Q1 2011 Earnings Call

July 27, 2010 10:00 am ET


Kenneth Levy -

Pamela Knous - Chief Financial Officer and Executive Vice President

Craig Herkert - Chief Executive Officer, President and Director


Edward Kelly - Crédit Suisse AG

Meredith Adler - Barclays Capital

Scott Mushkin - Jefferies & Company, Inc.

Karen Short - BMO Capital Markets U.S.

Ajay Jain - UBS

Mark Wiltamuth - Morgan Stanley

Deborah Weinswig - Citigroup Inc

Neil Currie - UBS Investment Bank

Charles Cerankosky - Northcoast Research



Good morning. My name is Carmen, and I will be your conference operator today. At this time, I would like to welcome everyone to SUPERVALU's First Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Ken Levy, Vice President of Investor Relations. Sir, you may begin.

Kenneth Levy

Thank you, Carmen. I want to welcome everyone to SUPERVALU's First Quarter 2011 Earnings Conference Call. Joining me on today's call are Craig Herkert, SUPERVALU's Chief Executive Officer and President; and Pam Knous, Executive Vice President and Chief Financial Officer.

Following prepared remarks, we will open up the call for your questions. [Operator Instructions]

The information presented and discussed today includes forward-looking statements, which are made under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. The risks and uncertainties related to such statements are detailed in our most recent 10-K filing. A replay of today's call will be available on our corporate website at

With that, I will now turn the call over to Craig Herkert.

Craig Herkert

Well, thank you, Ken, and good morning, everybody. As you read in today's release, SUPERVALU reported earnings per share of $0.43 for the first quarter of fiscal '11, which excludes the impact of onetime items. This was a tough quarter for us but one that ushered in positive operational progress.

Despite weak top line sales and expense deleveraging, we controlled our margins well and continued to take cost out of the business. First, let me provide some color on our ID sales. Excluding Shaw's, due to the labor dispute which was resolved earlier this month, ID sales declined 6.5% year-over-year. To put this in context, we're cycling last year's heavy promotional period, and the consumer remained stretched.

Since the beginning of the year, our merchandising, marketing and retail operations teams have worked collaboratively to improve value perception at store level, and our efforts to control margins have begun to show tangible signs of traction. The 10 basis-point improvement to gross margin during the quarter reflects more effective promotional spending, which was partially offset by price investment.

For the quarter, the percent of items sold on promotion was down approximately 100 basis points from a year earlier. Over the long term, we believe this work will help us drive sales, restore customer confidence in our brand position and be more deliberative with our promotional activities. Though much work remains, I do want to provide a candid update of the progress we're making.

In merchandising, we've identified a number of opportunities to better leverage our extensive store network. One particular opportunity that I have spoken to before is SUPERVALU's network-wide promotional events for power sale items. Today, I'm able to provide you an update on two events we completed this past quarter.

In May, we successfully ran a national sales promotion on Soup across our 4,300 store network, including Save-A-Lot and our independent retailers. This promotion drove several million incremental unit sales within the category. In June, this event was followed by a similar promotion in the Cereal category.

Both power sale events went well, met sales targets and serve as an initial marker for our vendor partners that SUPERVALU can execute company-wide programs and move product quickly. Each successful event builds vendor confidence in our company-wide capabilities and should ultimately level the playing field with others in the industry. Our 4,300 store network is a distinct advantage that further differentiate SUPERVALU from its competitors.

Another refinement to our merchandising strategy focuses on everyday pricing in select categories to maximize sales and generate labor efficiencies. Across the store, we have a number of product groups that can best be described as convenience items. They don't necessarily drive foot traffic or incremental store purchases, but our customers have come to expect them as part of the store assortment. These products require a high level of labor maintenance when promoted though their demand profile is relatively inelastic.

Over the next few months, we will begin offering these products at constant everyday prices rather than employing promotional cycles. Pricing will be competitive, and this change will allow us to realize significant incremental labor efficiencies.

To illustrate, today, our store associates spent countless hours changing shelf tags across 140 SKU category throughout our 1,200 store traditional network several times a month. A constant price strategy will eliminate or redirect these labor hours to customer-facing activities. However, brands are another important component of our effort to drive incremental sales.

Last quarter, I talked about our decision to bring SUPERVALU's private brand activities in-house. Additionally, we've corrected pricing and imposed new shelf placement disciplines company-wide. Since making these changes, I'm pleased to point out that our private brand penetration rose above 18%, moving us closer to our year-end target of 20%. For the quarter, unit sales were north of just 20%.

At SUPERVALU, customers are shopping our private brands with increasing frequency. Our entry-level price point offering, Shoppers Value, is also gaining greater traction with the independent retailers we service through our Supply Chain business. Year-to-date, this brand is up 19% with our independent retailers.

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