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SUPERVALU Reports Second Quarter Fiscal 2016 Results

MINNEAPOLIS--(BUSINESS WIRE)--SUPERVALU INC. (NYSE:SVU) today reported second quarter fiscal 2016 net sales of $4.06 billion and net earnings from continuing operations of $31 million, or $0.11 per diluted share, which included $6 million in after-tax costs related to the potential separation of Save-A-Lot and severance costs. When adjusted for these items, second quarter fiscal 2016 net earnings from continuing operations were $37 million, or $0.13 per diluted share.

“Our focus remains on driving sales across all three segments and finishing the year strong.”

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Net earnings from continuing operations for last year’s second quarter were $31 million, or $0.11 per diluted share, which included $1 million in after-tax information technology intrusion costs. When adjusted for this item, second quarter fiscal 2015 net earnings from continuing operations were $32 million, or $0.11 per diluted share. [See tables 1-5 for a reconciliation of GAAP and non-GAAP (adjusted) results appearing in this release.]

"I'm pleased that we increased adjusted EBITDA in the second quarter compared to last year in spite of several operating headwinds," said President and CEO Sam Duncan. "Our focus remains on driving sales across all three segments and finishing the year strong."

Second Quarter Results - Continuing Operations

Second quarter net sales were $4.06 billion compared to $4.04 billion last year, an increase of $21 million or 0.5 percent. Save-A-Lot network identical store sales were negative 1.6 percent. Identical store sales for corporate stores within the Save-A-Lot network were positive 0.9 percent. Retail Food segment identical store sales were negative 3.3 percent. Total net sales within the Independent Business segment decreased 0.2 percent. Fees earned under transition services agreements (“TSAs”) in the second quarter were $48 million compared to $44 million last year.

Gross profit for the second quarter was $583 million, or 14.4 percent of net sales. Last year’s second quarter gross profit was $574 million, or 14.2 percent of net sales. The increase in gross profit rate compared to last year was primarily driven by higher base margins across all three segments, lower logistics costs, and higher TSA fees partially offset by higher levels of shrink.

Selling and administrative expenses in the second quarter were $489 million and included $4 million of costs related to the potential separation of Save-A-Lot and $4 million of severance costs. When adjusted for these items, selling and administrative costs were $481 million, or 11.9 percent of net sales. Selling and administrative expenses in last year’s second quarter were $480 million and included $1 million in pre-tax information technology intrusion costs. When adjusted for this item, last year's selling and administrative expenses were $479 million, or 11.9 percent of net sales.

Net interest expense for the second quarter was $44 million compared to $46 million in last year's second quarter.

SUPERVALU’s income tax expense was $19 million, or 40.0 percent of pre-tax earnings, for the second quarter, compared to $18 million, or 36.9 percent of pre-tax earnings in last year’s second quarter. The change in the effective tax rate is primarily due to an unfavorable mix of income in state taxing jurisdictions.

Independent Business

Second quarter Independent Business net sales were $1.83 billion, compared to $1.84 billion last year, a decrease of 0.2 percent. The decrease is primarily due to lower sales to existing customers and lost stores, partially offset by sales from new stores with existing customers and new customers.

Independent Business operating earnings in the second quarter were $49 million, or 2.7 percent of net sales. Last year’s Independent Business operating earnings in the second quarter were $54 million, or 2.9 percent of net sales. The decrease in Independent Business operating earnings was driven by higher employee costs related to new business activity.

Save-A-Lot

Second quarter Save-A-Lot net sales were $1.09 billion, compared to $1.06 billion last year, an increase of 3.2 percent. The sales increase reflects the impact of new store openings. Identical store sales within the Save-A-Lot network were negative 1.6 percent.

Save-A-Lot operating earnings in the second quarter were $32 million, or 3.0 percent of net sales. Last year’s Save-A-Lot operating earnings in the second quarter were $26 million, or 2.5 percent of net sales. The increase in Save-A-Lot operating earnings as a percent of sales was primarily driven by higher base margins and lower logistics costs.

Retail Food

Second quarter Retail Food net sales were $1.09 billion, compared to $1.11 billion last year, a decrease of 1.2 percent. The sales decrease reflects negative identical store sales of 3.3 percent and closed stores.

Retail Food operating earnings in the second quarter were $10 million, or 0.9 percent of net sales. Last year’s Retail Food operating earnings were $20 million, or 1.8 percent of net sales. The decrease in Retail Food operating earnings was driven by higher shrink expense and employee related costs.

Corporate

Second quarter fees earned under the TSAs were $48 million, compared to $44 million last year. The increase was primarily driven by fees earned under the Company's transition service agreement with Haggen.

Net Corporate operating earnings in the second quarter were $3 million and included $4 million of costs related to the potential separation of Save-A-Lot and $4 million of severance costs. When adjusted for these items, net Corporate operating earnings were $11 million. Last year’s second quarter net Corporate operating loss was $6 million and included $1 million in information technology intrusion costs, net of insurance receivable. When adjusted for this item, last year's net Corporate operating loss was $5 million. The improvement in net Corporate operating earnings was primarily driven by lower employee related costs and higher fees earned under the TSAs.

Cash Flows - Continuing Operations

Year-to-date fiscal 2016 net cash flows provided by operating activities of continuing operations were $276 million compared to $158 million in the prior year, reflecting lower levels of investment in working capital. Year-to-date net cash flows used in investing activities of continuing operations were $119 million compared to $121 million in the prior year. Year-to-date net cash flows used in financing activities of continuing operations were $25 million compared to $34 million in the prior year.

Conference Call

A conference call to review the second quarter results is scheduled for 9:00 a.m. central time today. The call will be webcast live at www.supervaluinvestors.com&index=1&md5=a3ab6878f2cb51d2d8ac3...">www.supervaluinvestors.com (click on microphone icon). A replay of the call will be archived at www.supervaluinvestors.com&index=2&md5=4b3a5e8ffd56dfc793b72...">www.supervaluinvestors.com. To access the website replay go to the "Investors" link and click on "Presentations and Webcasts."

About SUPERVALU INC.

SUPERVALU INC. is one of the largest grocery wholesalers and retailers in the U.S. with annual sales of approximately $18 billion. SUPERVALU serves customers across the United States through a network of 3,395 stores composed of 1,854 independent stores serviced primarily by the Company’s food distribution business; 1,342 Save-A-Lot stores, of which 901 are operated by licensee owners; and 199 traditional retail grocery stores (store counts as of September 12, 2015). Headquartered in Minnesota, SUPERVALU has approximately 40,000 employees. For more information about SUPERVALU visit www.supervalu.com&index=3&md5=919022bb0ea617a1b751946ff226a2...">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, particularly those pertaining to SUPERVALU’s expectations, guidance, or future operating results, and other statements identified by words such as "estimates," "expects," "projects," "plans," "intends," 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 competition, ability to execute initiatives, substantial indebtedness, labor relations issues, escalating costs of providing employee benefits, relationships with Albertson’s LLC, New Albertson’s Inc., and Haggen, intrusions to and disruption of information technology systems, impact of economic conditions, governmental regulation, food and drug safety issues, legal proceedings, severe weather, natural disasters and adverse climate changes, disruption to supply chain and distribution network, changes in military business, adequacy of insurance, volatility in fuel and energy costs, asset impairment charges, fluctuations in our common stock price 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 or...


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