SUPERVALU Reports Record Fiscal 2007 Fourth Quarter and Year Results

SUPERVALU INC. (NYSE:SVU) today reported record results for the fourth quarter of fiscal 2007. The company reported record net sales of $10.3 billion compared to $4.6 billion last year, record net earnings of $119 million compared to $6 million last year, and diluted earnings per share of $0.57 compared to $0.04 last year. Fiscal 2007 fourth quarter results included net after-tax charges of $37 million, or $0.19 per diluted share. Fiscal 2006 fourth quarter results included net after-tax charges of $72 million, or $0.52 per diluted share. On June 2, 2006, SUPERVALU completed its acquisition of Albertson’s premier retail properties which transformed SUPERVALU into one of the nation’s largest supermarket chains with leading market shares across the country.

Jeff Noddle, SUPERVALU chairman and chief executive officer said, “Fiscal 2007 marked the transformation of SUPERVALU into a retail powerhouse holding a significant position in the retail grocery industry with some of the most enviable brands in the market. Our record fourth quarter showed good momentum and completes a very successful fiscal 2007 year, with full year reported diluted earnings per share of $2.32. Our double-digit earnings growth in fiscal 2007 clearly demonstrates the highly accretive nature of the acquisition. 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 to $2.68 to $2.87 which includes one-time transaction costs of $0.16 to $0.20, equating to another year of double-digit earnings growth. I am confident that the full potential of the NEW SUPERVALU will continue to emerge in the years ahead.”

Fiscal 2007 fourth quarter results included net after-tax charges of $37 million, or $0.19 per diluted share comprised of one-time transaction costs of $0.05 per diluted share, expense from the adoption of FAS 123R related to stock option expensing of $0.01 per diluted share, the impact of the Hybrid Income Term Security Units (“HITS”) which did not settle upon close of the acquisition of $0.02 per diluted share and non-cash charges related to the sale of Scott’s Foods & Pharmacy stores of $0.11. Fiscal 2006 fourth quarter results included net after-tax charges of $72 million, or $0.52 per diluted share, primarily related to the sale of Cub Foods stores in Chicago and asset impairment related to the disposition of Deals stores.

Segment Results

Retail Food Segment – Fourth quarter retail net sales were a record $8.2 billion, compared to $2.5 billion last year. The sales increase primarily reflects the acquisition of Albertson’s premier retail properties. Identical store sales growth on a combined basis, as if the newly acquired operations were in the store base for more than a year, increased 1.4 percent in the fourth quarter. The acquired stores identical store sales growth in the quarter increased 1.8 percent. Identical store sales growth for stores in existence prior to the acquisition was flat and when adjusted for planned in-market store expansion increased approximately 1 percent.

Reported retail operating earnings for the fourth quarter were a record $363 million compared to a loss of $2 million last year, primarily reflecting the acquisition of Albertsons’ premier properties. Fourth quarter fiscal 2007 results included non-cash charges of $26 million pre-tax related to the sale of the 18 Scott’s Food & Pharmacy stores, announced today. The company signed a definitive agreement to sell the 18 Scott’s stores in Fort Wayne Indiana to Kroger. The sale is consistent with the company’s discipline to periodically review assets and focus resources on the best growth opportunities. Fourth quarter fiscal 2007 retail operating earnings also included $1.6 million of expense from the adoption of FAS 123R related to stock option expensing. Fiscal 2006 fourth quarter results included charges of approximately $112 million pre-tax, primarily related to the sale of Cub Foods stores in Chicago and the disposition of Deals stores. Reported retail operating earnings as a percent of sales for the fourth quarter of fiscal 2007 were 4.5 percent. When adjusted for the noted charges in both years’ fourth quarter, retail operating earnings as a percent of sales were 4.8 percent in fiscal 2007 compared to 4.4 percent in fiscal 2006, primarily reflecting the fiscal 2007 acquisition of Albertson’s premier retail properties.

Net new store activity since last year’s fourth quarter included 723 combination stores (combination stores are defined as food and drug), 357 food stores and 35 limited assortment food stores. Net new store activity is inclusive of the stores acquired. As of year end, SUPERVALU’s retail store network of 2,478 stores includes approximately 876 combination stores, 412 food stores, and 1,190 limited assortment grocery stores. Included in the total store counts are 120 fuel centers and 858 licensed limited assortment food stores. Total retail square footage at year end, including acquired stores and licensed stores was approximately 84 million square feet compared to approximately 30 million square feet last fiscal year end. Store counts and square footage are adjusted for the sale of Scott’s and the Milwaukee Jewel-Osco stores.

