Supervalu's profit beats forecasts despite pressure on sales

With Supervalu posting another quarter of sagging sales, the company's new CEO has his hands full — but at least he understands his mission.

"Our number one, number two and number three priorities for the company in fiscal 2017 are sales, sales and sales," Mark Gross told stock analysts on a conference call Tuesday after the company posted quarterly results.

Despite weak sales, Eden Prairie-based Supervalu managed to beat analysts' profit forecasts. The company's shares rose 20 cents, or 3.8 percent, on Tuesday to close at $5.35.

But all three of Supervalu's business divisions saw sales fall for the second straight quarter.

"Results worse than feared," was the headline on stock analyst Rupesh Parikh's report on Supervalu Tuesday. "Another disappointing performance" was how Credit Suisse analyst Edward Kelly described Supervalu's fourth quarter in a research note.

Gross took over as CEO in February after the retirement of Sam Duncan, who led Supervalu for the past three years. Duncan made some progress in engineering a comeback, but sales flagged and Supervalu's stock is still well off its 52-week high of almost $11.

Gross, a grocery industry veteran, essentially introduced himself publicly to investors during Tuesday's analyst conference call. He emphasized the need to boost sales, and executives highlighted some plans to help do so, particularly with Save-A-Lot.

"Listening to the new management team, they are really focused on the top line," Parikh, of Oppenheimer, said in an interview. "They made that clear on the [conference] call."

Kelly agreed, writing that management "clearly acknowledged results weren't good enough and laid out seemingly credible initiatives to boost sales."

Supervalu, which owns Cub Foods, reported a profit of $49 million, or 18 cents per diluted share, from continuing operations for the three months ended Feb. 27, the fourth quarter of its fiscal year. That's up from $36 million, or 13 cents a diluted share, in the same period a year ago.

Adjusted for $15 million in one-time charges, Supervalu earned $64 million, or 23 cents per share. That's 5 cents higher than the consensus forecast from analysts polled by Thomson Reuters.

Sales fell 3 percent to $3.95 billion, below analysts' estimates of $3.99 billion, and that's where the trouble starts.

Supervalu's wholesale grocery division, which accounts for 44 percent of total revenue, had $1.74 billion in sales, compared with $1.83 billion last year, excluding sales from an additional week in 2015. The drop was due to lost accounts and lower sales to existing customers, Supervalu said. Wholesale operating earnings fell to $50 million from $63 million.

At Save-A-Lot, Supervalu's national discount chain, total sales were flat at $1.06 billion, while adjusted operating earnings were $25 million, down from $50 million a year ago. Higher store occupancy costs — such as rent and utilities — and higher employee expenses contributed to the drop, the company said. Food cost deflation, which has hurt the entire grocery industry, has also particularly hit Save-A-Lot hard.

Save-A-Lot has been seen by analysts as Supervalu's crown jewel. Last summer, Supervalu announced plans to spin off the division into an independent publicly traded company. On Tuesday, Gross said that ownership will likely be from 19 percent to 40 percent, higher than the 20 percent maximum laid out last year.

Supervalu's conventional grocery chains, which include Cub, posted sales of $1.11 billion, down from $1.14 billion a year ago excluding the additional week in 2015. Same-store sales were down 3.9 percent from a year ago, as Supervalu's customer traffic continued to fall.

Retail operating earnings in the fourth quarter were $30 million, down from $44 million a year ago. Higher employee costs also hurt the conventional chains' performance, the company said.

Mike Hughlett • 612-673-7003