MINNEAPOLIS -- Supervalu here said last week restructuring efforts in its retail and distribution segments are moving forward, with a complete turnaround anticipated in fiscal 2003.
At the company's annual meeting, Michael Wright, Supervalu chairman, told shareholders, "Our stronger-than-expected first-quarter results are a sign we're moving in the right direction."
In its first-quarter results, reported the day before the meeting, Supervalu said it had earnings per share of 45 cents, 2 cents above the First Call consensus of Wall Street analysts.
The meeting marked the transfer of power from Wright -- who had at last year's annual gathering announced his intention to remain chairman but retire as chief executive officer -- to Jeff Noddle, president and now CEO.
Wright said several factors negatively impacted the company's financial performance in fiscal 2001, including increased "competitive intensity" in many markets and the loss of $1.7 million in business from Kmart Corp., Troy, Mich. Supervalu decided last year not to bid on becoming the sole supplier for Kmart's supercenter business, leaving the field open for Fleming Co., Dallas, to win the contract.
"This was our decision," Wright stressed, referring to the parting with Kmart.
Noddle reviewed the company's progress on its restructuring program. On the distribution side -- distribution accounted for 60% of sales and 45% of earnings in 2001 -- Supervalu plans to turn itself into what Noddle termed "a supply-chain logistics company." It will decrease its warehouse square footage by 10% by year-end and, by 2003, reconfigure 13 of its remaining 30 distribution points to group similar products together, enhancing just-in-time delivery and cutting costs.
These steps will help Supervalu strengthen its third-party logistics business, Noddle said. One of those companies that's growing quickly is Target, Minneapolis, he noted.
Supervalu currently supplies 18 SuperTarget and 70 Target stores and expects that number to grow to 30 SuperTargets and 170 Targets by year-end fiscal 2002, Noddle said.
On the retail side, Noddle highlighted Supervalu's limited-assortment, extreme-value chain, Save-A-Lot, which targets households with incomes of less than $35,000 and has outperformed other stores. Its 15,000-square-foot units feature 1,250 of the most frequently purchased products, relying heavily on custom brands. There are 921 Save-A-Lot stores in 36 states, with 100 to 150 more expected by year-end. "We believe [the chain] can sustain 2,500 to 3,000 stores," said Noddle.
The meeting was protested by union supporters on behalf of Cincinnati-based employees of Supervalu's biggs chain, who they say are not receiving competitive wages and benefits. Responding to a question from an activist, the company said it would meet with a representative of the group.
The day before the meeting, in a conference call with analysts following the release of first-quarter financial results, Noddle said the Chicago-area Cub stores have reversed their downward spiral, while the Save-A-Lot limited assortment stores are thriving in the slowing economy.
On the distribution side, Noddle said Supervalu anticipates it may be able to pick up some business from Fleming customers who are unhappy with the emphasis Fleming is placing on its Kmart account.
"We think the kind of agreement Fleming has with Kmart will leave some customers uncomfortable, and we are prepared and ready if that happens," Noddle said. "We know all those customers very well, and our plan is to capture the business of any Fleming customer who is not comfortable with that arrangement -- and we expect some of that to occur."
Sales for the 16-week quarter ended June 16 fell 0.3% to $6.9 billion, while net income fell 15.1% to $59.4 million.
Supervalu said sales in its retail food segment increased 4.5% to $2.8 billion and operating earnings fell 16.3% to $91.6 million, while sales in the food distribution segment fell 3.4% to $4.1 billion and operating earnings rose 1.2% to $75.8 million. Comparable-store sales in the retail segment fell 1.5% -- "which was better than I had anticipated," Noddle said -- compared with a decline of 5% in the fourth quarter, "and our goal is to reverse negative comps and end the year with flat comps," he added.
The improving comps were the result of several factors, Noddle said, including better performance at all Cub stores, including those in Chicago, and ongoing increases at Save-A-Lot limited assortment stores. The closings of 11 Cubs in Indiana and 19 Lanecos in Pennsylvania during the quarter had only a negligible impact on comps, he added, benefiting the results by less than 100 basis points.
Noddle said the improvements at the Chicago Cub stores are due to the appointment of a new management team there, plus a renewed emphasis on everyday low pricing, better execution and a new decor and signage package at three locations that will be expanded to seven more later this year.
Noddle also said Supervalu anticipates adding $350 million worth of new business this year across all segments.