Supply Chain Services Segment – Fourth quarter net sales for supply chain services were $2.1 billion, up slightly from last year, reflecting new business growth which was offset by normal customer attrition.

Reported supply chain services operating earnings for the fourth quarter were $55 million compared to $41 million last year. This year’s results also included approximately $1.3 million of expense from the adoption of FAS 123R related to stock option expensing. Last year’s fourth quarter results included $10 million of losses related to minority-owned investments. When adjusted for last year’s fourth quarter minority-owned investments, reported supply chain operating earnings as a percent of sales were 2.6 percent this year compared to 2.4 percent last year.

Other Items

General corporate expenses for the fourth quarter were $39 million compared to $6 million last year primarily reflecting one-time transaction costs of approximately $18 million in the fourth quarter of fiscal 2007 and lower incentive related expenses in the prior year.

SUPERVALU’s tax rate for the fourth quarter was 41.9 percent compared to 47.5 percent in last year’s fourth quarter. The fiscal 2007 and 2006 fourth quarter tax rates reflect the write-off of non-deductible goodwill on the sale of Scott’s Food & Pharmacy stores and the sale of Cub Foods stores in Chicago, respectively. When adjusted for the non-deductible goodwill primarily related to the sale of Scott’s Food & Pharmacy and Cub Foods stores, the effective tax rate was 38.6 percent in the fourth quarter of fiscal 2007 and 37 percent in the fourth quarter of fiscal 2006.

Net interest expense for the fourth quarter was $174 million compared to $22 million last year reflecting the assumption of debt and new borrowings from the acquisition.

Capital spending for fourth quarter was $297 million, including $32 million in capital leases. Fiscal 2007 capital spending was approximately $950 million, including $73 million in capital leases. Capital spending primarily includes retail store expansion, store remodeling and supply chain initiatives.

Total debt to capital was approximately 64 percent at the end of the fiscal 2007 compared to approximately 37 percent at fiscal 2006 year-end. The total debt to capital ratio is calculated as total debt, which includes notes payable, current debt and obligations under capital leases, long-term debt and obligations under capital leases, divided by the sum of total debt and total stockholders’ equity.

Diluted weighted average shares outstanding for the fourth quarter were 211 million shares compared to 138 million shares last year. The net increase was primarily due to the additional shares issued for the acquisition and issuances under employee benefit programs, net of repurchases. As of February 24, 2007, SUPERVALU had 209 million net shares outstanding.

Fiscal 2007 Results

For the fiscal 2007 full year, SUPERVALU reported record net sales of $37.4 billion compared to $19.9 billion last year, record net earnings of $452 million compared to $206 million last year and diluted earnings per share of $2.32 compared to $1.46 last year. Fiscal 2007 full year results included net after-tax charges of $78 million, or $0.46 per diluted share primarily related to one-time transaction costs, expense from the adoption of FAS 123R related to stock option expensing, the impact of the HITS which did not settle upon close of the acquisition, and charges related to the sale of Scott’s Food & Pharmacy stores. Fiscal 2006 full year results included net after-tax charges of $111 million, or $0.76 per diluted share, primarily related to the sale of Cub Foods stores in Chicago, the sale of Shop ‘n Save stores in Pittsburgh, the disposition of Deals stores, and losses incurred from Hurricane Katrina.

Fiscal 2007 Fourth Quarter and Full Year

Diluted Earnings Per Share Summary

Fiscal 2007

Fiscal 2007

 

 

Fourth Quarter

 

Full Year

Reported diluted earnings per share

  $0.57(a)

  $2.32(a)

One-time transaction costs

$0.05 

$0.20 

Charges related to sale of Scott’s Food & Pharmacy

 

$0.11 

 

$0.12 

Diluted earnings per share before adjustments

$0.73 

$2.64 

Weighted average diluted shares outstanding (millions)

211 

196 

(a) Reported diluted earnings per share includes $0.01 and $0.08, respectively, for the quarter and the full year from the adoption of FAS 123R related to stock option expensing and $0.02 and $0.06, respectively, for the quarter and the full year related to the impact of the HITS which did not settle upon close of the acquisition.

