MINNEAPOLIS -- Supervalu here said last week it is opening two varieties of limited-assortment combination stores, each with a different banner.
During a conference call with analysts to discuss results for the third quarter and 40 weeks ended Nov. 29, Jeff Noddle, chairman and chief executive officer, Supervalu, explained that Deals-bannered stores will offer no perishables but a range of other food items -- including frozen food, dairy and some other refrigerated products -- all priced at $1, along with general merchandise, also priced at $1.
In contrast, Noddle said, Save-A-Lot-bannered stores will feature a wider range of food items at varying prices, along with $1 general merchandise.
He added that the company plans to open 110 to 140 limited-assortment combination stores, both corporate and licensee-owned, next year, and convert 40 to 50 existing limited-assortment stores to one or the other of the combination store formats.
In the last year, the company has added 153 new or converted combination stores, according to Noddle. He cited as one of the most important specific business accomplishments of the quarter "the continued, positive, comparable-store sales at Save-A-Lot, enhanced by the impact of the addition of their dollar general merchandise."
Other issues addressed during the call included:
The 28-day strike in the St. Louis area during October. Commenting on the settlement, Pam Knous, chief financial officer, Supervalu, said, "We were able to obtain some level of cost-sharing on both medical and pharmacy costs through co-pays and deductibles, as well as requiring spouses to use their own employer coverage if available, as well as more restrictive eligibility requirements for new employees."
Knous also said the company gained flexibility in terms of setting schedules and task assignments, "resulting in overall improvement in store productivity."
The results of the asset swap with C&S Wholesale Grocers, Brattleboro, Vt., through which Supervalu acquired the Midwestern supermarket distribution business that formerly belonged to Fleming Cos., Dallas, in exchange for Supervalu's distribution business in New England.
Noddle observed, "The transition of this business was seamless. We began to service these retailers immediately through our own facilities, and quickly absorb inventory and equipment into our existing network. We also absorbed all related start-up costs, which were not insignificant, in the third quarter."
The company's exit from the Denver market, where it sold four of nine stores and a distribution center to Kroger Co., Cincinnati. Noddle called it a "rationalization of markets," and noted he expects to see more of the same.
"I think you will see more square footage being closed in some markets or being recycled to other operators, who might combine it with nearby facilities or relocate the facilities," he said. "The end result is a rationalization of the industry that will continue for the next couple of years."
Supervalu's plan to operate a distribution facility dedicated to serving SuperTarget stores, the supercenter format of Target Corp., Minneapolis. Noddle said starting Jan. 8, Supervalu will transfer the service of 49 SuperTarget stores in Texas, Oklahoma, Kansas, Louisiana, Colorado and Utah to a warehouse Supervalu is leasing in Fort Worth, Texas.
The completion of the conversion of all 15 Baltimore-area Metro Foods supermarkets to Supervalu's Shoppers Food Warehouse banner. Noddle called it "a perfect example of investing in key markets to drive comp-sales performance."
Supervalu's guidance for the current fourth quarter and fiscal year, and next year. Noting this year's fourth quarter benefits from an extra week, Noddle said guidance for the quarter is 67 cents to 73 cents, with comps increasing 1% to 2%, while guidance is $2.04 to $2.10 for the current fiscal year. Next year, Noddle said earnings per share are expected to be between $2.30 and $2.45. This estimate, he noted, is based on three assumptions: a recovering economy, in-market store expansion, and "a modest inflationary environment" of 1% to 2%.
The company's capital budget for the next fiscal year. Noddle said total capital spending is projected to be $425 million to $450 million, with 80% devoted to retail. Along with the new and converted limited-assortment combination stores, store development plans include eight to 10 new regional-banner stores and 30 major remodels.
In the 12-week quarter, net sales increased 2.2% to $4.7 billion, and comparable-store sales grew 3%. Net income, however, declined 14.9% to $48.6 million, and earnings per share were 36 cents, compared with 43 cents in last year's third quarter.
Supervalu attributed the decline in earnings to four factors, which, it said, lowered earnings by 16 cents per share in the quarter: its exit from Denver, an early bond redemption, taxes on its asset exchange with C&S, and the St. Louis supermarket strike. The company noted that, excluding the effects of the supermarket strike, comps would have risen 4.3% in the third quarter.
For the 40-week period, net sales rose 4.8% to $15.2 billion, net income fell 4.5% to $184.5 million, and earnings per share were $1.38, vs. $1.44 in the comparable period last year.
