SUPERVALU Reports Second Quarter Fiscal 2015 Results

SUPERVALU INC. (NYSE: SVU) today reported second quarter fiscal 2015 net sales of $4.02 billion and net earnings from continuing operations of $31 million ($0.11 per diluted share).

Results for the second quarter of fiscal 2015 included $1 million in after-tax information technology intrusion costs, net of insurance recoverable. When adjusted for this item, second quarter fiscal 2015 net earnings from continuing operations were $32 million ($0.11 per diluted share). Net earnings from continuing operations for last year’s second quarter were $40 million ($0.15 per diluted share) and included $9 million in after-tax income related to the sale of a property and a $3 million after-tax charge related to a legal settlement. When adjusted for these items, second quarter fiscal 2014 net earnings from continuing operations were $34 million ($0.13 per diluted share). [See tables 1-5 for a reconciliation of GAAP and non-GAAP (adjusted) results appearing in this release.]

"Midway through fiscal 2015, I am encouraged with the progress we have made across the business,” said President and CEO Sam Duncan. “The investments we have made at Save-A-Lot continue to drive sales and our Retail Food stores recorded their third consecutive quarter of positive identical store sales.” Duncan continued, “The addition of the Rainbow stores this past quarter is a positive for our Independent Business and we are encouraged by the early results.”

Second Quarter Results – Continuing Operations
Second quarter net sales were $4.02 billion compared to $3.95 billion last year, an increase of 1.8 percent. Identical store sales in the Save-A-Lot network were positive 6.5 percent. Identical store sales for corporate stores within the Save-A-Lot network were positive 8.2 percent. Identical store sales in the Retail Food segment were positive 0.4 percent. Total sales within the Independent Business segment decreased 1.1 percent. Fees earned under the Transition Services Agreements (“TSA”) in the second quarter were $44 million compared to $62 million last year.

Gross profit for the second quarter was $572 million, or 14.2 percent of net sales. Last year’s second quarter gross profit was $576 million, or 14.6 percent of net sales. The decrease in gross profit rate compared to last year was primarily driven by lower fees earned under the TSA, predominantly related to the one-year transition fee earned under the TSA in fiscal 2014 of $60 million of which $18 million was recognized in the second quarter of fiscal 2014.

Selling and administrative expenses in the second quarter were $478 million, or 11.9 percent of net sales, and included $1 million in net pre-tax information technology intrusion costs. When adjusted for this item, selling and administrative expenses were $477 million, or 11.9 percent of net sales. Selling and administrative expenses in last year’s second quarter were $464 million, or 11.8 percent of net sales, and included $14 million in pre-tax income related to the sale of a property and a $5 million pre-tax charge related to a legal settlement. When adjusted for these items, selling and administrative expenses in the second quarter of fiscal 2014 were $473 million, or 12.0 percent of net sales. The decline in adjusted selling and administrative expenses as a percent of net sales was primarily driven by lower pension and depreciation expense partly offset by higher employee-related costs.

Net interest expense for the second quarter was $46 million. Net interest expense for last year’s second quarter was $51 million. The decrease in interest expense was primarily driven by lower average rates and lower outstanding balances.

SUPERVALU’s income tax expense was $18 million, or 36.9 percent of pre-tax earnings, for the second quarter, compared to $22 million, or 35.1 percent of pre-tax earnings in last year’s second quarter.

Independent Business

Second quarter Independent Business net sales were $1.82 billion compared to $1.84 billion last year, a decrease of 1.1 percent, primarily due to lost accounts, including one New Albertson’s, Inc. banner that completed the transition to self-distribution and a larger lost customer, and lower military sales, partially offset by new business including increased sales to existing customers.

Independent Business operating earnings in the second quarter were $54 million, or 2.9 percent of net sales. Last year’s Independent Business operating earnings in the second quarter were $73 million, or 3.9 percent of net sales and included $14 million in pre-tax income related to the sale of a property. When adjusted for this item, Independent Business operating earnings in the second quarter of fiscal 2014 were $59 million, or 3.2 percent of net sales. The decrease in Independent Business adjusted operating earnings was primarily attributable to higher employee-related costs and lower margins from stronger private brands pricing support and lower levels of vendor funding.

Save-A-Lot

Second quarter Save-A-Lot net sales were $1.05 billion compared to $972 million last year, an increase of 8.0 percent, reflecting the impact from network identical store sales of positive 6.5 percent. Identical store sales for corporate stores within the Save-A-Lot network were positive 8.2 percent.

Save-A-Lot operating earnings in the second quarter were $26 million, or 2.5 percent of net sales. Last year’s Save-A-Lot operating earnings in the second quarter were $32 million, or 3.3 percent of net sales, and included a $5 million pre-tax charge related to a legal settlement. When adjusted for this item, Save-A-Lot operating earnings in the second quarter of fiscal 2014 were $37 million, or 3.7 percent of net sales. The decrease in Save-A-Lot adjusted operating earnings was primarily attributable to incremental investments to lower prices to customers, higher shrink and advertising costs partially offset by the benefit of higher sales.

