Supervalu turnaround on track

Refined promotional effectiveness driving improvements

MINNEAPOLIS — Supervalu on Thursday reported better-than-expected results with an earnings per share of 44 cents, which was 10 cents above analyst consensus of 34 cents.

“A lower-than-expected tax rate and LIFO charge helped by about 4 cents; the company still cleanly beat consensus,” noted Credit Suisse director equity research Ed Kelly. “It’s obvious that the company pulled back on the unsuccessful promotions initiated last quarter.”

The company’s success was reflected in its share price — late morning trading was more than $1 higher than Wednesday’s close of $9.08 per share to $10.19.

"In the fourth quarter, our transformation initiatives helped us execute more effective promotions that contributed to stronger-than-anticipated results," stated Craig Herkert, Supervalu CEO and president. “We enter fiscal 2012 with momentum, a solid plan and new capabilities to drive our business transformation, invest in price and deliver sequential improvement to [identical-store] sales.

"We must improve our pricing. … However, we are sensitive in how we go about this," Herkert said. Supervalu is looking to move away from “ridiculously high” nonpromotional pricing coupled with “ridiculously low” promotional pricing, and toward a more everyday low price strategy, where everyday pricing is relative to local competitors.

Herkert noted that some early wins have been realized through the company’s new promotional tools, including one that helps project promotional success based on historical metrics. The Minnesota grocer also is testing a tool that helps improve in-stock positions with tracking metrics both by item and by time of day.

Herkert also spoke to Supervalu’s need to better partner with suppliers on merchandising and promotions. “This is a great opportunity for suppliers who genuinely want to partner with Supervalu,” he said.

Also driving the turnaround is a detailed plan “to become America’s neighborhood grocer,” Herkert said, which incorporates the adoption of a new shared culture across Supervalu’s banners. To help foster that localized appeal, directors at the store level have been given greater latitude to merchandise per the needs of their neighborhoods.

Supervalu’s Save-a-Lot deep discount banner continues to be a focus of growth for the company. “[The format] caters to households with annual incomes of less than $45,000,” Herkert said, and works equally well in both urban and rural areas.

Supervalu is projecting a fiscal 2012 capital expenditure of between $700 million and $750 million, which includes as many as 200 new Save-a-Lot stores, both corporate owned-and-operated and franchised. Much of that expansion may target “food deserts” where there is an unmet need, Herkert suggested.

Management of Supervalu’s store brands were brought in-house in the past year, Herkert said, a factor that has helped increase penetration by 145 basis points to 19.3%.

Identical-store sales were down 5% across the chain. Supervalu’s Northeast banners weighed overall same-store sales down, Herkert told analysts — excluding Northeast stores, same-store sales would have been down 3.5%. Supervalu banner stores were relatively flat as compared with year-ago same-store sales, Herkert said.

Herkert expected significant improvements over the course of the coming year — same-store sales are projected to improve by 350 basis points over fiscal 2012.

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