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MINNEAPOLIS -- Supervalu Inc. here is allocating $1 billion in capital expenditures for its retail operations in fiscal 2007, to revamp existing stores and build several new ones amid continuing integration of the stores it acquired from Albertsons Inc. earlier this month.
Although some of the $1 billion purse will be spent on new stores for the acquired banners as well as for some of Supervalu's legacy banners, most of the funds will go toward remodeling acquired Albertsons' –bannered stores.
In slides prepared for its annual meeting in Fargo, N.D. yesterday, Supervalu said it would deploy its "robust, focused" retail capital budget -- which represents 3 percent of its $34 billion of retail revenues -- to the markets most in need. The nation's third largest retailer further said it would leverage strong market positions and excellent retail locations as it focuses on honing the in-store experience.
Supervalu's c.e.o. Jeff Noddle said his company plans to put a greater emphasis on remodeling than Albertsons had traditionally done in the past, particularly in the important Chicago market, where Supervalu plans to open six new Jewel-Osco stores and remodel 18 others. In New England, where Supervalu picked up 210 Shaw's and Star Market chains in the Albertsons deal, it intends to open five new stores and remodel 14 in fiscal 2007.
Supervalu is planning other improvements to its new and existing banners, including:
--For Cub Foods, two new stores and 10 remodels in the Twin Cities;
--For Albertsons stores, six new units and 13 remodels on the West Coast;
--At Farm Fresh, five new stores and three remodels in North Carolina and Virginia;
--For Shop 'n Save, four new sites and two remodels in St. Louis;
--Acme will get two new stores and 11 remodels in Philadelphia ;
--Shoppers Food & Pharmacy is slated for two new stores and seven remodels in Washington, D.C., and Baltimore;
--For Save-A-Lot, 35 new stores nationally;
--At Sunflower Market, five new stores, two in Columbus, Ohio, and one in Chicago (sites of two additional locations have not yet been announced);
--And for Bristol Farms, four new stores in Southern California.
Commenting on a strengthened business model that will find Supervalu's retail mix boosted dramatically, management said the Albertsons acquisition almost triples the company's EBITDA to $2.7 billion (proforma fiscal year 2006). The deal also brings double-digit accretive earnings after financing costs and additional share issuance, excluding one-time transaction costs, as well as offering between $150-$175 million in synergies by the end of the third year.
With post-acquisition debt of approximately $9 billion -- inclusive of a debt to capital ratio of approximately 62 percent -- Supervalu officials remain upbeat in view of their successful track record of managing debt. For instance, following its acquisition of Richfood, which resulted in a 62 percent debt to capital ratio, Supervalu saw that ratio reduced to less than 40 percent in six years.