Fiscal 2008 Guidance

Diluted Earnings Per Share Summary

Fiscal 2008

 

 

Guidance

Reported diluted earnings per share

$2.68 to $2.87

One-time transaction costs

 

$0.20 to $0.16

Diluted earnings per share before adjustments

$2.88 to $3.03

Weighted average diluted shares outstanding (millions)

214 to 217

SUPERVALU’s fiscal 2008 outlook includes business assumptions, such as:

Net sales are estimated to be approximately $44 billion;

Identical store sales for the combined retail network, as if the newly acquired operations were in the store base for more than a year, are projected to increase 1 to 2 percent;

Store development plans are projected to be approximately 25 to 30 standard size stores and 60 to 80 limited assortment stores, including licensed stores. Major remodels are estimated at approximately 100 to 110 stores;

Sales attrition, exclusive of new business, in the traditional food distribution business will approximate four to five percent for the year;

Total capital spending is projected to be approximately $1.2 billion, including capital leases;

Stock option expense is projected to be approximately $0.12 per diluted share, compared to $0.08 in fiscal 2007 representing the larger employee base of the company;

One-time transaction costs are expected to be approximately $56 to $70 million pre-tax, or approximately $0.16 to $0.20 per diluted share;

The outlook for the year is based on the preliminary fair value assigned to acquired assets and liabilities. These fair values will be refined as final valuation information is received or developed through the first quarter of fiscal 2008; and

The effective tax rate is estimated to be approximately 39 percent.

Commenting on SUPERVALU, Noddle said, “As we near the one year mark of the acquisition in June, we are on schedule with our three year plan to leverage our transformed business model and deliver continued value to our shareholders.”

A conference call to review the fourth quarter results is scheduled for today at 9:00 a.m. (CST). A live Web cast of the call will be available at www.supervalu.com. An archive of the call is accessible via telephone by dialing 630-652-3041 with passcode 17421580 and through the company’s Web site at www.supervalu.com. The conference call archive will be available through April 30, 2007.

About SUPERVALU INC

SUPERVALU INC. is one of the largest companies in the United States grocery channel with annual sales of approximately $40 billion. SUPERVALU holds leading market share positions across the U.S. with its approximately 2,500 retail grocery locations. Through SUPERVALU’s nationwide supply chain network, the company provides distribution and related logistics support services to more than 5,000 grocery endpoints across the country. SUPERVALU currently has approximately 200,000 employees. For more information about SUPERVALU visit www.supervalu.com.

CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Except for the historical and factual information contained herein, the matters set forth in this news release, including statements as to the progress and expected benefits of the combination of the operations of Albertson’s, Inc. that were acquired in June 2006 with those of SUPERVALU, such as efficiencies, cost savings, market profile and financial strength, and the competitive ability and position of the combined company, and other statements identified by words such as “estimates,”"expects,”"projects,”"plans,” and similar expressions are forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including the possibility that the anticipated benefits from the acquisition cannot be fully realized or may take longer to realize than expected, the possibility that costs, including costs related to purchase accounting estimates of fair value, or difficulties related to the combination of Albertsons operations into SUPERVALU will be greater than expected, and the impact of competition, economic and industry conditions, security and food and drug safety issues, severe weather and natural disasters, escalating costs of providing employee benefits, and other labor relations issues including contract negotiations, expansion, liquidity, legal and administrative proceedings, regulatory and accounting matters, changes in operating conditions, and other risk factors relating to our business or industry as detailed from time to time in SUPERVALU’s reports filed with the SEC. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this news release. Unless legally required, SUPERVALU undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

You should not place undue reliance on these forward-looking statements, which speak only as of the date of this news release. Unless legally required, SUPERVALU undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

SUPERVALU INC. and Subsidiaries

CONSOLIDATED COMPOSITION OF NET SALES AND OPERATING EARNINGS

(unaudited)

 

February 24,2007

February 25,2006

(In millions, except per share data)

 

(12 weeks)

 

(12 weeks)

 

Net sales

Retail food and drug

$ 8,153 

$ 2,528 

79%

55%

Supply chain services

2,148 

2,112 

 

 

21%

 

45%

Total net sales

$ 10,301 

$ 4,640 

 

 

100.0%

 

100.0%

 

Operating earnings

Retail food and drug operating earnings

$ 363 

$ (2)

Supply chain services operating earnings

55 

41 

General corporate expenses

 

39 

 

6 

Total operating earnings

379 

33 

Interest expense, net

 

174 

 

22 

Operating earnings before income taxes

$ 205 

$ 11 

Income tax expense

 

86 

 

5 

Net earnings

 

$ 119 

 

$ 6 

 

 

LIFO charge

$ - 

$ 5 

 

Depreciation and amortization

Retail food and drug

$ 233 

$ 52 

Supply chain services

 

23 

 

20 

Total

 

$ 256 

 

$ 72 

SUPERVALU INC. and Subsidiaries

CONSOLIDATED COMPOSITION OF NET SALES AND OPERATING EARNINGS

(unaudited)

 

