Back to top

Image: Bigstock

SUPERVALU (SVU) Q4 Earnings Drop Y/Y, Wind-Up Plan on Track

Read MoreHide Full Article

SUPERVALU INC. released fourth-quarter fiscal 2018 results, with the top and bottom line missing the Zacks Consensus Estimate. However, sales improved year on year, buoyed by the sturdy advancement of the company’s wholesale business.

However, the retail segment continued to be dismal in the fourth quarter. In fact, this has been weighing on investors’ sentiment for a while. Evidently, shares of this grocery dealer have tumbled 49.7% in the past year, compared with the industry’s decline of 17.2%.

Well, the company has been trying to rationalize its retail operations by exiting certain banners. In this regard, alongside fourth-quarter results, management unveiled plans to sell its Shop ‘n Save and Shop ‘n Save East retail businesses. Such moves are expected to aid SUPERVALU to focus on prospective business areas, especially in the wholesale space and raise investor’s optimism in the stock. Also, the company unveiled plans to sell some of its distribution centers to strengthen its financial position.


 

That said, lets delve deeper into the fourth-quarter numbers and see where the company is headed.

Q4 in Details

The company reported adjusted earnings from continuing operations of 61 cents per share that came below the Zacks Consensus Estimate of 77 cents and plunged 23.8% year over year.

Although SUPERVALU’s net sales missed the consensus mark of $3,984 million, it advanced 42.1% year over year to 3,594 million during the fourth quarter. The top line gained approximately $840 million from Unified Grocers (acquired in June 2017), whereas AG Florida contributed $130 million. While contributions from these businesses drove results in the wholesale unit, the company’s retail and corporate segment continued to struggle.

SUPERVALU INC. Price, Consensus and EPS Surprise

 

Gross profit amounted to $356 million that depicted a 5.3% upside from the prior-year quarter. However, gross margin contracted 350 basis points (bps) to 9.9%, thanks to unfavorable business mix as Wholesale accounted for a bigger portion of total sales. Prior to this, the company witnessed gross margin declines of 310, 280 and 80 bps in the third, second and first quarters of fiscal 2018, respectively.

During the quarter, SUPERVALU’s operating earnings from continuing operations came in at $68 million. Further, adjusted EBITDA from continuing operations amounted to $117 million.

Segment Details

Wholesale: Net sales at Wholesale business surged 60% year over year to $2,872 million, mainly driven by the sales contributions from Unified Grocers and AG Florida, sales to new customers and greater sales to new stores run by existing customers. These were partially offset by reduced military sales and stores that no longer receive supplies from SUPERVALU.

The segment’s adjusted operating income totaled $67 million, up from $60 million in the year-ago quarter. However, adjusted operating margin contracted 110 bps to 2.3% due to lower margins from Unified Grocers.

Retail: Net sales in Retail dropped 0.6% to $690 million, on account of store closures — partially offset by a 0.1% gain in identical store sales. Notably identical store sales in this segment, which has been declining year over year for 11 straight quarters, depicted a turnaround for the first time in the reported quarter.

Further, the segment reported adjusted operating earnings of $1 million against adjusted operating earnings of $11 million in the year-ago quarter. Adjusted operating margin in the segment declined 130 bps. The downside was a result of lower base margins as well as increased shrink costs.

Corporate: During the quarter, fees earned under services agreements were down 23.8% to $32 million. Further, the segment reported break-even adjusted operating earnings against operating loss of $4 million in the prior-year quarter.  

Financial Update

SUPERVALU ended the quarter with cash and cash equivalents of $41 million, long-term debt of $1,724 million and total stockholders’ equity of $507 million as of Feb 24, 2018.

Further, the company’s year-to-date net cash flows generated from operating activities amounted to $135 million compared with cash generated from operating activities of $364 million in the prior-year quarter.

Other Developments

In a separate release, SUPERVALU announced definitive plans to sell eight of its distribution centers for approximately $483 million. Net proceeds after certain adjustments are expected to be close to $445 million. Management stated that the sale and leaseback of seven of these distribution centers will be completed in May, while proceeds for the remaining one are expected to be completed by October. Management stated that the benefits from such sales will be utilized to reduce the company’s debt burden.

The company also announced its intentions to sell Shop ‘n Save as well as Shop ‘n Save East. These stores form part of the company’s retail operations. We note that the company’s retail operations have long been grappling with price competition, competitive store openings and intense promotions.

Management commented that it remains on track with optimizing its retail operations by exiting businesses, such as that of Shop ‘n Save and Shop ‘n Save East. Other recent developments toward this end includes the company’s plans to sell 21 of its Farm Fresh Food & Pharmacy stores. In this regard, SUPERVALU entered into definite agreements with companies like Harris Teeter, Food Lion and the Mid-Atlantic Division of Kroger (KR - Free Report) .

While SUPERVALU’s retail business remains pressurized, management is impressed with underlying growth of its Wholesale business and is on-track with its strategies to augment the segments’ performance. Incidentally, this Zacks Rank #1 (Strong Buy) company’s buyout of Associated Grocers in the beginning of the fourth quarter, along with efficient integration of Unified Grocers, underscores the company’s focus on strengthening its Wholesale business.

Outlook for 2019

For fiscal 2019, management envisions net sales in the band of $15.5-15.7 billion. Identical store sales in the retail segment are expected in the range of flat to slightly positive.

SUPERVALU predicts net earnings from continuing operations to range from $55-73 million, while total operating earnings are expected in the band of $147-171 million. Further, the company plans to revise its definition of Adjusted EBITDA in fiscal 2019, to adhere to recent changes in accounting policies as well as to exclude stock-based compensation and certain non-service components. According to the revised definition, adjusted EBITDA from continuing operations for 2019 is expected to range between $375-400 million.

Greedy for Consumer Staples Stocks? Check These

Inter Parfums, Inc. (IPAR - Free Report) , with a solid earnings surprise history and long-term earnings growth rate of 12.3%, sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Conagra Brands Inc, (CAG - Free Report) , carrying a Zacks Rank #2 (Buy), also flaunts an impressive earnings surprise history and has a long-term earnings growth rate of 8%.

Investor Alert: Breakthroughs Pending

A medical advance is now at the flashpoint between theory and realization. Billions of dollars in research have poured into it. Companies are already generating substantial revenue, and even more wondrous products are in the pipeline.

Cures for a variety of deadly diseases are in sight, and so are big potential profits for early investors. Zacks names 5 stocks to buy now.

Click here to see them >>


Unique Zacks Analysis of Your Chosen Ticker


Pick one free report - opportunity may be withdrawn at any time


The Kroger Co. (KR) - $25 value - yours FREE >>

Conagra Brands (CAG) - $25 value - yours FREE >>

Inter Parfums, Inc. (IPAR) - $25 value - yours FREE >>

Published in