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Supervalu gets back into black

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MINNEAPOLIS — Supervalu Inc. returned to a profit in the fourth quarter of fiscal 2010.

Supervalu Inc. returned to a profit in the fourth quarter of fiscal 2010.

The reported bottom line for the 12 weeks ended February 27 swung to a net profit of $97 million, or 46 cents per diluted share, from red ink totaling $201 million, or 95 cents per share, in 2009’s 13-week quarter. The most recent results include $34 million, or 16 cents per share, in net after-tax charges stemming from the closure of nonstrategic stores, retail market exits in Connecticut and Cincinnati, and fees received for the early termination of a supply agreement.

The red ink in the prior-year period reflected a host of largely noncash charges totaling $386 million, or $1.82 per share, after taxes. These consisted of $250 million, or $1.17 per share, related to impairment of goodwill and other intangible assets; $121 million, or 58 cents per share, for store closures; and $15 million, or 7 cents per share, stemming from the costs of settling pre-acquisition Albertsons Inc. litigation. Those items were partially offset by an estimated contribution of 6 cents per share from the 13th week.

Backing out the special items in both quarters and the contribution of the 13th week in the year-ago period, adjusted net income declined 23.4% to $131 million, or 62 cents per diluted share, from about $171 million, or 81 cents per share, in the fiscal 2009 quarter. The adjusted profit for the 2010 period was a penny better than the average estimate of 61 cents per share from analysts polled by Thomson Reuters, which typically excludes special items.

Full-year results, meanwhile, moved back into the black, with net profit totaling $393 million, or $1.85 per diluted share, in contrast to a $2.86 billion, or $13.51 per share, deficit in the 53-week fiscal 2009. The fiscal 2010 bottom line reflects $39 million in net after-tax charges for the aforementioned store closings and market exits, and partially offsetting early termination fee.

Prior-year results, meanwhile, included a total of $3.5 billion, or $16.40 per share, in after-tax noncash charges. The largest item was a $3.3 billion charge for goodwill and intangible asset impairment, followed by store closing charges totaling $121 million and the $15 million Albertsons litigation item, and $8 million in onetime acquisition-related costs. Backing out special items in both years, adjusted full-year earnings fell 29.8% to $432 million from about $615 million.

"We finished fiscal 2010 meeting our earnings guidance and exceeding our annual debt reduction target," said president and chief executive officer Craig Herkert in a statement.
At the top line, fourth quarter consolidated sales slid 14.9% to $9.21 billion — reflecting one less week as well as the effect of store closings and a sharp decline in identical-store sales. Full-year consolidated sales, meanwhile, decreased 8.9% to $40.60 billion.

Consolidated gross margin for the fourth quarter expanded 52 basis points to 23.43%, reflecting a slight decline in the share of promotional sales in the overall mix. In addition, margin benefited from a LIFO credit of $22 million, in contrast to a $20 million charge in the prior-year period. Despite the lack of sales leverage, selling, general and administrative (SG&A) expense contracted 63 basis points to 20.33% of net sales. Excluding store closings costs and other special items in both periods, however, the adjusted SG&A ratio escalated 70 basis points to 19.8%.

After further including the $274 million in pretax goodwill and intangible asset impairment charges in the 2009 period, fourth quarter operating results swung to a $286 million profit from a $63 million loss in the preceding year.

For the full year, the company booked operating income of $1.20 billion, in contrast to a $2.16 billion loss in fiscal 2009 that included $3.52 billion in pretax impairment charges as well as various other special items charged against SG&A.

Supervalu managed to cut fourth quarter interest expense by 12.8% to $130 million, reflecting lower overall debt balances and the shorter quarter. With that, pretax results moved to income of $156 million from a $212 million loss in the fiscal 2009 quarter.

The fiscal 2010 bottom line was further bolstered by an 8.5% reduction of interest expense to $569 million, as pretax results swung to a $632 million profit from fiscal 2009’s loss of $2.78 billion.

Fourth quarter operating results for Supervalu’s retail food segment shifted to a $221 million profit from a $57 million loss in the preceding year. The most recent results include $55 million in charges for retail market exits, while the prior-year loss included $274 million in noncash impairment charges and $162 million for the closure of nonstrategic stores. Adjusting for those items, operating profit would have dropped 27.2% to $276 million.

Retail sales for the final 12 weeks tumbled 15.2% to $7.21 billion as a result of the extra week in the prior-year period (which contributed about $600 million), store closures and a 6.8% drop in identical-store sales (excluding fuel sales). Management blamed the identical-store performance on the economic environment, intensified competition and deflationary pressure on prices.

For the year, the retail food unit booked a $989 million operating profit, in contrast to a $2.32 billion loss in fiscal 2009 that reflected $3.52 billion in noncash impairment charges and $162 million in store closing costs. The most recent year includes $55 million in market exit costs. Factoring out those items, full-year adjusted operating profit for the segment slid 23.9% to $1.04 billion.

Sales retreated 8.7% to $31.64 billion, again reflecting the smaller store base, the lack of a 53rd week and the ongoing erosion of identical-store sales, which fell 5.1% excluding gasoline.

Supervalu opened 40 stores and closed or sold 112 in fiscal 2010, ending the year with 2,349 outlets, consisting of 1,161 traditional supermarkets, 333 corporately owned Save-A-Lot hard discount grocery units and 855 licensed Save-A-Lots.

In the supply chain services segment, fourth quarter operating profit jumped 18.4% to $90 million despite a 14% decline in sales to $2.0 billion. Profit growth was aided by the $13 million in fees received from the early termination of a supply agreement. Excluding that gain, adjusted operating profit inched up 1.3% to $77 million.

The wholesale segment’s full-year operating profit slipped 2.6% to $299 million on a 9.5% drop in sales to $8.96 billion. Backing out the fourth quarter gain, adjusted operating profit for the 52 weeks was down 6.8% to $286 million.


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