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    Supervalu 3Q Results Hit by Impairment Charges

    Retailer posts loss as a result of $3.3 billion in charges related to its falling stock price, says lower prices, more aggressive promotions will grow sales.

    On the heels of revealing a third-quarter loss as a result of hefty noncash impairment charges and frail same-store sales growth for the fourth straight quarter, Supervalu's plan to jump-start sales with lower prices and more promotions in the coming year appeared to lift investors' confidence in midday trading, when shares jumped $1.96, or 13 percent, to $17.05.

    During the period ended Nov. 29, Supervalu's reported a loss of $2.9 billion, or $13.95 a share, vs. a profit of $141 million, or 66 cents a share, a year ago. A sizable part of the loss was due to $3.3 billion in charges from writing down the value of good will and other intangible assets to reconcile its stock price to book value per share. Excluding write-downs, earnings fell to 62 cents from 69 cents per share.

    Supervalu third-quarter net sales also dropped 0.4 percent to $10.17 billion, from $10.21 billion, while soft sales and heightened competition contributed to a negative same-store sales tab of 0.5 percent, excluding fuel.

    In a conference call with analysts on Wednesday, Jeff Noddle, Supervalu's chairman and c.e.o., cited consumers' continuing pattern of trading down to less expensive products and timid discretionary spending as the chief culprits of the grocer's disappointing same-store sales.

    To recalibrate the balance, Noddle vowed that the company's multiformat supermarket network would pick up the pace with sharper merchandising and lower prices negotiated with its suppliers. "We know that price has become a key criteria for consumers when choosing where to shop," Noddle said during the analyst call. "We know improving our price perception ultimately leads to increased trips and basket size."

    In addition to increasing promotional activity and making bigger investments in its own corporate brands, Noddle further said Supervalu will slow its capital spending through fewer store remodels, along with the closure of 50 stores, to speed up its debt reduction payments to help with future financing needs.

    Supervalu cut its guidance a third time Wednesday, saying that it now expects earnings per share in the range of $2.80 to $2.90, compared with an earlier estimate of a range of $2.90 to $3.

    The grocer also said that it's cutting back on capital spending to $850 million in fiscal 2010, compared with $1.2 billion in fiscal 2009.

    Store development plans for fiscal 2010 will focus on remodels including 85 to 95 major store remodels, 40 to 45 minor store remodels, four new traditional supermarkets and 50 to 60 limited-assortment stores, including licensed stores.

    Supervalu is predicting fourth-quarter charges of 43 cents to 58 cents per share related to store closings and other cost-cutting measures.

    "Our fiscal 2009 projected cash flows are strong, funding $1.2 billion in capital spending, $0.4 billion in debt reductions, and $0.1 billion in dividends," said Noddle, noting that Supervalu continues to position itself "for long-term success, taking into consideration the current economic environment."

    Supply chain services sales, which makes up nearly 25 percent of Supervalu's total sales, fell about 4 percent overall during the third quarter, to $2.3 billion vs. $2.4 billion last year, as a result of both the ongoing transition of Target Corp.'s move to self-distribution and customer attrition, which was partially offset by the pass-through of inflation and new business growth.

    Commenting on updated fiscal 2009 guidance, Noddle said, "We are taking steps that will build a stronger Supervalu and better position us for success in fiscal 2010. Driven in part by the economy as well as the planned reduction in capital expenditures and activities tied to the final year of our transformation, we will be incurring certain charges in the fourth quarter, predominately noncash charges related to the closure of nonstrategic store locations and cost mitigation efforts."

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