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    Supervalu Q3 Profit Up 51 Percent on Albertson's Deal

    MINNEAPOLIS -- Supervalu Inc. here tabbed record third quarter sales, earnings, and earnings per share in the wake of its acquisition of a large portion of Albertsons' best performing regional banners.

    MINNEAPOLIS -- Supervalu Inc. here tabbed record third quarter sales, earnings, and earnings per share in the wake of its acquisition of a large portion of Albertsons' best performing regional banners.

    Sales reached $10.7 billion in the third quarter, which included 12 weeks of results ended Dec. 2, 2006, and 13 weeks of acquired operations ended Nov. 30, 2006. Profits climbed to $113 million from $75 million, and earnings per share bounced up a penny to $0.54.

    Jeff Noddle, Supervalu's chairman and c.e.o., said the company's record third quarter earnings "represents another strong quarter as a retail powerhouse. We are seeing great progress on many fronts, including double-digit earnings per share growth when adjusted for charges. When including the acquired operations, we also saw improvement in our identical store sales in the quarter, and progress in our remodeling program."

    Now the third largest grocery chain, behind Kroger and Safeway, Supervalu raised its fiscal 2007 earnings guidance to a range of $2.32 to $2.43 per share from between $2.18 and $2.41 per share after third-quarter earnings were announced.

    For the first nine months of fiscal 2007, sales increased to $27.1 billion, while earnings increased from $200 million to $332 million. Virtually all of the increases in sales and earnings are attributable to the Albertson's acquisition, Noddle said.

    During an investor call yesterday, Noddle elaborated on the company's $1.2 billion capital expenditures budget for fiscal 2008, earmarked for remodeling its retail fleet of stores throughout the country while also expanding its selection in meat, seafood, organic food, and other high-ticket departments.

    Noddle said Supervalu's sizable remodeling campaign will continue to roll out the chain's "fresh and healthy" format, which was launched in the fall and emphasizes specialty, natural and organic foods; expanded deli, produce, meat and HBC departments; and in-store health clinics.

    Current store development plans call for 30 to 32 standard-size stores and 70 to 75 limited assortment stores, including licensed stores. The company estimated it will complete approximately 80 major remodels, and include development activities by the acquired properties in the quarter prior to the acquisition.

    Total capital spending is projected to be approximately $950 million, including capital leases, which does not include approximately $150 million of capital spent by the acquired properties in the quarter prior to the acquisition, the company said.

    Shaw's, Jewel and Acme have accounted for the majority of the 50 major store remodels completed thus far, Noddle said. He said much of Supervalu's cap-ex purse will be devoted to its newly acquired banners, which is the prudent course to take in light of the fact that many of the former Albertsons stores "have been ignored and are in need of updating."

    Complementing the store remodeling efforts is Supervalu's so-called ongoing "store recycling" effort, that includes possible divestures of stores in select markets, including the 15 corporate Jewel locations currently on the block in Milwaukee.

    Noddle said the company's pared store base comes as a result of "a rationalization review and a redeployment" of resources to better utilize its capital and improve shareholders returns.

    Operationally speaking, Noddle said, "everyday execution at store level" is a key mission going forward. "We feel very strongly about the customer experience" as it pertains to "maintaining a good service level, and good in-stock positions. We are committed to raising the bar for store execution standards." As an example, Noddle pointed to the Southern California launch of "Three's a Crowd," which mandates that store clerks open a new checkout aisle any time three or more people are waiting in line. The program will also be rolled out in other regions beginning today, he said.

    "Our efforts remain clearly focused on leveraging the full potential of Supervalu as grocery retail formats continue to evolve to meet changing lifestyle and consumer needs," said Noddle. "We also remain committed to our financial metrics, including the important return on invested capital metric as we execute our plans."

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