Market Overview

SUPERVALU Beats Estimates, Writes Off Rest of Goodwill

SUPERVALU (NYSE: SVU), one of the largest grocery chains in the US, reported on Tuesday that it lost $2 for the 2011 fourth quarter. Write-offs for the last of the company's goodwill and non-cash impairment of assets, including equity declines, drove the headline losses.

Net of $492 million of non-cash goodwill and asset impairment and $13 million of employee severance costs, both after tax, the company saw net earnings of 81 million, or $0.38 per diluted share, for the fourth quarter. Analysts had expected $0.35.

Revenues in the fourth quarter lagged the equivalent quarter in fiscal 2011 by 5 percent, at $8.2 billion. Negative store comps, at 1.9 percent, and store closures accounted for the revenue shrinkage in the company's retail foods segment. In the company's independent business segment, Target's shift to self-distribution, and divestiture of Total Logistics Control, accounted for revenue declines.

Cost inflation of 4.5 percent, as well as the company's price investment led to lower gross margins, which at 22.8 percent for the quarter, were down on last years (23.3 percent). Advertising expenses were higher in the quarter as well, as part of the company's initiative to reverse negative comps. SUPERVALU offset depressing margins with lower selling and general administrative expenses, which due to cost initiatives that have seen aforementioned store closures and divestiture of businesses, have resulted in over $160 million in permanent annual savings. SG&A was just 19.9 percent of net sales at $1.64 billion, compared with $1.75 billion or 20.2 percent last year.

For the whole fiscal 2012, the company reported $1.25 in earnings per share on sales of $36.1 billion. In 2012, that number had been $1.39. Before adjustments for non-cash goodwill and asset impairments, the bottom line was a net loss of $4.91 per share, compared to a net loss of $8.23 per share in 2011.

Looking to next year, the company expects to continue what it did right in 2012, and expects EPS to be around $1.42 per share. The company has been working on its recovery and business transformation for the last couple of years. It has sought to better its image with its customers, by introducing fresher produce and tailoring its store inventory to local needs on a timely basis.

SVU closed at $5.32 on Friday and are up 7 percent at $5.75 on outperformance compared to consensus.

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