Albertsons’ robust sales boost Supervalu’s first-quarter earnings

EDEN PRAIRIE, Minn. —Supervalu reported strong first-quarter earnings driven by sales at Albertsons stores acquired last year. The 2,464-store chain that operates 878 food-and-drug combo stores earned $148 million in the first quarter on revenue of $13.3 billion.

The company didn’t break out pharmacy revenues, but stronger sales at its Albertsons stores, which are home to more than 75 percent of its pharmacies, indicate pharmacy was a key driver. Same-store sales at Albertsons stores increased 1.7 percent for the quarter, while sales at Supervalu’s other banners dropped 0.4 percent.

While Supervalu’s same-store sales increase was fair at best, analyst Mark Petrie of CIBC World Markets said the chain is on track for improvement as it ramps up its store remodels. “From our point of view, it was a great quarter, and nothing has shaken our conviction that there will be more to come,” Petrie said. Supervalu plans to remodel up to 110 stores this year.

In terms of pharmacy’s contribution to sales, Petrie said it’s hard to gauge the impact pharmacy sales had overall, but didn’t rule out their contribution to Albertsons’ improved sales. “Their other banners like Sav-a-Lot have not been doing that great, but the Albertsons stores are doing well and will get even better when they’re remodeled,” Petrie said.

He added that Supervalu “is just beginning to improve its vast acquired store network and develop its Premium Fresh & Healthy offering.” That new store format features new signs, wider aisles and what it has called a “power pharmacy.”

Despite the strong earnings, Supervalu chief executive officer Jeff Noddle said sales slowed the last few weeks of the quarter. He cited high gas prices and increasing prices on food and dairy products for the softness, and noted the chain “seems to be in the teeth of the wind of inflation at the moment.”

During a July 24 conference call, Noddle touched on pharmacy and its impact on sales late in the quarter. He cited the “deflationary impact of price reductions on several generic drugs” as one factor that hurt sales and suggested that impact would “continue to play out for the next several quarters.”

He also said Supervalu is gearing up to handle its own health and beauty care and general merchandise distribution for its Albertsons stores in Southern California. CVS took control of Albertsons’ La Habra, Calif., distribution center in 2006 when it bought its standalone Sav-on and Osco drug stores and has been supplying its Albertsons’ Sav-On combo stores ever since.

“In essence, we’ve been buying from CVS for the past year,” said Noddle, noting that CVS has supplied health and beauty care and some general merchandise items for Albertsons in that region. “But that will be migrating to our own distribution network later this year.”

In late July, Albertsons came to terms on a new four-year contract with members of the United Food and Commercial Workers union in Southern California to avoid a potential strike similar to the four-month walkout that devastated sales in 2003 to 2004.