What Depressed Supervalu’s Margins in 2Q16?



Net earnings fall 24% in 2Q17

In the second quarter, which ended September 10, 2016, Supervalu (SVU) reported a net profit of $30 million from continuing operations. After excluding $6 million of supply agreement termination fees and $4 million of store closures and potential Save-A-Lot separation costs, its net profit stood at $28 million, down ~24% YoY (year-over-year).

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Gross margins improve slightly in 2Q17

The company’s gross margin improved by ten basis points to 14.5% of net sales in 2Q17, mainly due to better product margins and more corporate Save-A-Lot stores.

Operating profit fell 16% on a higher SG&A rate

Operating profit was, however, down 6.4% to $88 million as SG&A (selling, general, and administrative) expenses increased to 12.4% of sales, compared to 11.9% last year. While SG&A expenses at the Save-A-Lot and Retail segments rose 160 and 200 basis points, respectively, the Wholesale segment saw a 10 basis point decline in these costs.

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Comparing SVU’s operating margin to peers’

Supervalu’s trailing-12-month (or TTM) operating margin of 2.5% is among the lowest in its wholesale and retail peer group. Competitors Kroger (KR), Costco (COST), and Sprouts Farmers Market (SFM) reported TTM operating margins of 3.2%, 3.1%, and 6.3%, respectively, in their last reported quarters.

Fiscal 2017 outlook

Full-year adjusted EBITDA (earnings before interest taxes, depreciation, and amortization) are predicted to fall 5% YoY in fiscal 2017. This fall includes the results of the Save-A-Lot business, which the company recently sold to Onex.

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

Read the next part of this series to about Supervalu’s stock market performance.


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