What is in this article?:
- Supervalu seen back on track
- 'Impact on customer perception'
“We continue to believe management is implementing the right strategies as the company works to improve business fundamentals.”
—SCOTT MUSHKIN, Wolfe Research
Investments in pricing, a shift toward decentralization, and efficiencies in wholesaling are beginning to pay dividends for the reconstituted Supervalu, analysts said.
The Minneapolis-based company, which last year returned to its former incarnation as a three-legged entity — wholesale distributor, regional chain operator and Save-A-Lot licensor — showed some signs that it was starting to turn its business around after struggling for years under the weight of its 2006 Albertsons acquisition.
“We continue to believe management is implementing the right strategies as the company works to improve business fundamentals,” said Scott Mushkin, an analyst with Wolfe Research, New York, after Supervalu posted gains in identical-store sales and a $26 million profit for the fourth quarter of its fiscal 2014. “With ID sales improving, Supervalu’s efforts at both retail and Save-A-Lot appear to be gaining traction.”
He cautioned, however, that EBITDA would likely continue to be pressured as Supervalu continues to invest in lower pricing to drive sales volume.
John Heinbockel, an analyst with Guggenheim Securities, New York, said he was “encouraged” by Supervalu’s performance in the quarter.
“It is clear to us that meaningful, but manageable, price investments will be made in [calendar] 2014, funded by a variety of sources,” he said in a research note. “Importantly, though we expect these investments will prevent EBITDA from rising, we believe that a sufficiently deliberate approach should limit the downside case while also better positioning the company to return to growth at some point in [calendar] 2015.”
Fourth-quarter Save-A-Lot net sales were $999 million — up 3.1%, including a 2.1% gain in ID sales. ID sales for corporate stores within the Save-A-Lot network were up 3.5%. Operating earnings in the Save-A-Lot division were down about 12% compared with adjusted operating earnings a year ago, to $43 million, which Supervalu attributed in part to incremental price investments.
Supervalu said licensees have begun adopting some corporate programs into their stores, including new directional sign packages, more prominent displays of price investment items, and newly introduced horizontal merchandising sets. In a multi-store test with one large licensee group, Supervalu said it has “seen high single-digit sales increases after working with the Save-A-Lot team on store resets and improved store merchandising.”
“We have seen great success with the changes made in bothand produce, and I believe we still have upside as we further look at new merchandising opportunities and focus on even stronger in-store execution,” Sam Duncan, Supervalu’s president and CEO, said in a conference call with analysts.