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MINNEAPOLIS -Same-store sales slipped below expectations for Supervalu here in the second quarter, but the nation's third largest grocer plans to wield store remodels and service improvements to remedy the situation, c.e.o. Jeff Noddle said Tuesday during an analyst's conference call.
Supervalu's same same-store sales, excluding fuel, rose 0.5 percent, while sales in its retail food segment dropped 5.8 percent to $8 billion in the quarter ended Sept. 5. Noddle said same store sales performance was the "one area in the quarter that did not fully meet our expectations." The grocer had expected same store sales to grow 1 to 2 percent.
Contributing to the slump were "deflationary pressures in our pharmacy business from increased sales of generics," Noddle said, which caused a decrease of 30 basis points in same store sales.
"In addition to competitive challenges in several markets," Noddle continued, "we did not adequately plan for and cycle the prior year's promotional activities.
Looking forward, he said, "However, our current run rate is slightly improved. As such, our ID sales range for the year remains at 1-2 percent, with the expectation that we will be at the lower end of the range."
Noddle said his company is working to fix weak same store sales margins with a $1.2 billion store remodeling program, and store level customer service improvements.
"I assure you, ID sales improvement is one of our top priorities, and I am confident that as we continue to invest in remodels, in implementing our merchandising and marking programs, and executing at store level, our banners will be well positioned for success."
The c.e.o. said his company is aiming for ID sales growth of 3 percent or more during its 2010 fiscal year, which begins in March 2009. It is raising its store remodel target to between 110 and 120 stores for its fiscal year ending in February 2008, up from its previous forecast of 100 to 110. Noddle said each major store remodel costs between $1 million to $4 million.
Supervalu also reaffirmed its outlook for the rest of the year, with expected profits of between $2.73 and $2.83 per share, including 20 cents per share in acquisition-related costs, on sales of $44 billion.
During the quarter ended Sept. 8, despite acquisition costs and one fewer week, Supervalu did post record net earnings of $148 million vs. $132 million last year, an increase of 12 percent.
The company also posted record earnings per share of $0.69 during the period vs. $0.61 last year, an increase of 13 percent.
The results for Supervalu's fiscal second quarter 2008 and fiscal 2007 include charges for one-time acquisition related costs of $19 million and $16 million or $0.05 and $0.04 per diluted share, respectively, the company said.
Net sales in the earnings period, which included 12 weeks of combined results compared to 13 weeks in the year ago period, slid to $10.2 billion vs. $10.7 billion last year. Supervalu said the estimated sales impact of one less week of acquired operations in the second quarter is approximately $450 million, or approximately 3 cents per share. When adjusting for the extra week in the year-earlier quarter, earnings rose 19 percent.
For the half year, Supervalu said it earned $296 million, or $1.37 per share, up from $219 million or $1.21 per share during the first half of last year. Revenue rose to $23.45 billion, up from $16.45 billion a year ago.
The company, which is halfway through a three-year transformation program, remains "on track with virtually every key metric" as mapped out following its acquisition of 1,100 of Albertsons' premier retail properties in June 2006, Noddle said during the call.
"Through the first half of fiscal 2008, we are on track, delivering the fifth consecutive quarter of double-digit earnings per share growth on the heels of our record-setting results during fiscal 2007."