MINNEAPOLIS -- Supervalu here last week said its Save-A-Lot licensees would remodel 200 to 300 stores this year as the company focuses on rebuilding flagging sales at the limited-assortment chain.
In a conference call with analysts discussing results for the 16-week first quarter that ended June 18, Jeff Noddle, chairman and chief executive officer, Supervalu, said Save-A-Lot operators would spend $20 million to $30 million upgrading older stores to the chain's new look.
"We are very confident that this upgrade initiative will bring sales benefits, as sales at our company-operated stores that have kept current are performing better than our licensees," Noddle said.
Comparable-store sales at Save-A-Lot were negative in the first quarter, and comparable-store sales overall at Supervalu, including the company's regional banners, were down 0.4% for the period.
Save-A-Lot had exceptionally strong sales in the first and second quarters of last year because of its "Just look at the receipt" ad campaign, Noddle said, making comparisons more difficult this year. He also said high gasoline costs might be affecting spending by the banner's core base of lower-income consumers.
In an effort to rebuild traffic, the company launched a "29 items for 29 cents" campaign toward the end of the first quarter.
In addition to the difficult comparisons with the performance of a year ago, Noddle said Save-A-Lot also has been facing aggressive competition from Winn-Dixie stores in Florida, where that chain has been especially aggressive on price. Supervalu operates more than 20% of its stores in Florida, Noddle said.
On the other hand, Winn-Dixie's exit from several markets outside its core operating area is expected to benefit Supervalu's store and wholesale customers in those areas. Noddle also confirmed previous reports that Supervalu had aggregated bids for several Winn-Dixie locations on behalf of its customers in the Southeast. After an auction for the stores in New York last week, it appeared that 18 of those bids were successful.
Supervalu also plans to cut back on the addition of new Save-A-Lot stores slightly this year, to an expected 65 to 85 new openings, Noddle said.
Several of the company's regional banners performed well in the first quarter, Noddle said, but competition has been especially difficult in Pittsburgh, where Supervalu operates 20 Shop 'n Save supermarkets.
Retail sales grew 1.7%, to $3.2 billion, overall, while retail operating earnings declined 1%, to $127.5 million.
The company said its distribution business, which it has begun calling "supply chain services" to better reflect its expanding scope of operations, had operating earnings of $71.4 million in the first quarter, up 13.4%, primarily reflecting the higher-margin, third-party logistics business. Sales in the division were up slightly at $2.79 billion.
Noddle said the company was on track to open its new produce-distribution division, called W. Newell & Co., in Champaign, Ill., next month, and was preparing to open its new high-tech, automated warehouse in Hopkins, Minn.
As a result of these and other investments, Noddle said capital expenditures for the year would be about $500 million to $550 million, or about $100 million more than last year, split evenly between retail and wholesale investments.
1st-QUARTER RESULTS
Qtr Ended: 6/18/05; 6/19/04
Sales: $5.97 billion; $5.91 billion
Change: +1%
Comp-store: -0.4%
Net income: $91.2 million; $149.4 million*
Change: -39%
Inc/Share: 64 cents; $1.04*
* Year-ago net income included a one-time net gain of $68.3 million, or 47 cents per share, from the sale of WinCo Foods.
