A&P, Supervalu, Safeway Continue Sliding Net, ID Sales Trends

Three of the leading retailers in the Delaware Valley posted disappointing numbers in their most recent operating periods. A&P continued its trend of huge losses (eight consecutive periods of red ink) in its first quarter and fired its chief executive, Ron Marshall, who had only assumed the job five months previously. Supervalu, parent company of Acme Markets, posted a 40 percent decline in earnings in its second quarter (ID sales were down 7.2 percent), while Safeway, whose Genuardi’s unit has been slipping consistently over the past two years, saw its earnings drop 41 percent and ID sales dip 2.5 percent in its second quarter.

At A&P, the recent news can only be described as dismal. The once mighty retailer, whose stock was trading in the $3 per share range when we went to press on August 6, posed a loss of $122.6 million, or $4.83 a share, compared with a prior-year loss of $65.2 million, or $3.64 a share. Overall sales fell to $2.56 billion from $2.79 billion while same-store revenue decreased 7.2 percent. A&P has reported net losses in 33 of its past 40 operating quarters, one of the worst performances in recent supermarket history.

Additionally, the Montvale, NJ chain appointed its third CEO in the past nine months, naming Sam Martin as new CEO replacing Marshall, who was hired last February.

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Despite the working-capital deficit and just $171 million in cash at June 19, A&P said it had first quarter liquidity of $253 million and is taking steps to improve that. The retailer is reportedly looking at raising capital, including through its bank facility, by using sale-leaseback transactions with the real estate it owns and through the sale of assets it considers noncore.

Marshall, reached by telephone late Thursday, declined to comment. A&P was recently downgraded again by Moody’s to a CCC+ rating, seven times below investment grade.

On the poor earnings performance Haub said, “Although we are clearly disappointed with our performance in the first quarter, we are confident that we now have the right leadership in place to drive this operational and revenue-driven turnaround effort and make A&P a great company again. We are focused on improving our customer value proposition, as well as significantly reducing our structural and operating costs. Our progress on enhancing our customers’ experience across our store formats illustrates our commitment to moving forward aggressively. We remain steadfastly focused on taking the actions necessary to position A&P for a strong future.”

At Supervalu, the key metrics remain poor, although CEO Craig Herkert is optimistic that his company is making strides that will improve its position in the future.

For the period ended June 19, first quarter net income fell 40 percent to $67 million, or $0.31 a share. That’s down from $113 million, or $0.53 per share, a year earlier. Revenue fell 9.2 percent to $11.5 billion.

Excluding the costs of closing stores in Connecticut and Ohio and a labor dispute at its Shaw’s perishables warehouse in New England (which has since been settled), the company earned $0.43 per share. Supervalu’s revenue at stores open at least a year fell an industry-worst 7.2 percent for the quarter. Excluding Shaw’s stores, the company said, the ID sales figure would have been negative 6.5 percent.

“While we are putting in place the right programs to best serve our customers, we are disappointed with our first quarter sales performance. We continue to control our margins well and take costs out of the business and are pleased to reaffirm our full-year earnings guidance before one-time items,” said Herkert.

First quarter retail food net sales were $9.0 billion compared to $9.9 billion last year, a decrease of 9.6 percent, primarily reflecting the impact of the steep identical store sales slide. Retail square footage decreased 6.1 percent from the first quarter of fiscal 2010. Excluding the impact of market exits and store closures, total retail square footage increased 0.8 percent compared to the first quarter of fiscal 2010, Supervalu stated.

First quarter supply chain (wholesale) services net sales were $2.6 billion compared to $2.8 billion last year, a decrease of 7.9 percent, primarily reflecting Target’s transition to self-distribution.

Retail food net sales in the first quarter of fiscal 2011 represented 77.5 percent of net sales compared to 77.9 percent last year. Supply chain services net sales in the first quarter of fiscal 2011 represented 22.5 percent of net sales compared to 22.1 percent last year.

Reported operating earnings for the first quarter were $301 million, or 2.6 percent of net sales, compared to $362 million, or 2.8 percent last year. Retail food operating earnings were $251 million, or 2.8 percent of net sales, which included $21 million in net pre-tax charges primarily related to retail market exits in Connecticut (18 Shaw’s stores) and Cincinnati 11 bigg’s units), as well as the impact of the labor dispute at Shaw’s.

First quarter capital spending was $173 million, including approximately $0.7 million in capital leases, compared to $238 million last year, including approximately $0.1 million in capital leases. Capital spending in the first quarter primarily reflects store remodeling activity and technology expenditures. During the quarter, the company completed 19 major remodels and 3 minor remodels.

Fiscal 2011 net earnings are now expected to be in the range of $1.61 to $1.81, which has been revised to reflect Supervalu’s current estimate of the impact for the previously announced market exits and including the labor dispute at Shaw’s. Identical store sales, excluding fuel, are now projected to be approximately negative 5 percent for the year.

Supervalu said its fiscal 2011 guidance included the following assumptions: net sales for the 52-week fiscal year are estimated to be approximately $38 billion; identical store sales, excluding fuel, are projected to decline approximately five percent; sales in the traditional food distribution business are expected to decline approximately three percent, primarily reflecting the final transition of the Target Corporation volume to self distribution and the acquisition of Ukrop’s by a competitor; and consumer spending will continue to be pressured by the economy.

In fiscal 2011 capital spending is projected to be approximately $700 million, including 60 to 75 major store remodels, 30 to 40 minor remodels, two replacement stores, and approximately 100 hard-discount stores (Save-A-Lot), including licensed locations; and debt reduction is estimated to be approximately $600 million. Supervalu’s current debt stands at $7.4 billion.

In a related announcement, the company said veteran CFO Pam Knous has left the company. Knous joined Supervalu as chief financial officer in 1997. Supervalu said it has retained a search firm and expects to fill the CFO position by the time the firm reports its second quarter results in October. Sherry M. Smith, currently senior VP-finance, will serve as interim chief financial officer until the search is completed.

And while Safeway’s corporate health is much better than A&P’s and Supervalu’s, recent earnings and sales trends at the Pleasanton, CA based retailer have been disappointing, too.

Last month the big chain reported net income of $141.3 million ($0.37 per diluted share) for the second quarter of 2010 compared to $238.6 million ($0.57 per diluted share) for the second quarter of 2009. The second quarter of 2009 included a $57.8 million tax benefit ($0.14 per diluted share) from the resolution of a tax matter.

“Our second quarter results were in line with our expectations, and we are encouraged by our volume trends in the quarter,” said Steve Burd, chairman, president and CEO. “However, deflation continues in price per item and is not expected to significantly improve until the fourth quarter. As a result, we have lowered our expectations for the balance of the year.”

Total sales were $9.5 billion in the second quarter of 2010, essentially flat compared to $9.5 billion in the second quarter of 2009. Identical store sales continued to be negative, this time falling a 2.5 percent, excluding fuel.

Net income for the first 24 weeks of 2010 was $237.3 million ($0.61 per diluted share) compared to $382.8 million ($0.90 per diluted share) in the first 24 weeks of 2009.

Safeway said it is updating guidance for the year to $1.50 to $1.70 earnings per diluted share and non-fuel ID sales of negative 1.0-1.5 percent.

Safeway stated that it invested $192.1 million in capital expenditures in the second quarter of 2010. The company opened five new stores, completed 17 Lifestyle remodels and closed five stores. For the year, Safeway plans to invest $0.9 to $1.0 billion in capital expenditures, open approximately 15 new Lifestyle stores and complete approximately 60 Lifestyle remodels.