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SUPERVALU (SVU) Gains on Q4 Earnings Beat, In-Line Sales

Shares of  SUPERVALU Inc. SVU rallied more than 3.88% after the company released its fourth-quarter fiscal 2016 results.

Earnings per share of 23 cents surpassed the Zacks Consensus Estimate of 17 cents by 35.3%. However, earnings decreased 4.16% year over year from 24 cents, hit by lower revenues. Adjusted earnings of fourth quarter 2016 exclude $15 million of after-tax charges and costs related to debt refinancing, store closures and impairments, the potential separation of Save-A-Lot and employee severance.

Revenues and Margins

SUPERVALU’s total sales declined 10.1% year over year excluding the extra week of fiscal 2015 to $3.95 billion due to negative same store sales in all the divisions. Sales were however in line with the Zacks Consensus Estimate.

Gross profit declined 11.1% to $590.0 million from the year-ago quarter owing to higher inventory shrink and employee costs. Gross margin was down 10 basis points (bps) to 15.0%.

Adjusted operating earnings declined 27.3% to $101 million, while adjusted operating margin shrank 60 basis points to 2.9% due to lower selling, general and administrative expenses.

Segment Details

Net sales at Retail Food slipped 2.6%, excluding $87 million in net sales from the additional week in fiscal 2015 to $1.11 billion, due to negative identical store sales of 3.9%. Retail food store sales continued to be affected by the decline in pharmacy gross margins resulting from generic drug cost inflation. Adjusted operating margin contracted 90 bps to 2.7% because of higher employee-related costs.

Net sales at the Save-A-Lot stores decreased 0.8% year over year to $1.06 billion, excluding the additional week in fiscal 2015, due to negative same-store sales of 2.2% and the impact of closed stores. Same-store sales for corporate stores within the Save-A-Lot network were a negative 1.3% due to a 20 bps decrease in customer count and an average basket decline of 110 bps.

Net sales at the Wholesale business dropped 4.8% year over year to $1.74 billion, excluding the additional week in fiscal 2015, primarily due to lower sales to existing customers and closed stores, partially offset by increased sales to new customers and the opening of new stores. The Independent business’ adjusted operating margin declined 30 bps to 2.9% of sales.

Corporate

During the fourth quarter, fees earned under the TSAs were $44 million compared with $45 million last year , excluding $4 million in fees from the additional week in fiscal 2015. Adjusted operating earnings totaled $10 million compared with an adjusted operating loss of $8 million. The improvement in net corporate operating earnings was primarily driven by lower employee related costs and higher TSA fees.

Fiscal Results

Earnings per share of 76 cents surpassed the Zacks Consensus Estimate of 69 cents by 10.14%. However, earnings gained 5.55% year over year from 72 cents due to lower revenues. SUPERVALU’s total sales improved 2.2% year over year to $17.53 billion but missed the Zacks Consensus Estimate of $17.58 billion by a nominal margin.

Other Financial Update

SUPERVALU’s cash and cash equivalents totaled $57 million as of Feb 27, 2016, compared with $134 million as of Dec 5, 2015. Long-term debt was $2.19 billion as of Feb 27, 2016, compared with $2.49 billion as of Dec 5, 2015.

SUPERVALU carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the consumer staples sector include Campbell Soup Company CPB, Flower Foods Inc. FLO and The Kellogg Company. K. All of these stocks carry a Zacks Rank #2 (Buy).

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CAMPBELL SOUP (CPB): Free Stock Analysis Report
 
KELLOGG CO (K): Free Stock Analysis Report
 
FLOWERS FOODS (FLO): Free Stock Analysis Report
 
SUPERVALU INC (SVU): Free Stock Analysis Report
 
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