MINNEAPOLIS -- Supervalu here said last week it will close an undisclosed number of stores -- including possible exits from some markets -- and at least four distribution centers and reduce its work force by 4,500 people this year as part of a restructuring designed to position the company for growth in fiscal 2003.
In announcing financial results last week for the year and fourth quarter ended Feb. 24, Supervalu said it took a net restructuring charge of $153.9 million to cover the anticipated cutbacks.
In a conference call with industry analysts, Mike Wright, chairman and chief executive officer, said the restructuring is designed to create "a new platform for growth" following a companywide asset review in the wake of the impending loss of $1.7 billion in revenues from its largest customer, Kmart Corp., Troy, Mich. Supervalu withdrew from the bidding to retain that account earlier this year, with the account going to Dallas-based Fleming, which has shared supply responsibilities for Kmart with Supervalu for the last few years.
"We are in the process of unwinding that business," Wright said, "and we are taking the appropriate steps to build upon our strengths and successes and improve our returns."
According to Jeff Noddle, president and chief operating officer, "To establish a new platform for growth and to compete more effectively, we will reconfigure our business base to lower our cost structure and become more focused on those markets or business activities where we will generate growth and higher returns.
"We are committed to the successful execution of many activities during fiscal 2002 that will set the stage for a strong fiscal 2003 -- with the economy as an unpredictable backdrop to our plans," Noddle said.
The restructuring will involve several aspects, the executives said, including the following:
Exiting non-core retail markets and selling stores in other markets "to help focus our capital in the right markets and improve overall returns," Wright said.
Neither Wright nor Noddle would indicate what markets Supervalu might exit.
"We're in active discussions to decide what markets to pull out of, and we will move as quickly as we can," Noddle said. "We've closed some stores already, but to avoid compromising our discussions, we're not ready to disclose specific markets."
He said there are some regions where Supervalu might consider closing "a scattering of stores, and there are one or two we could decide to exit completely.
"But we've definitely determined which markets we can grow our share in and we plan to allocate our resources in those markets. Where they are will unfold throughout the year."
Closing distribution centers in Greenville, Ky., as previously disclosed, and in Atlanta, Ga., Hammond, La., and Great Falls, Mont. "It's only those four at this point, but we are considering additional closings," Noddle said.
Asked if Supervalu risks losing some of the volume currently serviced out of those facilities, Noddle replied, "We've factored that into the numbers, but it varies by location. We expect to keep most of the volume because we have distribution centers near the ones that are closing to adequately serve those customers.
"So we anticipate some attrition but not a substantial amount."
Becoming more aggressive at its price-impact formats, including Cub Foods and bigg's.
"We've already reset our Cub stores in Chicago to reflect the price-impact niche more strongly," Noddle said, "and that will carry over to other Cubs, including those in the Twin Cities. In addition, we have new promotional programs scheduled to begin in May, and we've identified certain weaknesses at Cub and bigg's that we will address with new customer service programs."
He said the re-hiring last year of John Hooley as president of the Cub Foods division was intended to reemphasize the format's roots.
According to Wright, "We've strayed from Cub's original roots over the last 18 months, but Hooley is getting us back to those roots, which started with his family." He added that two new Cubs that opened late last month are doing well with the more focused pricing strategy.
Reducing Supervalu's work force by 4,500 employees. The company did not provide details on those plans.
Supervalu said sales for the year rose 14% to $23.2 billion and net earnings rose 1.7% to $23.2 billion, excluding restructuring charges and other adjustments. For the 12-week quarter, sales fell 1% to $5.5 billion and net income fell 15.2% to $61.1 million, excluding the charges.
The company said the restructuring adjustment of $153.9 million, or $1.16 per share, encompasses consolidation of distribution facilities, plans to exit certain non-core retail markets, disposal of underperforming retail stores, the work force reduction and other writeoffs.
In the retail food segment Supervalu said sales increased 15.9% to $9.4 billion for the year and 2.9% to $2.4 billion for the quarter, while same-store sales fell 4% for the year and 5% for the quarter; operating profits rose 1.5% to $345.8 million for the year but fell 24.6% to $81.6 million for the quarter.
Wright said ongoing competitive challenges in the Midwest -- resulting from the growth of Wal-Mart Supercenters and from the competitive reactions to those stores -- has resulted in intense competition in certain markets in Illinois, Indiana and Ohio "that was the principal cause of an earnings shortfall during the second half of the year."
In Supervalu's food distribution segment sales increased 12.8% to $13.8 billion for the year and fell 6.1% to $3.1 billion for the quarter, while operating profits rose 23.3% to $275.4 million for the year and 7.5% to $74.2 million for the quarter, reflecting the full-year benefits of the Richfood acquisition and other integration synergies.
