Supervalu announced July 28 that it is exploring a separation of its Save-A-Lot business, and that as part of that process it has begun preparations to allow for a possible spin-off of Save-A-Lot into a stand-alone, publicly traded company.
Hard discounter Save-A-Lot operates more than 1,300 total stores nationally, comprised of approximately 430 corporate stores and approximately 900 stores operated by licensee owners. In making the announcement, Supervalu president and CEO Sam Duncan said: “We believe Save-A-Lot has significant growth potential. Over the last two and a half years, Save-A-Lot has repositioned its brand, refocused its efforts on fresh produce and meat, and re-merchandised its stores and product offerings to better appeal to a broader group of customers. Today’s announcement reflects our commitment to continuing to explore ways to maximize value for our shareholders. We believe a separation of our Save-A-Lot business could allow Save-A-Lot, our independent business and our retail food banners to better focus on their respective operations, and pursue strategies specific to their business characteristics and growth potentials, for the benefit of our shareholders, customers, licensees and employees.”
The company said no specific timetable for a separation has been set and “there can be no assurance that a separation of Save-A-Lot will be completed or that any other change in the company’s overall structure or business model will occur.”
Barclays and Greenhill has been engaged to serve as financial advisors, and Wachtell, Lipton, Rosen and Katz as legal advisor, in connection with this possible separation.
The news about Save-A-Lot came shortly after Supervalu released its first quarter results for 2016, reporting operating earnings of $158 million, $23 million higher than last year’s first quarter; its seventh consecutive quarter of positive Save-A-Lot network ID sales; and sales increases in all operating segments.
Net sales for the quarter were $5.41 billion and net earnings from continuing operations were $63 million ($0.23 per diluted share), which included $2 million in after-tax structural and tax planning fees. When adjusted for this item, first quarter fiscal 2016 net earnings from continuing operations were $65 million ($0.23 per diluted share). Net sales were $143 million more than net sales of $5.26 billion in the comparable period last year, an increase of 2.7 percent.
Net earnings from continuing operations for last year’s first quarter were $48 million ($0.18 per diluted share), which included $2 million in after-tax net charges and costs for employee severance and debt financing activities. When adjusted for these items, first quarter fiscal 2015 net earnings from continuing operations were $50 million ($0.18 per diluted share).
“We delivered sales increases across all three business segments and managed our costs very well in this first quarter,” said Duncan. “I’m pleased with our bottom line and ability to manage to these results in spite of softer sales at Save-A-Lot and in our retail food stores. We have plans in place and operationally we remain well positioned.”
Independent business operating earnings in the first quarter were $77 million, or 3.1 percent of net sales. Last year’s Independent Business operating earnings in the first quarter were $66 million and included $1 million of pre-tax employee severance costs. When adjusted for this item, independent business operating earnings in the first quarter of fiscal 2015 were $67 million, or 2.8 percent of net sales. The increase in independent business operating earnings was driven by higher sales, higher base margins and lower logistics costs.
First quarter Save-A-Lot net sales were $1.41 billion, compared to $1.36 billion last year, an increase of 3.8 percent. The sales increase reflects the impact of new store openings and network identical store sales of positive 0.6 percent. Identical store sales for corporate stores within the Save-A-Lot network were positive 2.8 percent.
Save-A-Lot operating earnings in the first quarter were $51 million, or 3.6 percent of net sales. Last year’s Save-A-Lot operating earnings in the first quarter were $46 million, or 3.4 percent of net sales. The increase in Save-A-Lot operating earnings as a percent of sales was primarily driven by higher base margins and lower logistics costs, offset in part by higher occupancy and employee related costs driven by new store growth.
First quarter retail food net sales were $1.47 billion, compared to $1.43 billion last year, an increase of 3.0 percent. The sales increase reflects the impact of new store openings partially offset by negative identical store sales of 0.3 percent.
Retail food operating earnings in the first quarter were $33 million, or 2.2 percent of net sales. Last year’s retail food operating earnings were $30 million, or 2.1 percent of net sales. The increase in retail food operating earnings was driven by higher base margins, offset in part by higher shrink and employee related costs driven by new store growth.
Net corporate operating loss in the first quarter was $3 million and included $3 million of structural and tax planning fees. When adjusted for this item, net corporate operating earnings were $0 million. Last year’s first quarter net corporate operating loss was $7 million. The improvement in net corporate operating results was primarily driven by higher fees earned under the TSAs. First quarter fees earned under the TSAs were $64 million, compared to $58 million last year. The increase was primarily driven by fees earned under the Haggen TSA.
First quarter fiscal 2016 net cash flows provided by operating activities of continuing operations were $111 million compared to $57 million in the prior year, reflecting lower levels of investment in working capital. First quarter net cash flows used in investing activities of continuing operations were $70 million compared to $32 million in the prior year, reflecting purchases of intangible assets and increased payments for capital expenditures. First quarter net cash flows used in financing activities of continuing operations were $19 million compared to $18 million in the prior year.
