Supervalu announces slowdown of price position overhaul as buyout speculation populates newswires

MINNEAPOLIS — While Supervalu has completed its overhaul of its value proposition across its Jewel-Osco banner, the grocer will be analyzing the impact before replicating the price repositioning across its entire chain, the Minnesota-based supermarket chain announced Thursday morning. "We continue to have a market-leading price position amongst conventional food retailers in three markets," Wayne Sales, Supervalu president, CEO and chairman told analysts during the second-quarter conference call. "We have improved or remained constant in seven others and have deteriorated in only one market."

Many news agencies were reporting as much as a 5% increase in the value of Supervalu stock fueled by buyout talk, especially relevant following the announcement earlier this week that Kroger expects to expand its footprint into one or two new markets in the coming year. 

Independent research firm Saibus Research earlier this month released its takeover analysis, noting that Supervalu represents accretive buying power for potential suitors. "If Safeway was to acquire Supervalu, it would increase its purchasing power by over 83% and if Kroger acquired Supervalu, it would increase its purchasing power by about 36%," the analysis read. "While Target may be more like Wal-Mart than a Kroger or Safeway, Target should consider acquiring Supervalu because both companies are large Minneapolis area retailing giants, and acquiring Supervalu would enable the company to increase its purchasing power by over 60% in order to better compete with Wal-Mart."

As of early afternoon trading, however, Supervalu stock was holding steady around $2.04, its closing price from Wednesday. 

Across the Jewel-Osco banners, Supervalu has realized an immediate increase in unit sales, Sales said. "Not only in terms of actual sales, but the halo effect in terms of perception," Sales added. "We've gone back into the marketplace. We have surveyed our customers; and on critical aspects of our business, there is a dramatic improvement in the halo in terms of how [our customers] think about the quality of the products we sell, how they think about the service they get in various departments. So we are pleased not only in the actual unit sales increase, but also in changing the perception of Jewel."

Consequently, the timing of repositioning half its store base will extend beyond fiscal 2013, announced Sales, who hosted his first conference call as Supervalu's turnaround leader. "As you would suspect, with an investment of this nature, it does immediately decrease your selling values and total sales on an ID basis, and it is a hit on profitability," Sales said. "So we need to learn that. While I'm excited about what the team did in terms of marketing and integrated merchandising program, we need to learn things we can do better."

In the St. Louis market, Supervalu is exploring a new Save-a-Lot format across 11 locations that incorporates "a new merchandising and display approach, enhanced marketing messaging as well as new products in a more labor efficient manner," Sales told analysts. Initial sales trends are "very positive," Sales added. 

Regarding turnaround efforts, Sales indicated that the executive team was focused on fixing the retail segment, acknowledging that both the Save-a-Lot business and wholesale business were relatively "low-maintenance." "Most of our time is spent in Supervalu retail," Sales said. "I believe it can be fixed with the right amount of balance in terms of doing those things that make us competitive," he added, such as competitive pricing, extracting costs out of the business and articulating points of differentiation to the consumer.

“We have accomplished a number of important steps since I became president and CEP mid-way through the second quarter, including the successful refinancing of our credit facility, restructuring our executive leadership team and announcing the closure of 60 stores,” stated Wayne Sales, Supervalu president, CEO and chairman. “Our team is aggressively focused on four key strategic imperatives necessary to improve our business: driving profitable retail sales, growing Save-A-Lot, building our network of successful independent retailers, and reducing costs," he said. “I am pleased that the company continues to generate substantial cash flow. Year-to-date, we have generated more than $400 million in cash flow from operations, and including the proceeds from asset sales, will generate between $900 and $950 million in fiscal 2013. We will use this to reduce our outstanding debt and keep our stores fresh and appealing."

Supervalu reported second quarter fiscal 2013 net sales of $8 billion, down 4.8%. The net loss for the second quarter totaled $111 million, or $0.52 per diluted share. The decrease in net sales primarily reflects both a decline in identical store sales and the disposition of a majority of the company’s retail fuel centers that had contributed $158 million in sales in the second quarter of fiscal 2012. 

Supervalu's supermarkets generated $5.2 billion in net sales with same-store sales declines of 4.3%. Second quarter Save-A-Lot net sales were up 0.1% to $973 million. Sales benefited from the lift of 47 net new stores. However, comparable store sales were down 3.7%. Sales of Supervalu's wholesale business totaled $1.9 billion, up 1.1%.