Save-A-Lot Provides Some Strength to Supervalu’s Top Line in 1Q17



About Save-A-Lot

Save-A-Lot is Supervalu’s hard discount chain that sells groceries in 1,300 stores across 36 states in the United States. Save-A-Lot is viewed as Supervalu’s most prized gem because of the profit it generates for the company. In July 2015, Supervalu announced its intention to spin off its Save-A-Lot segment.

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Performance of the Save-A-Lot segment in fiscal 1Q17

Save-A-Lot’s net sales increased 1.7% YoY (year over year) to $1.4 billion due to the openings of new corporate and licensed stores. Identical store sales, however, remained negative, although the decline was less pronounced this quarter.

Network ID sales stood at -1.4%, registering an improvement of 80 basis points over fiscal 4Q16 due to a 110-basis-point sequential improvement in the licensee Wholesale ID sales. Corporate ID sales also remained negative at 1% since the 70-basis-point gain from new customer accounts was washed away by an average basket decline of 170 basis points.

Profitability and margins in fiscal 1Q17

Save-A-Lot’s operating margin declined from 3.6% of sales in fiscal 1Q16 to 2.7% of sales in fiscal 1Q17. Key drivers for this decline were higher employee-related costs, higher occupancy costs, and higher depreciation expenses related to the 50 new stores the company operated in fiscal 1Q17 compared to fiscal 1Q16. As a result, operating profit declined 23.5% YoY to $39 million in fiscal 1Q17.

Operating margin comparison

The Save-A-Lot chain has poor profitability compared to competitors such as Kroger (KR), Costco (COST), and Walmart (WMT), which are much larger in size than SVU. While Kroger and Costco had operating margins of 3.5% and 3.2%, respectively, Walmart reported an operating margin of 4.6% in the last reported quarter.

ETF investors seeking to add exposure to SVU can consider the iShares Morningstar Small-Cap Value ETF (JKL), which invests 0.24% of its portfolio in the company.


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