The chief executive of Supervalu Inc has insisted he remains upbeat about the US retailer’s long-term future despite the company posting disappointing first-quarter results.
Supervalu yesterday (27 July) posted net earnings of US$67m for the three months to 19 June, down 40.7% on the same quarter last year.
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Net sales fell 9.2% to $11.54bn as identical-store sales slid 7.2%.
“This was a tough quarter for us but one that ushered in positive operational progress. Despite weak top-line sales, we controlled margins well and continued to take costs out of the business,” CEO Craig Herkert said on a conference call with analysts.
“Improved value perception at store level, and efforts to control margins have shown tangible signs of traction. The company is building value that will outlast the current economic cycle.”
Supervalu is continuing to implement cost savings across the board and sees SKU rationalisation as a key part of that drive.
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By GlobalDataHerkert said in one product category Supervalu was offering some 90 SKUs and the company could not put a whole case on the shelves, which was incurring massive labour costs.
The Supervalu boss said the retailer’s new EDLP programme was also helping to generate labour efficiencies. He described that there were items the company was promoting that do not drive foot traffic and where volume sales remained inelastic during promotions. Yet the company was spending some 40 hours a week changing the shelf tags on this particular category to communicate discounts.
Supervalu’s other major cost-cutting initiative is its shift in strategy from thinking of the company in terms of three divisions back into one. The move is allowing Supervalu to leverage back-office expenses across the group. “Looking at things holistically changes how we buy. We’re looking at things more centrally now,” Herkert said of the move, which will “drive long-term savings”.
Herkert also said that Supervalu would extend plans to revamp some 300 stores this financial year by three to six months. “This will provide us with ample time to study existing stores of varying sizes that serve different demographics to improve execution for a broader roll out.”
When asked if he was happy with the 3% uplift in sales that the refurbished stores were displaying, Herkert responded: “We are happy with the performance of the stores. We are more focused on consumer facing initiatives, but we continue to learn.”
The company revealed plans to open 100 new stores this fiscal year, with half of these to be opened by licensees. Additionally it plans to double its store count by 2015. The company aims to achieve this aggressive expansion through developing licensing agreements “with non-traditional retailers who would opt for other franchise-orientated opportunities”, Herkert said.
Herkert cited its Save-a-Lot banner’s partnership with Hispanic supermarket operator Rafael Ortega in Texas as one example of this idea. He added that such partnerships would allow the company to gain an understanding of how to market and sell to this population.
Supervalu also announced that CFO Pamela Knous is leaving the company effective 30 July to “pursue other career interests“.
Herkert said the company is in the early stages of seeking a new CFO, but expects to fill the role by the time it reports its second-quarter results in October.
Herkert was upbeat on the company’s prospects for improved store sales for the rest of the year. “We have unique capabilities here to win in the long term. We are in this for the long haul and we’re very, very happy with our progress. And we think our outlook is good,” he said.
