MINNEAPOLIS — Supervalu here said last week it is imposing tighter expense controls and other cost-saving activities “to create a foundation for sales momentum and future growth” once the economy turns.
That disclosure followed lower financial guidance after the release of first-quarter results, which showed record earnings of $162 million on flat sales and a drop in identical-store sales of 0.9%.
Supervalu said it was lowering earnings guidance for the year to a range of $3 to $3.16, compared with earlier guidance of between $3.06 and $3.22; it also lowered guidance on ID sales, excluding fuel, to approximately 0.5%, compared with previous guidance of 1% to 2%.
Jeff Noddle, chairman and chief executive officer, said the fiscal year will benefit from a 53rd week, which is expected to boost annual sales by approximately $800 million to $45 billion, and to boost earnings by 6 cents per share.
Noddle told analysts that the change in guidance has no relation to Supervalu's ongoing integration of Albertsons, which he said is on track to achieve $40 million to $50 million in synergies this year, as anticipated.
Three factors are driving the change in guidance, he said: “continual increases in energy costs, particularly fuel and utilities; non-cash LIFO [inventory] charges, which are expected to double with food inflation approximating 4% to 5%; and external economic weakness impacting our customers.
“We have started cost-reduction initiatives that we are fairly certain will deliver this year, which should offset some energy and LIFO cost,” he pointed out. Sales in the retail food sector fell 0.7% to $10.3 billion, reflecting the impact of store closures and the drop in ID sales, which the company attributed in part to higher levels of competitive openings. In the distribution business, sales rose 4.6% to $3 billion, reflecting the pass-through of inflation, new business growth and low customer attrition.
Noddle said negative ID sales trends in the first quarter have remained “about the same — maybe slightly better” during the second quarter. However, the guidance for positive ID sales for the year is based on expectations of stronger second-half sales as the company gets “more scale in our remodels,” Noddle said, as well as better returns on its merchandising and marketing efforts.
While Supervalu is making price investments in certain banners, the Albertsons stores remain “priced very much in the same position” as when they were acquired in June 2006, Noddle pointed out. However, the economic downturn may hasten changes in that positioning, he suggested.
“We've said that over a long period of time we would migrate our price position in a lot of the Albertsons properties to different positions — some as everyday low price, some with a promotional approach — and in this environment we're just going to have to do some sooner rather than later.”
While most offensive remodels are producing sales gains of 8% or slightly more, that has not been the case at all stores, Noddle indicated. “In California, for example, we would have expected bigger returns, [but] it's been a little more difficult in some of those markets because of the housing situation.”
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