Supervalu Generates Strong Q1 Earnings, Considers Save-A-Lot Spin-Off

Supervalu is exploring a spin-off of its Save-A-Lot business. As Supervalu revealed its first quarter results, the company, which operates Save-A-Lot value grocery stores, more mainline supermarkets and a distribution business for independent operators, announced that it had begun preparations that would allow for a possible spin-off of the value grocery operation into a stand-alone, publicly traded entity.

In the first quarter, Supervalu generated net earnings from continuing operations of $63 million, or 23 cents per diluted share, which included $2 million in after-tax structural and tax planning fees. Adjusted for the item, net earnings from continuing operations were $65 million, or 23 cents per diluted share. Net earnings from continuing operations for last year’s first quarter were $48 million, or 18 cents per diluted share, which included $2 million in after-tax net charges and costs for employee severance and debt financing activities. Adjusted for the items, net earnings from continuing operations in the quarter were $50 million, or 18 cents per diluted share.

Diluted earnings per share beat a Thomson Reuters analyst average estimate by three cents.

Net sales were $5.41 billion, the company stated.

During the first quarter, Save-A-Lot net sales were $1.41 billion versus $1.36 billion in the year-ago period, reflecting the impact of new store openings and network identical store sales up 0.6%. Identical store sales for corporate stores within the Save-A-Lot network, as opposed to franchised operations, were up 2.8%.

Save-A-Lot operating earnings in the first quarter were $51 million compared with $46 million in the period a year prior.

Retail Food net sales were $1.47 billion versus $1.43 billion in last year’s second quarter, with new store openings boosting revenue, partially offset by negative identical store sales of 0.3%.

Retail Food operating earnings were $33 million versus $30 million in last-year’s quarter, according to Supervalu.

“We delivered sales increases across all three business segments and managed our costs very well in this first quarter,” said Supervalu president and CEO Sam Duncan. “I’m pleased with our bottom line and ability to manage to these results in spite of softer sales at Save-A-Lot and in our Retail Food stores. We have plans in place and operationally we remain well positioned.”

Supervalu engaged Barclays and Greenhill to serve as financial advisors for the potential Save-A-Lot spin-off, and Wachtell, Lipton, Rosen and Katz as legal advisor. Supervalu pointed out that it had set no timetable for the separation and that such a move might not occur at all.

“Save-A-Lot is a leading national hard discount retailer with over 1,300 total stores, comprised of approximately 430 corporate stores and approximately 900 stores operated by licensee owners, and we believe Save-A-Lot has significant growth potential. Over the last two and a half years, Save-A-Lot has repositioned its brand, refocused its efforts on fresh produce and meat, and remerchandised its stores and product offerings to better appeal to a broader group of customers. We believe a separation of our Save-A-Lot business could allow Save-A-Lot, our independent business and our retail food banners to better focus on their respective operations, and pursue strategies specific to their business characteristics and growth potentials, for the benefit of our shareholders, customers, licensees and employees,” said Duncan.

However, the Save-A-Lot spin-off may not occur, Supervalu asserted, and the company has not set a timetable for its execution.