MINNEAPOLIS -- Supervalu here said last week it plans to reduce its capital budget by $100 million in fiscal 2002 to conserve cash.
The company said it expects to allocate $475 million to capital spending next year, compared with $575 million projected for fiscal 2001 that ends in February.
Pam Knous, executive vice president and chief financial officer, said Supervalu will take "a more targeted approach" in its capital program next year in an effort to get more efficiencies out of existing operations.
She said more than half the budget will be spent on retail as Supervalu seeks to build additional stores in key markets, with a strong emphasis on Save-A-Lot limited assortment stores, and to accelerate the pace of store remodelings.
Knous made her remarks during a conference call with securities analysts that followed the release last week of financial results for the third quarter ended Dec. 2, which showed flat sales, an earnings decline of 19.2% and a drop of 3% in same-store sales in the distributor's retail food segment -- results the company had forecast earlier this month in a pre-earnings announcement.
Supervalu said last week the shortfall resulted from efforts to shore up its retail food segment following a major expansion of Cub Food Stores in the Chicago marketplace, including increased advertising and promotional spending and a negative same-store sales performance.
Supervalu opened or purchased nine Chicago locations over the past 15 months to add to the 25 Cubs already there.
According to Jeff Noddle, Supervalu president and chief operating officer, "In retrospect, we may have stretched our resources too thin in opening so many stores, and perhaps we might have balanced that capital with more remodeling activity. But we believe all the Chicago locations have good potential and our price position there is unique, so if we can improve our execution, we think we'll be able to increase our earnings."
Noddle said Supervalu anticipates the company's financial results will begin to improve in the current quarter.
"We expect fourth-quarter results to be better than the third quarter," he said, "though comps may deteriorate slightly because of comparisons with Y2K results last year.
"By the first quarter of fiscal 2002, we think the negative trend in same-store sales will improve, and it will improve in each quarter that follows, though to what level is still unclear.
"But a year from now we anticipate same-store sales will be flat or better."
Noddle said Supervalu intends to focus on reducing store expenses in the next few months, including advertising and promotional spending and in-store labor.
"Expense ratios were higher in the third quarter because of the slow maturation of our Chicago store base," he noted. But with the return of John Hooley to oversee the Cub operations, "we are actively working to improve store execution and expense levels in Chicago," Noddle said.
He said Supervalu's retail segment was particularly hurt over the last 12 to 18 months by a large number of supercenter openings in Indiana, Ohio and parts of Illinois outside Chicago, due to expansion by Wal-Mart, Bentonville, Ark., and Meijer Inc., Grand Rapids, Michigan, "and we plan to focus on recapturing sales in those hot spots, primarily using the Cub format.
"Because Cub is price-oriented, we've always felt it is well-positioned against supercenters. But we may not have done enough remodeling of units in the Indianapolis market in the past and perhaps we've become more vulnerable. In contrast, our bigg's stores in Ohio have held up better because we've invested remodeling capital there."
He said Supervalu plans to expand the bigg's operation, with three stores under construction in the Greater Cincinnati area expected to open during fiscal 2002.
In financial results released last week, Supervalu said sales rose 1.1% to $5.4 billion for the 12-week quarter and 19.7% to $17.7 billion for the 40-week period, while net income fell 19% to $47.5 million for the quarter and rose 2.3% to $174.8 million, including the benefits of one-time items in last year's first quarter, for the nine months.
Sales in the retail food segment rose 4% to $2.2 billion for the third quarter, reflecting 130 new store openings since last year, including 101 Save-A-Lot stores, and operating earnings fell 22.4% to $68.5 million, which the company said was due to lower margins resulting from increased advertising and promotional spending and continued negative comparable sales performance.
For the 40-week period sales in the retail segment rose 21.1% to $7 billion and operating earnings grew 13.6% to $264.2 million.
Supervalu said sales in the food distribution segment fell 0.9% to $3.3 billion during the quarter due to the loss of business from Giant Food of Carlisle, Pa., which had been anticipated following Supervalu's acquisition of Richfood; operating earnings for the quarter rose 5.8% to $63.7 million.
Distribution sales for the nine months rose 18.8% to $10.7 billion and operating earnings increased 30.3% to $201.2 million.