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Supervalu to Shutter 60 Stores to Raise Cash

“Today’s announcement reflects our commitment to move with a greater sense of urgency to reduce cost." — Wayne Sales, CEO, Supervalu

MINNEAPOLIS — Supervalu last week said it would close 60 struggling stores including 19 Southern California  Albertsons locations and 22 Save-A-Lot discount stores, in an effort to cut losses and generate cash from the sale of their underlying real estate.

The company said the majority of the stores would close before Dec. 1. The moves reflect an initiative announced under Wayne Sales, its new chief executive officer, to move with greater urgency to reduce costs as it pursues an operational turnaround.

Wayne Sales“These decisions are never easy because of the impact a store closure has on our team members, our customers, and our communities,” Sales (right) said in a statement. “Today’s announcement reflects our commitment to move with a greater sense of urgency to reduce costs and improve shareholder value.”

Stores set for closure include 27 Albertsons locations (19 in Southern California,  including a previously announced closure, and eight in the Intermountain region); four Acme stores; a Jewel-Osco store that was previously announced; and 22 Save-A-Lots. Another eight stores were also to be closed but the company withheld specific information on them, citing ongoing contractual discussions. Those stores are expected to close prior to the end of Supervalu’s fiscal year on Feb. 23.

'Small But Important Step'

Ajay Jain, an analyst covering Supervalu for Cantor Fitzgerald, in a research note last week said the move to close stores was a “very small but important step” toward rationalizing operations. “The much larger question in relation to the ongoing strategic review process remains whether Supervalu can identify suitable buyers for major pieces of its retailing and wholesaling operations (or for the entire integrated business),” he said.

John Heinbockel of Guggenheim Securities said the closures would be positive for Supervalu’s competitors in Southern California, Kroger and Safeway, which operate the Ralphs and Vons chains, respectively. Heinbockel said those companies could realize sales gains of $50 million apiece as a result.

Heinbockel estimated the closures would reduce annual sales for Supervalu by $636 million, assuming $15 million in sales per store from traditional stores closing and $3 million per Save-A-Lot closure. “We are surprised by the Save-A-Lot closings,” he said, “since this format should fare well in the current environment.”

Read more: Supervalu Completes Debt Refinancing

Supervalu said it estimated that closing the locations would generate between $80 million and $90 million as a result of monetizing owned real estate, eliminating cash operating losses, and selling departmental assets. Supervalu owns the real estate for approximately one-third of the food stores being closed. Cash generated from these actions will be used to reduce outstanding debt and for other general corporate purposes. These closures will also be accretive to net earnings, Supervalu said.

As a result of the closures, Supervalu expects to record a pre-tax charge of $80 million to $90 million this fiscal year, with $50 million to $55 million expected during the second quarter.

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