SUPERVALU Reports First Quarter Fiscal 2015 Results

SUPERVALU INC. (NYSE: SVU) today reported first quarter fiscal 2015 net sales of $5.23 billion and net earnings from continuing operations of $48 million ($0.18 per diluted share).

Results for the first quarter of fiscal 2015 included $2 million in after-tax charges and costs for employee severance and debt financing activities. When adjusted for these items, first quarter fiscal 2015 net earnings from continuing operations were $50 million ($0.18 per diluted share). Net loss from continuing operations for last year’s first quarter was $102 million ($0.43 per diluted share) and included $139 million in after-tax charges and costs primarily related to financing activities, employee severance costs and asset impairment charges. When adjusted for these items, first quarter fiscal 2014 net earnings from continuing operations were $37 million ($0.14 per diluted share). [See tables 1-3 for a reconciliation of GAAP and non-GAAP (adjusted) results appearing in this release.]

"Fiscal 2015 is off to a solid start across our business segments,” said President and CEO Sam Duncan. “Our first quarter results reflect the investments we are making this year to position the company for future success and I am pleased with our operating performance.”

First Quarter Results – Continuing Operations

First quarter net sales were $5.23 billion compared to $5.24 billion last year, a decrease of 0.1 percent. Identical store sales in the Save-A-Lot network were positive 5.6 percent. Identical store sales for corporate stores within the Save-A-Lot network were positive 7.2 percent. Identical store sales in the Retail Food segment were positive 0.6 percent. Total sales within the Independent Business segment decreased 2.6 percent. Fees earned under the Transition Services Agreements (“TSA”) in the first quarter were $58 million compared to $84 million last year.

Gross profit for the first quarter was $752 million, or 14.4 percent of net sales. Last year’s first quarter gross profit was $795 million, or 15.2 percent of net sales. The decrease in gross profit compared to last year was primarily driven by lower fees earned under the TSA, predominantly related to the one-year transition amount recognized in the first quarter of fiscal 2014 of $36 million, and incremental investments to lower prices to customers partially offset by the benefits of lower infrastructure costs.

Selling and administrative expenses in the first quarter were $617 million, or 11.8 percent of net sales, and included $1 million in pre-tax employee severance costs. When adjusted for this item, selling and administrative expenses were $616 million, or 11.8 percent of net sales. Selling and administrative expenses in last year’s first quarter were $711 million, or 13.6 percent of net sales, and included $58 million in pre-tax net charges and costs primarily related to employee severance costs, accelerated stock-based compensation charges, and asset impairment charges. When adjusted for these items, selling and administrative expenses in the first quarter of fiscal 2014 were $653 million, or 12.5 percent of net sales. The decline in selling and administrative expenses was primarily driven by the benefits from lower employee-related costs, including net pension expense, and lower depreciation expense.

Net interest expense for the first quarter was $64 million and included $2 million in pre-tax debt financing charges related to the Company’s revolving ABL credit facility. When adjusted for this item, first quarter net interest expense was $62 million. Net interest expense for last year’s first quarter was $249 million, which included $169 million in charges and costs related to financing activities. When adjusted for these items, net interest expense in the first quarter of fiscal 2014 was $80 million. The decrease in interest expense was primarily driven by lower average rates and lower outstanding balances.

SUPERVALU’s income tax expense was $24 million, or 33.1 percent of pre-tax earnings, for the first quarter, compared to an income tax benefit of $62 million, or 37.5 percent of pre-tax loss in last year’s first quarter. The tax rate for the first quarter of fiscal 2015 reflects $2 million of discrete tax benefits.

Save-A-Lot

First quarter Save-A-Lot net sales were $1.35 billion compared to $1.27 billion last year, an increase of 6.5 percent, reflecting the impact from network identical store sales of positive 5.6 percent. Identical store sales for corporate stores within the Save-A-Lot network were positive 7.2 percent.

Save-A-Lot operating earnings in the first quarter were $46 million, or 3.4 percent of net sales. Last year’s Save-A-Lot operating earnings in the first quarter were $52 million, or 4.1 percent of net sales, and included $5 million in pre-tax asset impairment charges and employee severance costs. When adjusted for these items, Save-A-Lot operating earnings in the first quarter of fiscal 2014 were $57 million, or 4.5 percent of net sales. The decrease in Save-A-Lot adjusted operating earnings was primarily attributable to incremental investments to lower prices to customers offset in part by the benefits of cost reduction initiatives and higher sales volumes.

Independent Business

First quarter Independent Business net sales were $2.40 billion compared to $2.46 billion last year, a decrease of 2.6 percent, primarily due to lost accounts including lower sales to one New Albertson’s, Inc. banner that completed the transition to self-distribution and lower military sales, partially offset by net new business.

Independent Business operating earnings in the first quarter were $66 million, or 2.8 percent of net sales, and included $1 million of pre-tax employee severance costs. When adjusted for this item, Independent Business operating earnings in the first quarter were $67 million, or 2.8 percent of net sales. Last year’s Independent Business operating earnings in the first quarter were $55 million, or 2.3 percent of net sales, and included $14 million in pre-tax costs and charges primarily related to employee severance costs and accelerated stock-based compensation charges. When adjusted for these items, Independent Business operating earnings in the first quarter of fiscal 2014 were $69 million, or 2.8 percent of net sales.

Retail Food

First quarter Retail Food net sales were $1.43 billion compared to $1.43 billion last year. Identical store sales were positive 0.6 percent.

Retail Food operating earnings in the first quarter were $30 million, or 2.1 percent of net sales. Last year’s Retail Food operating earnings were $7 million, or 0.4 percent of net sales, and included $18 million in pre-tax asset impairment charges, employee severance costs, and accelerated stock-based compensation charges. When adjusted for these items, Retail Food operating earnings in the first quarter of fiscal 2014 were $25 million, or 1.7 percent of net sales. The increase in Retail Food adjusted operating earnings was primarily driven by the benefit of cost reduction initiatives and lower depreciation expense partly offset by incremental investments to lower prices to customers.

Corporate

First quarter fees earned under the TSA were $58 million compared to $84 million last year. Fees earned under the TSA in the first quarter of fiscal 2014 included $36 million of the one-year transition fee.

Net Corporate operating loss in the first quarter was $7 million. Last year’s net Corporate operating loss in the first quarter was $30 million and included $21 million in pre-tax employee severance costs, accelerated stock-based compensation charges, and asset impairment charges. When adjusted for these items, last year’s net Corporate operating loss in the first quarter was $9 million.

Cash flows – Continuing Operations

First quarter fiscal 2015 net cash flows from continuing operating activities were $57 million compared to a use of $98 million in the prior year, reflecting lower levels of cash utilized in working capital and lower cash tax payments in the current year. Net cash flows used in investing activities were $32 million compared to $14 million the prior year, reflecting higher levels of capital expenditures. Net cash flows used in financing activities were $18 million compared to a source of $61 million in the prior year, reflecting proceeds received in the first 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 first 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 3,320 stores composed of 1,805 independent stores serviced primarily by the Company’s food distribution business, 1,325 Save-A-Lot stores, of which 931 are operated by licensee owners; and 190 traditional retail grocery stores (store counts as of June 14, 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., 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.