Yikes! After a monstrous earnings miss, Supervalu suspended its earnings guidance and dividend and said it was exploring strategic alternatives.
Supervalu said its earnings per share for the first quarter ended June 16, fell to 19 cents a share from 35 cents a share and missed analysts’ consensus estimate of 38 cents. Sales declined to $10.6 billion from $11.1 billion. The company said the sales decline was due to the disposition of a majority of its fuel centers in addition to a 3.7% decline in identical-store sales at traditional supermarkets and a 3.4% decline in identical-store sales at the low price oriented Sav-A-Lot division.
The bad news on the sales and profit front was accompanied by the revelation that Supervalu was suspending its dividend and would no longer provide investors with sales and earnings guidance. The company also announced it was working with its financial advisors, Goldman Sachs and Greenhill & Co. to review strategic alternatives and put board member Wayne Sales in charge of the process so management can remain focused on executing what was described as an accelerated business plan.
That plan, as described by president and CEO Craig Herkert, involves further expense reduction and a lowering of prices to improve the retailers competitive positioning.
“While our shift to a fair price plus promotion strategy is right for our business, it is essential that we move even more aggressively to lower prices, and anticipate and respond to competitor actions,” Herkert said. “We expect our business transformation to meet our customers’ demands for great quality at lower prices. We intend to do this while remaining profitable, continuing to pay down debt and investing the capital to maintain and enhance our stores and related assets.”
As a result, the company will pursue deeper and more structural cost savings initiatives and adopting more flexible financing facilities, reducing near-term capital expenditures and suspending the dividend, according to Herkert.
“As we proceed with these actions in an effort to drive more traffic to our stores and ensure we are the destination of choice in the neighborhoods we serve, we remain focused on maintaining our operational and financial strength,” Herkert said. “We are committed to generating operating cash flows of more than $1 billion annually and meeting or exceeding our debt reduction targets.