Supervalu’s cost-cutting brings back 3rd-qtr profitability; grocer maintains outlook

Cutting costs helps Supervalu earn profit in 3Q

PORTLAND, Ore. — Grocer Supervalu Inc., whose sales and profit have suffered during the recession, returned to a profit in its third quarter as it controlled costs and began its turnaround effort.

“I believe Supervalu is running its business better, and that means we’re in control of our own destiny,” said Craig Herkert, Supervalu’s CEO since last spring.

Supervalu, which operates Albertsons, Jewel-Osco, Save-A-Lot and other stores, stumbled as shoppers limited spending and other grocers — like Kroger Co. and Wal-Mart Stores Inc. — responded more nimbly, cutting prices and promoting their value to consumers.

Tuesday’s results represented the first positive movement for the company’s profitability in nearly two years.

Supervalu is trying move out of its underdog position by drawing back frugal shoppers with lower prices and by adding more discount Save-A-Lot stores to its network. But those changes aren’t expected to take full effect until the first quarter, which starts in March.

So like many other companies that are still struggling with the economy’s impact on consumers, Supervalu made its gains through cost controls. Herkert, a former Wal-Mart executive, said his top two priorities on controlling expenses and stabilizing margins.

Supervalu cut its selling and administrative expenses to $1.75 billion from $1.92 billion in the third quarter. And its net interest expense declined to $131 million from $143 million as interest rates fell and the company cut debt.

The company continued to see sales fall, with revenue dropping 9 percent to $9.22 billion for the quarter, missing analyst expectations.

Supervalu also reported a 6.5 percent decline in sales at stores open at least a year. This figure is a key indicator of performance because it excludes changes at stores that open or close during the year.

Despite soft sales, the company earned $109 million, or 51 cents per share for the quarter. That’s up from a loss of $2.94 billion, or $13.95 per share, in the third quarter last year — which included hefty goodwill and asset impairment charges of $14.57 per share.

Analysts surveyed by Thomson Reuters expected the company to earn 40 cents per share for the quarter.

The company maintained its earnings guidance for the year but lowered its outlook for sales at stores open at least a year, saying it now expects this key figure to fall 5 percent, not 4 percent.

Supervalu and other grocers expect the challenges to persist.

Shoppers are coming in less often, buying fewer items and sticking to necessities. Supervalu competitor Great Atlantic & Pacific Tea Co., based in Montvale, N.J., reported Tuesday that its third-quarter loss grew sharply from a year earlier because shoppers’ habits have changed so drastically.

Industry analysts expect the situation to last until next year when stabilizing food prices and overall economic improvement may provide grocers some relief.

They saw the quarter as a mixed bag: An improvement in profit at Supervalu helped its shares rise, while A&P’s continuing losses pushed its stock down 20 percent by midday.

Fundamental improvement in Supervalu’s prospects will take longer, however.

Supervalu said it will improve efficiency by cutting the number of items its stores sell and by relying on a new team of leaders. Herkert said he remains optimistic.

“I recognize that one quarter is not a winning streak but I am starting to count,” Herkert said.

Shares of Supervalu, which is based in Minneapolis, rose 76 cent, or nearly 6 percent, to close at $13.68.

AP Retail Writer Michelle Chapman contributed to this report from New York.