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Copyright 2012, Institute of Strategy & Valuation, All rights reserved.
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SUPERVALU, Inc. (SVU), the third-largest supermarket operator in the US, reported better-than-expected profits of $81 million, excluding non-recurring charges for intangible asset impairment and related expenses from store reductions and employee layoffs. This translates to $0.38 a share compared to analysts’ expectations of $0.35 a share. Including the aforementioned items, SVU reported a $424 million loss for the quarter. Total sales for Q4 2012 declined 5% to $8.23 billion, compared to the $8.66 billion generated in the same period a year ago. Retail price investments, higher advertising spend, and changes in business mix are other reasons for the lower figures for the quarter.
For fiscal 2012, SVU reported a 10% year-over-year decline in earnings at $1.25 per share, excluding non-cash goodwill and intangible asset impairment charges. Total sales slipped 4% to $36.1 billion.
Management, however, is optimistic about their fiscal 2013, guiding earnings to the range of $1.27 to $1.42 per share. They forecast capital expenditure of $675 million to account for the completion of 100 store remodels and the addition of 50 Save-A-Lot stores. While some analysts share in management’s confidence, others think that a turnaround is still not yet in sight.
SVU is currently trading at a P/E’ of 16.2x and an EV/IC’ of 1.0x, which is at the low end of historical valuations. The market appears to be pricing in a 7% ROI’ with -1% IC’ Growth over the next five years, while consensus estimates for ROI’ are steady at 6%.