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    Supervalu Stock Suffers on Nervous Outlook

    MINNEAPOLIS - Admitting his company is facing "the tougher part of the integration now," and also is facing an acutely nervous consuming public, c.e.o. Jeff Noddle saw the share price of Supervalu drop 17 percent yesterday despite a record 25 percent earnings increase for the third quarter.

    MINNEAPOLIS - Admitting his company is facing "the tougher part of the integration now," and also is facing an acutely nervous consuming public, c.e.o. Jeff Noddle saw the share price of Supervalu drop 17 percent yesterday despite a record 25 percent earnings increase for the third quarter.

    Sales at Supervalu here slipped 4.2 percent to $10.2 billion in the quarter, which had one less week worth of sales than the year ago.

    The lack of an extra week cut cut about $500 million from the quarter's sales, Supervalu said. But it was a reduced full-year profit and same-store sales outlook, amid worries over consumer spending trends are likely to dive in coming months thanks to inflation, that spooked the market and dragged Supervalu's stock price down.

    This followed a reoccurring trend with the company's stock, which has been down some 20 percent already this year.

    With $7.9 billion in retail net sales vs. $8.4 billion last year, Supervalu's latest reported quarter ended Dec. 1 included 12 weeks of combined results vs. 13 weeks in the third quarter of fiscal 2007.

    Fueled by the Albertsons acquisition, Supervalu rang up $141 million in net income, or 66 cents a share, for the three months ended Dec. 1, up from $113 million, or 54 cents a share, in the year-ago third quarter.

    Same store sales hit 0.5 percent excluding fuel, on par with Supervalu's second quarter, and down from 1.2 percent for the company's first quarter.

    Against this backdrop, Supervalu forecasted same store sales growth of 0.5 percent to 1 percent for its fiscal year ending in February, down from its previous target of 1 percent to 2 percent.

    "Our third quarter results continue to benefit from the transformational acquisition in 2006 as we deliver the sixth straight quarter of double-digit earnings per share growth," Jeff Noddle, Supervalu's chairman and c.e.o. "We are pleased with our overall results, despite some headwind from softer than expected retail sales in the quarter."

    During an analyst conference call, Noddle said while some of the financial benefits targeted to occur following the Albertsons acquisition are taking longer than expected, his company is sensing heightened caution by consumers in places like Southern California and Las Vegas, which are being hit by the mortgage crisis.

    "I don't think what I've seen so far says to me that we put the 'R' word around this," said Noddle, referring to a potential recession that many U.S. economists believe is close to materializing. "I think the next few months will be very telling in how the consumer feels about their outlook and their position."

    From a recent historical perspective, Noddle said the "consumer and competitive environments are probably tougher than we would have anticipated looking back two years ago" from when the outset of the Albertsons acquisition. "We are in the tougher part of the integration [process] now."

    Supervalu earmarked $1.3 billion in capital expenditures for fiscal 2009, the same as this year, for roughly 165 major store remodels, including 15 new traditional supermarkets and 55 to 65 limited-assortment stores.

    Noddle said Supervalu's fiscal 2008 earnings per share are expected to increase by approximately 17 to 19 percent, "equating to our second full year of double-digit earnings per share increases. As we have now passed the halfway mark of our three-year journey since the acquisition of Albertsons's premier retail properties, we are pleased with our progress and have many programs underway to improve our long-term sales performance including Premium, Fresh and Healthy offerings, rollout of national and local merchandising programs and ongoing customer service initiatives."

    With estimated annual sales of approximately $44 billion, Supervalu holds leading market share positions across the U.S. with its approximately 2,450 retail grocery locations. Through its supply chain network, the company provides distribution and related logistics support services to more than 5,000 grocery endpoints across the country.

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