Post-acquisition, Supervalu results boosted by merger

EDEN PRAIRIE, MINN. —Supervalu kept its momentum going forward as it continued its company-wide integration, posting fourth-quarter and full-year 2007 results heavily influenced by its Albertsons acquisitions.

Supervalu reported net sales of $10.3 billion in the fourth quarter versus $4.6 billion a year earlier and net earnings of $119 million, or 57 cents per diluted share versus $6 million, or 4 cents per diluted share.

In the full fiscal year, sales were $37.4 billion versus $19.9 billion the annum earlier. Net earnings were $452 million, or $2.32 per diluted share, versus $206 million, or $1.46 last year per diluted share.

Identical-store sales growth for stores in existence prior to the acquisition was flat, Supervalu reported, and when adjusted for planned in-market store expansion, increased approximately 1%. Although idents are modest compared to the gains Kroger and Supervalu have made recently, they do signal that the company is keeping stores on an even keel as it undertakes a massive integration effort.

“Our double-digit earnings growth in fiscal 2007 clearly demonstrates the highly accretive nature of the acquisition,” said Supervalu chairman and ceo Jeff Noddle. “Fiscal 2007 also marked the successful execution of our business plans including the improvement in our identical-store sales on a combined store network basis. We are very well-positioned for the next stage of growth as we implement initiatives designed to further deliver the economics of the acquisition by leveraging our competencies in both retail and supply chain. Today, we are raising our earnings per share guidance for fiscal 2008 from $2.58 to $2.77 [up] to $2.68 to $2.87, which includes onetime transaction costs of 16 cents to 20 cents, equating to another year of double-digit earnings growth.”

One way Supervalu has been improving its financials during integration has been getting out of markets where it has little prospect of significant gains. A couple of months ago, Supervalu announced it was withdrawing from the Milwaukee market and, last month, it stated that it was selling 18 Scott’s stores to Kroger, a move that Lehman Bros. analyst Meredith Adler noted would get it out of Fort Wayne, Ind., a market which has been dragging down identical sales.

“We also believe the sale of the 18 Scott’s store to Kroger is a strategically good move that should allow management to focus more on its newly acquired assets where the potential to maximize returns is the greatest,” Adler said in a research note, adding, “Supervalu is demonstrating success at revitalizing the acquired Albertsons stores, even before investing lots of capital. The company has also sold the stores in one of its weakest markets, allowing it to focus its energy on more attractive markets. The strong momentum in both sales and margins is a surprise, and we believe it bodes well for strong results in the future when synergies begin to be visible.”