SUPERVALU's (SVU) Q2 Earnings Miss Estimates; Up Y/Y

SUPERVALU Inc.'s SVU second-quarter fiscal 2016 earnings per share of 13 cents missed the Zacks Consensus Estimate of 14 cents by 7.14%. However, earnings increased 18.2% year over year from 11 cents, backed by higher top line. Adjusted earnings exclude an after-tax charge of $6 million.

 

Revenues and Margins

SUPERVALU’s total sales remained almost flat year over year at $4.06 billion as positive identical store sales in the Save-A-Lot network was offset by negative same store sales in retail food and independent Save-A-Lot stores.

Gross profit increased 1.6% to $583.0 million from the year-ago quarter in spite of higher cost of sales. Gross margin inflated 20 basis points (bps) to 14.4% on the back of higher base margins across all the three segments, lower logistics costs and higher TSA fees.

Operating earnings remained flat as higher operating earnings in the Save-A-Lot segment were offset by lower operating earnings in independent business and retail food.

Segment Details

Net sales at Retail Food slipped 1.2% from the prior-year quarter to $1.09 billion due to negative same-store sales of 3.3% as well as loss incurred because of the closed stores. Quarterly results were adversely affected by the decline in pharmacy gross margins resulting from generic drug cost inflation. Operating margin shrank 90 bps to 0.9% due to higher employee related costs.

Net sales at the Save-A-Lot stores increased 3.2% year over year to $1.09 billion backed by store openings. The segment recorded 1.6% negative same-store sales across the network. Same-store sales for corporate stores within the Save-A-Lot network were 0.9% driven by 2.1% increase in average transaction size partially offset by 1.2% decrease in customer count, which was the result of lower promotional spending compared with the last year.

Net sales at the Independent business dipped 0.2% year over year to $1.83 billion primarily due to lower sales to existing customers and lost stores. The Independent business’ operating margin shrank 20 bps to 2.9% of sales.

Corporate

During the second quarter, corporate incurred $11 million operating earnings, better than $5 million loss reported last year. The improvement in net corporate operating earnings was primarily driven by lower employee related costs and higher TSA fees.

Other Financial Update

SUPERVALU’s cash and cash equivalents totaled $247.0 million as of Sep 12, 2015, as against $137.0 million as of Jun 20, 2015. Long-term debt and capital lease obligations were $2.20 billion as of Sep 12, 2015 same as that of previous quarter.

Stocks to Consider

SUPERVALU currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the consumer staples sector are Diamond Foods Inc. DMND, Flower Foods Inc. FLO and Omega Protein Inc. OME, all carrying a Zacks Rank #2 (Buy).

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