SUPERVALU's CEO Discusses Q4 2012 Results - Earnings Call Transcript

SUPERVALU (SVU)

Q4 2012 Earnings Call

April 10, 2012 10:00 am ET

Executives

Kenneth B. Levy - Vice President of Investor Relations

Craig R. Herkert - Chief Executive Officer, President, Director and Member of Executive Committee

Sherry M. Smith - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Kenneth Goldman - JP Morgan Chase & Co, Research Division

Meredith Adler - Barclays Capital, Research Division

Edward J. Kelly - Crédit Suisse AG, Research Division

Ajay Jain - Cantor Fitzgerald & Co., Research Division

Charles X. Grom - Deutsche Bank AG, Research Division

Scott Andrew Mushkin - Jefferies & Company, Inc., Research Division

Deborah L. Weinswig - Citigroup Inc, Research Division

Stephen Shin - Morgan Stanley, Research Division

Presentation

Operator

Good morning. My name is Ashley, and I will be your conference operator today. At this time, I would like to welcome everyone to the SUPERVALU's Fourth Quarter Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Ken Levy. Mr. Levy, you may begin your conference.

Kenneth B. Levy

Thank you, Ashley. I want to welcome everyone to SUPERVALU's Fourth Quarter 2012 Earnings Conference Call. Joining me on today's call are Craig Herkert, Chief Executive Officer and President; and Sherry Smith, EVP and Chief Financial Officer.

We have some supplemental information to accompany our prepared remarks today, which is available on SUPERVALU's Investor Relations website under the Presentations and Webcasts section. 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 provision 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 as well as the supplemental information will be available on our corporate website at www.supervalu.com.

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

Craig R. Herkert

Thank you, Ken, and good morning, everyone. I'm happy to report that in fiscal '12, we delivered on our financial commitments while building a strong foundation for the second year of our transformation. We delivered full year adjusted earnings of $1.25 per share. We improved full year identical store sales by 300 basis points, finishing the year at negative 2.8%. We removed $165 million from our cost structure, and we strengthened our balance sheet.

Our business transformation strategy and the 8 Plays to Win framework are helping us to redefine our value proposition. In the 12 months since we unveiled this strategy, we developed and rolled out new tools and capabilities to improve the way we run our business. We implemented hyperlocal initiatives to better match our in-store offering to the needs of the communities we serve, and we invested in price across our traditional retail network.

In our retail stores, we are now leveraging proprietary data to improve performance and create a better shopping experience for our customers. Through fiscal 2012, we deployed new reports that allow us to pinpoint out of stocks by day and by time of day so that we can take prompt corrective action and improve availability. We improved freshness and assortment in produce based on space allocation tools and we have begun to manage inventory levels better with new ordering and forecasting tools, which benefit our DSD vendors.

We have also simplified our operations across the enterprise by streamlining processes and eliminating redundancies to reduce administrative costs and take complexity out of our business. In February, we announced significant workforce changes that served to rightsize our company while allowing us to improve decision making and delayer operations.

Another key tenet of our business transformation is delivering fair pricing. In fiscal 2012, we made steady progress to improve pricing and we did so without adversely impacting margin. We stayed true to our pledge to prefund price investments by creating a disciplined environment, committed to taking in dollars before spending them. Our investments were made broadly across markets, categories and items, and we ramped up the levels of these investments as we were able to generate additional funding.

Among the most visible investments we made was in our produce department. Produce is a category that contributes about 10% of retail sales and is a key driver of store choice for most shoppers. In the third quarter, we began lowering everyday retail prices by up to 20% on approximately 200 items and completed this reset early in the fourth quarter. While we are still early in assessing trends, I'm pleased to report that unit volumes improved by over 300 basis points since implementation in Q3 and have outpaced unit movements in the rest of the store. As I have discussed before, we anticipate our price investments will first be seen in basket size as existing customers respond to our lower shelf pricing and broaden their shop with us. Over time, we would expect to generate incremental traffic as secondary shoppers return to our stores to shop with more frequency.

Perhaps the most important effect of our produce investments is that it has positively impacted customer perceptions, with our primary customers noting an overall improvement in the freshness of our food. These results serve as an important validation of our strategy.

We have also expanded our private brand offering. This past year, Essential Everyday, our new national brand equivalent line, rolled out in 41 categories with more than 500 SKUs. With its crisp updated packaging, this new label drives brand recognition, delivers immediate production efficiencies and has been embraced by our customers. We have also aggressively expanded Shopper's Value, our entry-level price brand, which added 68 new SKUs and saw an 11% increase year-over-year. As we work to deliver greater everyday value, hyperlocal will be our true point of differentiation. In fiscal '12, this approach helped to invigorate our store directors and associates as they moved to engage customers on a whole new level. This is a major cultural shift for our company, but one that store teams have genuinely embraced.

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