Retail Watch: Nor’easter Challenging SuperValu

Retail Watch: Nor’easter Challenging SuperValu

Facing identical store sales of a negative 4.9% in its third quarter, grocery store owner operator SuperValu Inc. is planning to cut costs including layoffs and closures and/or the sale of some of its store brands in the Northeast U.S.

As a group, SuperValu’s Northeast banners pulled down corporate-wide store sales by more than 150 basis points in the third quarter, Craig Herkert, the company’s president and CEO, reported in his company’s third quarter earnings conference call.

“To address the underperformance in our Northeast banners, we have acted with a sense of urgency to improve accountability and deliver meaningful improvement,” Herkert said. “Early in the fourth quarter, we made the decision to close 29 underperforming stores across a number of banners by the end of the fiscal year. Fifteen of these closures are located in our Northeast banners.”

The company has also negotiated some buyouts for associates at its Acme and Shoppers banners with labor union officials.

On the corporate front, it launched a number of initiatives to reduce administrative headcount and expects to eliminate 350 jobs by the end of May. This is in addition to the 300 corporate positions it eliminated already this year.

“These moves together represent approximately 10% of our total corporate headcount and will allow us to right-size our workforce for today’s business needs,” Herkert said.

The initiatives, including elimination of some office space, are expected to save the company $60 million.

It’s not all bad news for SuperValu, Herkert emphasized.

“Unlike other well-respected food retailers that have reorganized in recent years, let me assure you that we are in a distinctly different position,” Herkert added. “We have leading market positions across our retail network of 1,140 stores and own about 40% of this real estate.”

“Our cash from operations remains strong at $1.3 billion on a trailing 12-month basis. We have a great deal of liquidity.”

“We also enjoy a diversified business model which serves nearly 2,000 independent stores through 29 distribution centers and warehouse facilities beyond our retail network, and we operate a growing hard discount format of 1,236 Save-A-Lot locations which grew retail square feet by 8.5% over the last four quarters,” Herkert said.

When asked by one analyst specifically whether the company would consider divesting any of its Northeast banners (Acme, Shoppers or Jewel), Herkert did not rule out the possibility, but said the company was not pursuing that option currently.

“What I have said in the past is we will always look at our asset base and make appropriate decisions for our shareholders. If we can get a return by either divestiture or acquisitions that are appropriate for our shareholders, we will always look at those,” Herkert said.

Last November, SuperValu sold its Bristol Farms division (14 stores) to a company formed through a partnership with the Bristol Farms management team and Endeavour Capital. Bristol Farms is a Los Angeles and Orange County, CA-based chain of grocery stores.

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