 billion, mostly because it exited certain markets.

Revenue at stores open at least a year fell 1.8 percent compared to the prior year, but this measure has improved sequentially each quarter. This metric is a key gauge of a retailer's health because it excludes results from stores recently opened or closed.

Supervalu, which also operates a business that sells products to other food retailers, saw revenue from that business decline to $1.8 billion from $2 billion, primarily due to Target Corp.'s shift to self-distribution and the sale of its supply chain management subsidiary Total Logistic Control.

The company launched a turnaround plan well over a year ago, which has been slowly paying off. It brought in new management, cut costs, lowered debt, closed stores, sold off ancillary businesses and shifted to a heavier emphasis on tailoring its stores to local needs. It also has expanded its low-price Save-A-Lot chain to meet the demands of cost-conscious shoppers.

Supervalu said that it has adjusted some of its marketing to reflect the economic concerns, such as a heavier emphasis on store-brand items mid-month as budgets begin to run tight and special deals such as $1 pizzas. But the economy is taking its toll in other ways, too, as some licensees struggle to find financing to open stores.

Company leaders say they still feel good about the factors they can control but remain cognizant that consumer sentiment remains fragile in this uncertain economic environment. As a result of these concerns and some recent transactions, the company adjusted its outlook for the year.

The company now expects earnings between $1.20 and $1.30 per share for the 2012 fiscal year. Its prior guidance called for earnings in a range of $1.20 to $1.40 per share. The company's outlook assumes revenue of about $36.5 billion, down from a prior forecast of $37 billion. Analysts expect earnings of $1.21 per share on revenue of $36.51 billion.

Supervalu expects full-year revenue at stores open at least a year to be down 2 percent to 2.5 percent, excluding fuel.

Investors were not pleased by the softer outlook and sent the company's shares down 46 cents, or 5.6 percent, to close at $7.71. Supervalu, based in Eden Prairie, Minn., operates roughly 4,300 stores nationwide.

[Associated Press; By SARAH SKIDMORE and MICHELLE CHAPMAN]

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