Retail Food

Second quarter Retail Food net sales were $1.10 billion compared to $1.07 billion last year. Identical store sales were positive 0.4 percent.

Retail Food operating earnings in the second quarter were $20 million, or 1.8 percent of net sales. Last year’s Retail Food operating earnings were $7 million, or 0.8 percent of net sales. The increase in Retail Food operating earnings was primarily driven by the benefit of lower levels of shrink and promotional spending.

Corporate

Second quarter fees earned under the TSA were $44 million compared to $62 million last year. The net sales decrease reflects a one-year transition fee earned under the TSA in fiscal 2014 of $60 million, of which $18 million was recognized in the second quarter of fiscal 2014.

Net Corporate operating loss in the second quarter was $6 million and included $1 million in information technology intrusion costs, net of insurance receivable. When adjusted for this item, net Corporate operating loss in the second quarter was $5 million. Last year’s second quarter net Corporate operating loss was zero. The increase in net Corporate operating loss was driven by the impact of lower TSA fees partially offset by lower pension expense.

Cash flows – Continuing Operations

Year-to-date fiscal 2015 net cash flows provided by continuing operating activities were $158 million compared to a use of $113 million in the prior year, reflecting lower levels of cash utilized in working capital and lower cash tax payments in the current year. Year-to-date net cash flows used in investing activities were $121 million compared to $29 million the prior year, reflecting higher levels of capital expenditures and business acquisitions. Year-to-date net cash flows used in financing activities were $34 million compared to a source of $109 million in the prior year, reflecting proceeds received in the second quarter of fiscal 2014 from the issuance of common stock to Symphony Investors, net of payments toward debt financing costs.

Discontinued Operations

On March 21, 2013, the Company completed the sale of five retail grocery banners (Albertsons, Acme, Jewel-Osco, Shaw’s and Star Market). The results from these banners are presented as discontinued operations for all periods and include the operating results and charges related to these stores.

Conference Call

A conference call to review the second quarter results is scheduled for 9:00 a.m. central time today. The call will be webcast live at www.supervaluinvestors.com (click on microphone icon). A replay of the call will be archived at www.supervaluinvestors.com. To access the website replay go to the "Investors" link and click on "Presentations and Webcasts."

About SUPERVALU INC.
SUPERVALU INC. is one of the largest grocery wholesalers and retailers in the U.S. with annual sales of approximately $17 billion. SUPERVALU serves customers across the United States through a network of 3,336 stores composed of 1,807 independent stores serviced primarily by the Company’s food distribution business; 1,332 Save-A-Lot stores, of which 928 are operated by licensee owners; and 197 traditional retail grocery stores (store counts as of September 6, 2014). Headquartered in Minnesota, SUPERVALU has approximately 35,000 employees. For more information about SUPERVALU visit www.supervalu.com.

CAUTIONARY STATEMENTS RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

Except for the historical and factual information contained herein, the matters set forth in this news release, particularly those pertaining to SUPERVALU’s expectations, guidance, or future operating results, and other statements identified by words such as "estimates," "expects," "projects," "plans," and similar expressions are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including competition, ability to execute initiatives, substantial indebtedness, impact of economic conditions, labor relations issues, escalating costs of providing employee benefits, relationships with Albertson’s LLC and New Albertson’s Inc., intrusions to and disruption of information technology systems, governmental regulation, food and drug safety issues, legal proceedings, severe weather, natural disasters and adverse climate changes, disruption to supply chain and distribution network, changes in military business, adequacy of insurance, volatility in fuel and energy costs, asset impairment charges, fluctuations in our common stock price and other risk factors relating to our business or industry as detailed from time to time in SUPERVALU's reports filed with the SEC.You should not place undue reliance on these forward-looking statements, which speak only as of the date of this news release. Unless legally required, SUPERVALU undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

SUPERVALU INC. and Subsidiaries
SUPPLEMENTAL FINANCIAL INFORMATION
(Unaudited)

SUPERVALU INC.'s consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles ("GAAP"). The measures and items identified below are provided as a supplement to our consolidated financial statements and should not be considered an alternative to any GAAP measure of performance or liquidity. The presentation of these financial measures and items is not intended to be a substitute for or be superior to any financial information prepared and presented in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. Certain adjustments to our GAAP financial measures reflected below exclude certain items that are occasionally recurring in nature and may be reflected in our financial results for the foreseeable future. These measurements and items may be different from non-GAAP financial measures used by other companies. All measurements are provided as a reconciliation from a GAAP measurement. Management believes the measurements and items identified below are important measures of business performance that provide investors with useful supplemental information. SUPERVALU utilizes certain non-GAAP measures to analyze underlying core business trends to understand operating performance. In addition, management utilizes certain non-GAAP measures as a compensation performance measure. The items below should be reviewed in conjunction with SUPERVALU INC.'s financial results reported in accordance with GAAP, as reported in SUPERVALU's Quarterly Reports on Form 10-Q and the Annual Report on Form 10-K for the fiscal year ended February 22, 2014.