Supervalu Inc. said quarterly profit plunged 41% and lowered its sales forecast for the current year as the weak economy and fierce price competition pressures food retailers.
Identical-store sales in the 12-month period that began in March are expected to fall 5%, excluding fuel, from the previous year, Supervalu said in a statement July 27. In April, the Eden Prairie, Minn.-based grocery chain projected a 2% decline.
High unemployment and a poor housing market continue to pressure traditional grocers as consumers cut spending and seek bargains at discount chains or club stores, such as Wal-Mart Stores Inc. and Costco Wholesale Corp.
U.S. consumer confidence fell to the lowest level since February, the Conference Board, a private researcher, reported today. Craig Herkert, Supervalu’s chief executive officer, indicated he anticipated little prospect of improvement in the near future.
“We continue to see a very, very challenging economic environment in the U.S. today,” Herkert said during a conference call with analysts after the release of the company’s financial results earlier today. “We are not optimistic that the economic climate turns the corner any time soon.”
Herkert, who previously led Wal-Mart’s Americas operations, said there recently has been “unbelievable growth” in numbers of people requiring government assistance to buy groceries, such as food stamps, as well as “huge” use of coupons.
In the three months ending June 19, Supervalu’s fiscal 2011 first quarter, net income fell to $67 million from $113 million a year earlier, the company said in today’s statement. Net sales fell 9.4%, to $11.5 billion.
Identical-store sales, a key gauge of retailer performance, fell 7.2% during the quarter, Supervalu said. The sales reflect stores open for four full quarters.
“Overall, there is little in the latest results that instills much confidence,” Ajay Jain, an analyst with Hapoalim Securities, said in a report on Supervalu today.
Supervalu operates more than 2,300 U.S. stores under about a dozen branded retail chains, including Albertsons, Cub Foods, Jewel-Osco and Save-A-Lot. The company is the fifth-largest U.S. food retailer, with about 4% of the U.S. market, according to Citigroup Global Markets analyst Deborah Weinswig.
But Supervalu has struggled with food deflation and competition with lower-priced competitors. The company has closed or sold nearly 100 stores in the past two years, and earlier this year said it would reduce the number of items offered per store.
Supervalu hasn’t said how many fresh produce offerings would be reduced, if at all.
Food retailers probably will remain in a “hotly competitive” environment,” Herkert said.
“It remains extraordinarily competitive out there, and we expect that to continue,” Herkert said during the call.
Supervalu has made recent efforts to boost store traffic, including a “Win with Fresh Produce” promotion aimed at touting locally grown fruits and vegetables.
The promotion includes posting “just arrived” signs and labels on its freshest items and highlighting “locally harvested” produce from nearby growers, Herkert said at the company’s annual shareholders’ meeting in June. Company executives didn’t provide further details on the promotion July 27.
Also, Supervalu cut its fiscal 2011 net sales forecast by $1 billion, to $38 billion, and reduced its 2011 earnings forecast to $1.61 to $1.81 per share from a previous estimate of $1.65 to $1.85.
The decrease reflects higher than expected expenses to exit markets in Cincinnati and Connecticut and the resolution of a strike earlier this year at the company’s Shaw’s operation in New England, Supervalu said.