SUPERVALU Reports Fourth Quarter Fiscal 2014 Results

SUPERVALU INC. (NYSE: SVU) today reported fourth quarter fiscal 2014 net sales of $3.95 billion and net earnings of $26 million, or $0.10 per diluted share.

Net earnings from continuing operations for the fourth quarter of fiscal 2014 were $40 million, or $0.15 per diluted share, and included $8 million in after-tax net costs and charges primarily for employee severance and debt financing activities. When adjusted for these items, fourth quarter fiscal 2014 net earnings from continuing operations were $48 million, or $0.18 per diluted share. Net loss from continuing operations for last year’s fourth quarter was $174 million, or $0.82 per diluted share, and included $149 million in after-tax costs and charges primarily for non-cash asset impairments and employee severance. When adjusted for these items, fourth quarter fiscal 2013 net loss from continuing operations was $25 million, or $0.11 per diluted share. Net loss from discontinued operations in the fourth quarter of fiscal 2014 was $14 million. [See tables 1-4 for a reconciliation of GAAP and non-GAAP (adjusted) results appearing in this release.]

"Fiscal 2014 was an important transition year for SUPERVALU as we stabilized the organization and set the foundation for our future,” said President and CEO Sam Duncan. “I am pleased with the direction of our business segments and look forward to the new fiscal year where we can focus our attention on driving sales growth across the organization.”

Fourth Quarter Results – Continuing Operations

Fourth quarter net sales were $3.95 billion compared to $3.90 billion last year, an increase of 1.4 percent. Identical store sales in the Save-A-Lot network were positive 2.1 percent. Identical store sales for corporate stores within the Save-A-Lot network were positive 3.5 percent. Identical store sales in the Retail Food segment were positive 0.2 percent. Total sales within the Independent Business segment decreased 0.6 percent. Fees earned under the Transition Services Agreements (“TSA”) in the fourth quarter were $46 million compared to $9 million last year.

Gross profit for the fourth quarter was $590 million, or 14.9 percent of net sales. Last year’s fourth quarter gross profit was $557 million, or 14.3 percent of net sales. The increase in gross profit compared to last year was primarily driven by incremental fees earned under the TSA and the benefits of lower infrastructure costs partly offset by incremental investments to lower prices to customers.

Selling and administrative expenses in the fourth quarter were $471 million, or 11.9 percent of net sales, and included $8 million in pre-tax employee severance costs. When adjusted for these costs, selling and administrative expenses were $463 million, or 11.7 percent of net sales. Selling and administrative expenses in last year’s fourth quarter were $760 million, or 19.5 percent of net sales, and included $238 million in pre-tax asset impairment charges and employee severance costs. When adjusted for these items, selling and administrative expenses in last year’s fourth quarter were $522 million, or 13.4 percent of net sales. The decline in selling and administrative expenses compared to last year was primarily driven by the benefits of cost reduction initiatives and lower surplus property charges.

Last year’s fourth quarter also included a $6 million pre-tax impairment charge for tradenames with indefinite useful lives.

Net interest expense for the fourth quarter was $55 million and included $5 million in pre-tax debt financing costs related to the Company’s term loan re-pricing. When adjusted for this item, net interest expense was $50 million compared to $58 million last year. The decrease in interest expense was primarily driven by lower average rates and lower outstanding balances on the Company’s senior notes.

SUPERVALU’s income tax expense was $24 million, or 38.2 percent of pre-tax earnings, for the fourth quarter, compared to an income tax benefit of $93 million, or 35.0 percent of pre-tax loss in last year’s fourth quarter.

Independent Business

Fourth quarter Independent Business net sales were $1.82 billion compared to $1.83 billion last year, a decrease of 0.6 percent, primarily due to the continued impact of losing two large customers and lower military sales partially offset by net new business.

Independent Business operating earnings in the fourth quarter were $54 million, or 3.0 percent of net sales, and included $4 million of pre-tax employee severance costs. When adjusted for this item, Independent Business operating earnings in the fourth quarter were $58 million, or 3.2 percent of net sales. Last year’s Independent Business operating earnings in the fourth quarter were $28 million, or 1.5 percent of net sales, and included $22 million in pre-tax asset and tradename impairment charges and employee severance costs. When adjusted for these items, Independent Business operating earnings in last year’s fourth quarter were $50 million, or 2.7 percent of net sales. The increase in Independent Business adjusted operating earnings was primarily attributable to lower bad debt expense and cost reduction initiatives.

Save-A-Lot

Fourth quarter Save-A-Lot net sales were $999 million compared to $969 million last year, an increase of 3.1 percent, reflecting the impact from network identical store sales of positive 2.1 percent. Identical store sales for corporate stores within the Save-A-Lot network were positive 3.5 percent.

Save-A-Lot operating earnings in the fourth quarter were $43 million, or 4.3 percent of net sales. Last year’s Save-A-Lot operating earnings in the fourth quarter were $40 million, or 4.2 percent of net sales, and included $9 million in pre-tax asset impairment charges. When adjusted for this item, Save-A-Lot operating earnings in last year’s fourth quarter were $49 million, or 5.0 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.

Retail Food

Fourth quarter Retail Food net sales were $1.09 billion compared to $1.09 billion last year. Identical store sales were positive 0.2 percent.

Retail Food operating earnings in the fourth quarter were $36 million, or 3.4 percent of net sales, and included $2 million in pre-tax employee severance costs. When adjusted for this item, Retail Food operating earnings in the fourth quarter were $38 million, or 3.5 percent of net sales. Last year’s Retail Food operating loss was $181 million, or 16.7 percent of net sales, and included $195 million in pre-tax charges primarily related to asset impairments. When adjusted for this item, last year’s retail food operating earnings were $14 million, or 1.3 percent of net sales. The increase in Retail Food adjusted operating earnings was primarily driven by the benefit of cost reduction initiatives, including lower depreciation expense.

Corporate

Fourth quarter fees earned under the TSA were $46 million compared to $9 million last year, reflecting a higher number of stores and distribution centers covered under the agreements.

Net Corporate operating loss in the fourth quarter was $14 million and included $2 million in pre-tax employee severance costs. When adjusted for this item, net Corporate operating loss in the fourth quarter was $12 million. Last year’s net Corporate operating loss in the fourth quarter was $96 million and included $18 million in pre-tax employee severance costs and asset impairment charges. When adjusted for these items, last year’s net Corporate operating loss in the fourth quarter was $78 million. The reduction in Corporate operating loss was primarily driven by incremental fees received under the TSA and cost reduction initiatives. Last year’s loss included administrative costs of the five retail grocery banners that were divested and which were not covered by the previous TSA.

Cash flows – Continuing Operations

Full year fiscal 2014 net cash flows from operating activities were $120 million compared to $417 million last year, reflecting higher cash tax payments and working capital investment in the current year. Full year net cash flows used in investing activities were $86 million compared to $189 million last year, reflecting lower levels of capital expenditures. Full year net cash flows used in financing activities were $98 million compared to $496 million last year, reflecting lower net debt payments and proceeds received from the issuance of common stock to Symphony Investors.

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 fourth 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 3,339 stores composed of 1,819 independent stores serviced primarily by the Company’s food distribution business, 1,330 Save-A-Lot stores, of which 948 are operated by licensee owners; and 190 traditional retail grocery stores. 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, Annual Report on Form 10-K for the fiscal year ended February 22, 2014 and Current Report on Form 8-K filed September 6, 2013.