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Amid a weaker-than-expected sales environment, Supervalu Inc. experienced a trying second quarter, seeing profits slide nearly 14 percent to $128 million.
For the quarter ended Sept. 6, Supervalu's sales were flat from a year ago at $10.2 billion vs. $10.16 billion last year -- but still slightly better than analysts' $10.12 billion forecast.
In addressing the company's soft second quarter results during an analyst call on Tuesday, Jeff Noddle, chairman and c.e.o., said while the difficult environment has made it one of "the most challenging operating climates we have seen in a long time...we cannot blame the external forces alone for our results. We did not execute well on several fronts and that contributed to our delivering results below the low-end of the first call analyst range of $0.61 to $0.72 as well as below our own expectations."
Price investments and promotional offerings in certain markets that did not produce the sales and margins anticipated also figured into the Minneapolis-based retailer's $8 billion second quarter sales, which were flat compared to last year. The company's same store sales, meanwhile, posted a 1.3 percent dip, excluding fuel, again as a result of soft sales and heightened levels of competitive activity.
As for supply chain service net sales, Supervalu tabbed $2.3 billion vs. $2.2 billion last year, an increase of 3.8 percent, primarily reflecting inflation and new business growth, which the company said was partially offset by customer attrition and the ongoing transition of Target Corp.'s volume to self-distribution.
Noddle singled out "weaker than expected same-store sales performance" and "a soft Labor Day holiday materializing late in the quarter" as key contributors of the company's weak retail performance, as well as higher fuel, utility and LIFO costs and the "duplication of merchandising costs that we had projected in our updated guidance at the end of the first quarter.
"Besides these factors," the executive continued, "the quarter-over-quarter shortfall was affected by price investments and promotional offerings in certain markets that, in retrospect, did not produce the sales and margin expected and failure to achieve sales leverage on occupancy costs and to downwardly adjust certain selling and administrative expenses especially labor and related costs to reflect the weaker-than-planned sales environment."
However, Noddle claimed both "issues are within our control," and pledged to "take action to improve sales in the back half of the year," including plans to conserve cash by remodeling 10 fewer stores and reducing its selling and administrative expenses through company-wide cost reduction initiatives.
Noddle projected that the efforts will "produce notable benefits in the fourth quarter. These initiatives are wide ranging reaching from shrink to infrastructure costs and touch many lines on our P&L." As such, Noddle requested that investors refrain from extrapolating "second quarter results to arrive at our full-year performance."
Last month, Supervalu launched a new Culinary Circle product line of 150 items priced 20 percent to 25 percent below casual restaurant food, and roughly 15 percent below top national brands. It also unveiled a new value-priced organic food line, Wild Harvest, earlier this year.
For fiscal 2009, Supervalu cut its profit outlook by 4 cents per share to between $2.86 and $2.96, and to $2.90 to $3 per share excluding costs. Analysts currently see operating profit of $2.95 per share. Previously, the company had said it expected profit of $3 to $3.16 per share, or $3.04 to $3.20 per share excluding one-time costs.
Supervalu operates 2,475 combination supermarkets across the country operating under a variety of regional banners including Albertsons, Acme Markets, Jewel-Osco, Shaw's and Farm Fresh, among others.