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    High Costs of Albertsons Deal Erode Supervalu Earnings for Q1

    MINNEAPOLIS -- Supervalu Inc. here reported slippage in first-quarter earnings attributable to costs associated with completing its $12.4 billion acquisition of Albertson's premier retail properties in June, as well as stock option expenses.

    MINNEAPOLIS -- Supervalu Inc. here reported slippage in first-quarter earnings attributable to costs associated with completing its $12.4 billion acquisition of Albertson's premier retail properties in June, as well as stock option expenses.

    For the quarter ended June 17, 2006, net income slipped to $87 million, or 57 cents a share, from $91 million, or 64 cents, a year ago, while revenue slipped 3 percent to $5.78 billion during the quarter.

    While the results did not include Albertsons operations, the purchase of which vaulted Supervalu into the third slot of the nation's top ranked grocery chains, Jeff Noddle, chairman and c.e.o. said, the company's stand-alone 2007 first quarter results were on track with expectations.

    "We are off to a great start following our transformational acquisition in June," Noddle said. "The financial results of the new Supervalu will continue to emerge over the remainder of the year. We are confident that the benefits of the acquisition of Albertsons' premier retail properties will be evident. We delivered a strong quarter even when absorbing $0.05 of stock option expense and $0.06 of one-time transaction costs."

    During an investor conference call Wednesday, Noddle said the company's newly appointed executive team remains committed to serving its customers through day-to-day excellence at the store level, "which is the best mechanism to achieve sales growth."

    Supervalu will also concentrate heavily on devising its new business model through a balance of both earnings growth and debt reduction, Noddle said, as well as an energized corporate culture that will go a long way in helping the company achieve its stated mission of transforming into a retail powerhouse.

    Noddle also said Supervalu will close approximately 25 stores within the acquired network and anticipates opening 35 large format stores and 35 smaller format units. All told, Noddle said the company has 80 major store remodels in the pipeline for fiscal 2007.

    Sales for the three months ended June 17 declined to $5.78 billion from $5.97 billion in last year's first quarter, while net earnings registered $87 million vs. $91 million last year. The company said basic earnings per share of $0.59 are also down from $0.67 last year, while diluted earnings per share netted $0.57 compared to $0.64 last year. First quarter results include net after-tax charges of approximately $9 million, or $0.06 per basic share and $0.06 per diluted share, primarily due to one-time transaction costs. First quarter results also include costs of approximately $8 million after-tax or $0.05 per diluted share from the adoption of FAS123R related to stock option expensing.

    As for Supervalu's retail food segment, first quarter retail net sales were $2.9 billion vs. $3.2 billion last year, a decline which reflects store divestitures, according to the company.

    Same store sales declined 1.8 percent. When adjusted for planned in-market store expansion, first quarter identical store sales growth was negative 1.3 percent, while same store sales for corporate-owned Save-A-Lot stores was slightly positive. Exclusive of the divested Cub Foods stores in Chicago, Shop 'n Save stores in Pittsburgh, and Deals stores, total retail square footage, including licensed stores, increased by approximately 2.7 percent from last year's first quarter.

    Retail operating earnings for the first quarter was $128 million vs. $128 million last year, while operating earnings as a percent of sales was 4.4 percent vs. 4 percent last year.

    Net new store activity since last year's first quarter, including licensed stores, included seven regional banner stores, 14 Save-A-Lot stores and 1,113 acquired properties. The store activity excludes market exits. Save-A-Lot, including licensee stores, operated 1,162 stores at the end of the quarter.

    Supervalu's board authorized the company to repurchase up to 10 million shares of common stock to offset stock option exercises by former Albertsons employees, now employed by Supervalu, subsequent to the acquisition. The authorization will remain in place until June 1, 2007 and is in addition to the company's existing share repurchase program.

    The first quarter does not include operating results of the acquired operations but includes the acquired operations balance sheet with preliminary purchase accounting and one-time transaction costs. The fiscal quarters of the acquired operations will become aligned with Supervalu's at the end of fiscal 2007. Operating results in the second quarter of fiscal 2007, to be released by mid-October, will include the acquired operations.

    As of June 17, 2006, Supervalu's retail store network, including the acquired properties, consists of 2,504 stores, including 870 licensed stores. The company's store network includes approximately 900 in-store pharmacies and 118 fuel centers.

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