February 24,2007

February 25,2006

(In millions, except per share data)

 

(52 weeks)

 

(52 weeks)

 

Net sales

Retail food and drug

$ 28,016 

$ 10,635 

75%

54%

Supply chain services

9,390 

9,229 

 

 

25%

 

46%

Total net sales

$ 37,406 

$ 19,864 

 

 

100.0%

 

100.0%

 

Operating earnings

Retail food and drug operating earnings

$ 1,179 

$ 269 

Supply chain services operating earnings

257 

214 

General corporate expenses

 

131 

 

48 

Total operating earnings

1,305 

435 

Interest expense, net

 

558 

 

106 

Operating earnings before income taxes

$ 747 

$ 329 

Income tax expense

 

295 

 

123 

Net earnings

 

$ 452 

 

$ 206 

 

 

LIFO charge

$ 18 

$ 11 

 

Depreciation and amortization

Retail food and drug

$ 783 

$ 216 

Supply chain services

96 

94 

General Corporate

 

- 

 

1 

Total

 

$ 879 

 

$ 311 

SUPERVALU INC. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(unaudited)

 

February 24,2007

February 25,2006

(In millions, except per share data)

 

(12 weeks)

 

% of sales

 

(12 weeks)

 

% of sales

 

Net sales

$ 10,301 

100.0%

$ 4,640 

100.0%

Cost of sales

 

7,877 

 

76.5%

 

3,959 

 

85.3%

Gross profit

2,424 

23.5%

681 

14.7%

 

Selling, general and administrative expenses

 

2,045 

 

19.8%

 

648 

 

14.0%

Operating earnings

379 

3.7%

33 

0.7%

 

Interest expense, net

 

174 

 

1.7%

 

22 

 

0.5%

Earnings before income taxes

205 

2.0%

11 

0.2%

Income tax expense

 

86 

 

0.8%

 

5 

 

0.1%

 

Net earnings

 

$ 119 

 

1.2%

 

$ 6 

 

0.1%

 

 

Earnings per common share

Basic

Net earnings

$ 0.57 

$ 0.04 

Diluted

Net earnings

$ 0.57 

$ 0.04 

Weighted average number of common shares outstanding

Basic

208 

136 

Diluted

211 

138 

SUPERVALU INC. and Subsidiaries

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(unaudited)

 

February 24,2007

February 25,2006

(In millions, except per share data)

 

(52 Weeks)

 

% of sales

 

(52 Weeks)

 

% of sales

 

Net sales

$ 37,406 

100.0%

$ 19,864 

100.0%

Cost of sales

 

29,267 

 

78.2%

 

16,977 

 

85.5%

Gross profit

8,139 

21.8%

2,887 

14.5%

 

Selling, general and administrative expenses

 

6,834 

 

18.3%

 

2,452 

 

12.3%

Operating earnings

1,305 

3.5%

435 

2.2%

 

Interest expense, net

 

558 

 

1.5%

 

106 

 

0.5%

Earnings before income taxes

747 

2.0%

329 

1.7%

Income tax expense

 

295 

 

0.8%

 

123 

 

0.6%

 

Net earnings

 

$ 452 

 

1.2%

 

$ 206 

 

1.1%

 

 

Earnings per common share

Basic

Net earnings

$ 2.38 

$ 1.52 

Diluted

Net earnings

$ 2.32 

$ 1.46 

Weighted average number of common shares outstanding

Basic

189 

136 

Diluted

196 

146 

SUPERVALU INC. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

February 24,2007

February 25,2006

 

 

(unaudited)

 

 

 

ASSETS

Current Assets

Cash and cash equivalents

$ 285 

$ 801 

Accounts and notes receivable, net

957 

439 

Inventories

2,749 

954 

Prepaid and other current assets

 

469 

 

89 

Total Current Assets

4,460 

2,283 

 

Land, buildings, leasehold improvements and equipment, net

8,415 

1,969 

 

Goodwill

5,921 

1,614 

 

Intangibles, net

2,450 

94 

 

Other assets

 

456 

 

193 

 

Total Assets

 

$ 21,702 

 

$ 6,153 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities

Accounts payable and accrued liabilities

$ 2,741 

$ 1,377 

Current maturities of long-term debt and capital lease obligations

286 

112 

Other current liabilities

 

1,678 

 

133 

Total Current Liabilities

4,705 

1,622 

 

Long-term debt and obligations under capital Leases

9,192 

1,406 

 

Other long-term liabilities and deferred credits

2,499 

506 

 

Total Stockholder’s Equity

5,306 

2,619 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

$ 21,702 

 

$ 6,153