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Analysts Dissect Supervalu’s Plan to Cut 800 Positions

MINNEAPOLIS — Supervalu here said last week it plans to reduce its national workforce of office employees by approximately 800 positions over the next couple of weeks — a move analysts said will result in pretax savings exceeding $30 million.

The company said the majority of the cutbacks will take place by Feb. 25, the close of its fiscal year.

The reductions will not affect store-level employees, Supervalu said, but rather will affect personnel at all company offices and across most departments.

“These reductions are necessary to help further strengthen and accelerate Supervalu’s business turnaround in a very competitive marketplace,” said Craig Herkert, president and chief executive officer. “These changes will allow us to better connect with customers and put more authority in the hands of people who interact more closely with our customers.”

The company said the cutbacks are part of its overall strategy to deliver more competitive pricing for customers by reducing costs.

Karen Short, an analyst with BMO Capital Markets, New York, said the cost savings should be material, given the reductions in salary and benefit costs.

“For example, if we assume an average annual salary per employee of around $30,000 and assume healthcare and benefits of around $5,000, total savings associated with this reduction could be around $32 million pre-tax, or 9 cents in earnings per share after-tax.

“The vast majority of these savings will be used to offset cost increases in other areas of the business, as well as to fund additional price investments,” Short said.

Another analyst, who declined to be quoted by name, estimated the potential savings at $35 million.

Meredith Adler, an analyst at Barclays Capital, New York, told SN, “I applaud this move. Companies have to have cost structures that match revenues, and the revenue environment is tough across the board, not just for Supervalu.”

Andrew Wolf, an analyst at BB&T Capital Markets, Richmond, Va., said he believes the head-count reduction is necessary to help Supervalu fund price cuts.

“I think the company need to invest more in price, and it can achieve that by streamlining the organization to eliminate overhead and lower the break-even point and then use that money to fund the price investment,” he told SN.

Supervalu said the reductions will include current positions and open jobs that will not be filled.

The company said 149 employees whose IT jobs will be eliminated will have the opportunity to apply for positions with Tata Consulting Services, an India-based company that is already providing some outsourcing services for Supervalu and that will take over more of its IT work over the next few months.

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