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Supervalu Inc. (SVU - Analyst Report) posted adjusted earnings per share of 14 cents for the first quarter of fiscal 2014 ended Jun 15, 2013, much higher than the Zacks Consensus Estimate of 4 cents per share. The results were much better than the loss of 8 cents suffered by the company in the comparable prior-year quarter.

Adjusted earnings exclude an after-tax charge of $139 million or 57 cents per share related to asset-impairment and employee severance.

The better-than-expected results were due to higher operating earnings following effective cost-reduction initiatives.  

Revenues and Margins

Supervalu’s total sales dipped 1.5% to $5.16 billion from $5.24 billion in the year-ago quarter due to lower customer spending and macroeconomic headwinds. Sales, however, surpassed the Zacks Consensus Estimate of $5.14 billion backed by improved same-store sales at all the segments.

Gross margin inflated 30 basis points (bps) to 13.8% in the quarter on the back of lower infrastructure costs following the infrastructure cost reduction initiatives taken up by the company in the previous quarter.

Segment Details

Net sales at Retail Food declined 2.9% to $1.43 billion in the first quarter of fiscal 2014 from $1.47 billion in the prior-year quarter. Results were affected by a same-store sales decline of 3.0% due to aggressive pricing by its peers and incremental price investments by Supervalu. Operating margin in the segment inflated 260 bps to 3.0% in the reported quarter on the back of disciplined cost cutting measures.

Net sales at Save-A-Lot dipped 1.6% to $1.27 billion from $1.29 billion in the year-ago quarter. The decline was due to negative same store sales of 1.9%. Save-A-Lot's operating margin remained flat at 4.5% of sales as cost reduction initiatives were offset by incremental price investments.

Net sales at the Independent business declined 0.6% year over year to $2.5 billion in the quarter. Lower spending by existing customers hurt sales in this segment. The Independent business’ operating margin inflated 10 bps to 2.8% during the quarter.

Other Financial Update

Cash and cash equivalents of Supervalu were $76.0 million as of Jun 15, 2013, versus $72.0 million as of Feb 23, 2013. Long-term debt and capital lease obligations were $2.9 billion as of Jun 2013, compared with $2.8 billion as of Feb 23, 2013.

On Mar 18, 2013, as a part of its broad-based strategic alternatives, Supervalu sold Albertson's, Jewel-Osco, Acme, Shaw's and Star Market chains, comprising a total of 877 stores, to equity firm, Cerberus Capital Management LP, for $3.3 billion. The company streamlined its operations in order to focus on Save-A-Lot discount stores, as well as its smaller regional chains – Cub, Farm Fresh, Shoppers, Shop 'n Save and Hornbacher's.

Supervalu carries a Zacks Rank #1 (Strong Buy). Other diversified retailers worth considering include Green Mountain Coffee Roasters Inc. (GMCR - Analyst Report)), Ingles Markets, Incorporated (IMKTA - Snapshot Report) and Spartan Stores Inc. (SPTN - Snapshot Report). All these companies carry a Zacks Rank #1 (Strong Buy).

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