Supervalu gets boost from acquisitions, but wholesale earnings slip
- Supervalu reported a 31% increase in net sales in the third financial quarter of 2017 to $3.94 billion, compared to $3 billion during the same period last year, according to a news release. Net earnings were $18 million, or $0.46 per diluted per share, which was in line with analyst estimates. A tax benefit pushed earnings up to $23 million, or $0.61 per share.
- Supervalu’s wholesale division once again led the way with a 52% increase in net sales to $2.89 billion thanks to new store sales and the company’s Unified Grocers business, which it acquired last summer. But wholesale earnings slipped 11.5%, to $46 million, due to “the mix impact of the acquired Unified Grocers business contributing to operating earnings at a lower percent of net sales and higher trucking and logistics costs,” according to the company. Retail net sales slipped to $1.02 billion from $1.06 billion during the year-ago period, while same-store sales decreased 3.5%. Retail operating losses were $6 million, including $3 million for expenses related to store closures.
- “With the influx of significant new business in certain distribution centers, we experienced a larger-than-anticipated increase in expenses, but we're encouraged by the work we are doing to address those costs and believe they are manageable going forward,” Supervalu CEO Mark Gross said in a statement. “We remain committed to investing in our wholesale business to drive future growth.”
Correction: In a previous version of this article, Supervalu CEO Mark Gross was misidentified as "Mark Strong." The error has been corrected.
Supervalu also announced that it has completed its acquisition of Associated Grocers of Florida, a deal it initiated at the time of its last earnings report in October. Combined with its Unified Grocers business, which has strengthened Supervalu’s wholesaling reach on the West Coast, the AG of Florida buy expands the company’s coverage in the Southeast as well as the Caribbean and select international markets.
CEO Mark Gross has stated he expects the AG of Florida acquisition to contribute $16 million in synergies after a few years. He also sees the distributor as key to Supervalu’s mission of becoming the preferred wholesaler for independent retailers in the U.S.
In addition to increasing its coverage and adding new retail accounts, Supervalu’s wholesale division is also focused on expanding its assortment of high-margin specialty foods. Unified Grocer’s Market Centre division, which specializes in ethnic, natural and gourmet products, has expanded under Supervalu, and will continue to do so, according to Gross. Higher sales in this division would help boost Supervalu’s wholesale earnings, which slipped this quarter.
Overall, Supervalu is laser-focused on growing and diversifying its wholesale business. Its retail division, meanwhile, which includes nearly 300 stores under five banners, continues to struggle in an intensely competitive environment. The division furthered its string of same-store sales losses in the third quarter, with operating losses totaling $6 million.
Supervalu isn’t giving up on these stores. The company recently promoted former Target executive Anne Dament, who oversaw a wave of private label launches and the rollout of the company's new Quick & Easy Meals this year, to head up its retail division. In the Twin Cities, where Supervalu's Cub Foods banner is under pressure from a host of competitors, including Target and Hy-Vee, the company has focused on updating its stores, with recent remodels adding foodie touches like juice bars, burrito stands and make-your-own trail mix stations.
Last month, Supervalu boosted its e-commerce business by signing a multiyear deal with Instacart to provide updated e-commerce sites for four of its retail banners. The sites are uniquely branded, and will eventually integrate digital coupons, loyalty rewards and other innovations.
Still, the continued poor performance of the division does raise the question of whether Supervalu might divest it. Investment fund Blackwells Capital, which owns a 3.6% stake in the company, recently sent a letter to Supervalu leadership asking them to sell roughly one-third of their stores and add new members to its board and management team, including a new CFO. Gross has stated that Supervalu’s retail stores are “testing labs” that inform the company’s wholesale operations. That’s a unique benefit, but it may be an unsustainable one if losses continue to pile up.
- Business Wire SUPERVALU Reports Third Quarter Fiscal 2018 Results
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