Supervalu looks to Save-A-Lot banner for growth
MINNEAPOLIS — There were three takeaways to come out of Supervalu’s third-quarter analyst call Tuesday morning: The deep discount banner Save-A-Lot will be the most significant catalyst for growth going forward; Supervalu aggressively is addressing pricing issues that have had consumers who are more accustomed to the “hi” in the grocer’s "hi-lo" pricing strategy shopping elsewhere; and while traditional Supervalu banners Acme, Shaw’s and even Jewel-Osco do not have a “For Sale” sign on their respective front lawns, at least not yet, they can be had for the right price.
However, following Supervalu’s disappointing fiscal 2011 third-quarter results and a second consecutive quarter announcing reduced full-year projections, the question many analysts seemed to be posing was not what if Supervalu begins parceling out its numerous grocery banners, but how soon?
“We do not feel stressed that we have to do anything [with regard to divesting assets],” Craig Herkert, Supervalu CEO and president, assured analysts Tuesday morning. That’s not to say Supervalu won’t entertain offers, though. “We will always look at our asset base and make appropriate decisions for our shareholders,” Herkert said.
But today’s market is a buyer’s market he added, suggesting that Supervalu is not yet in a position where a divestiture has become a necessity to avoid violating any financial covenants, at least not at a reduced value. “Within each of these banners … we have very successful stores,” Herkert said. And these banners are market-share leaders across several markets, he added.
The more immediate issue being addressed by Supervalu is its failed holiday-season promotions, particularly across carbonated beverages, soups and frozen foods, and a "hi-lo" pricing strategy that has many consumers cherry picking promotional deals but satisfying their day-to-day shopping needs elsewhere. “If three weeks out of four [our pricing is] out of line with what the market is, she’ll split her basket and get those products somewhere else,” Herkert said. “What we are trying to do is minimize that delta we have between our regular price [and promotional] price,” he said, and potentially recapture some of those lost baskets.
Repairing consumer perception that Supervalu banners are overpriced (save for Save-A-Lot) is not going to be easy, especially in the near term. Consumers still are struggling in a difficult economic environment, and supplier prices next year are expected to increase between 3% and 4% on the low end to as high as 14% on the high end, Herkert said. “We are passing these [price increases] along to our consumers,” he acknowledged.
Another challenge in repairing any pricing gap is doing so without impacting EBITDA. However, Herkert maintained that when done right, lowered everyday retail prices do not necessarily mean a reduction in profit on the item level. Price corrections could increase turns, for example. “As we get those prices in line … we do see that [the consumer is] willing to buy that product from us on a regular basis,” he said.
However, in spite of the poor performance, Supervalu’s deep discount banner Save-A-Lot has proved promising, Herkert reported, and will benefit from the lion’s share of some $700 million in capital investments in fiscal 2012. “For our traditional banners, capital spending will go toward investments in technology to support our business transformation and store remodels,” Herkert said.
Another promising development associated with Save-A-Lot is the alignment with Rite Aid across several South Carolina locations. “This is a promising relationship for us,” Herkert said, that exposes Save-A-Lot to some prime retail locations and expands the banner’s demographic reach. The Texas Save-A-Lot co-branded stores targeting Hispanic shoppers — El Ahorro Save-A-Lot — also are performing well, Herkert said.
Save-A-Lot’s footprint has grown by 8.5% sq. ft. in the past four quarters and currently stands at 1,236 stores. The deep discounter carries more than 1,800 SKUs and represents a “full shop” Herkert said, as compared with the fill-in trips to convenience stores and the treasure-hunt opportunities available at dollar stores. Private-label penetration at these stores is as high as 60%. Those consumers receiving Electronic Benefit Transfers represent 40% of all transactions, up from 27% two years ago.
Following the call, Supervalu stock dropped to $7.54 in mid-morning trading from the closing price of $8.59 on Monday. Supervalu reported adjusted net earnings of 24 cents per diluted share, falling well short of analyst consensus expectations of 32 cents. Net sales for the third quarter ended Dec. 4, 2010, dropped 2.3% to $8.7 billion. Supervalu lowered its full-year guidance to a diluted net loss in fiscal 2011 ranging between $7.19 and $7.09 per share from previous guidance of a diluted net loss ranging between $5.94 and $5.74 per share.
CVS increases quarterly dividend by nearly 43%
WOONSOCKET, R.I. — Marking its eighth consecutive year of dividend increases, CVS Caremark on Tuesday said its board of directors approved a near 43% increase of its quarterly dividend to 12.5 cents per share of common stock.
The dividend is payable Feb. 2 to holders of record on Jan. 21.
At its Analyst Day in October 2010, the company announced that it set a targeted dividend payout ratio of approximately 25% to 30% by 2015, which implied a compounded dividend growth rate of nearly 25% per year.
"This substantial increase reflects our solid financial performance, our optimism with respect to future growth and our very significant cash generation capabilities. We remain committed to using our free cash flow to enhance total returns for our shareholders, through a combination of high-return investments, dividend increases and value-enhancing share repurchases," said Dave Denton, CVS Caremark EVP and CFO.
Many Americans still haven’t received their flu shot
WOONSOCKET, R.I. — Despite an increase in flu activity, a recent CVS/pharmacy survey showed that 56% of respondents still had not received their flu shot, although 93% were aware that there already have been reported cases of the flu this season, the pharmacy retailer stated.
Flu activity steadily is increasing in the United States, with eight states now having reported widespread outbreaks of influenza cases, according CVS/pharmacy, which cited the most recent Centers for Disease Control and Prevention report.
According to the CDC, the month with the highest percentage of flu cases (nearly 50%) is February. Yet many consumers are unaware that the highest risk month is just ahead. The CVS/pharmacy Flu Review survey revealed that 32% of respondents thought the flu season peaked in November and December, and more than one-third (37%) incorrectly believed getting the flu shot can give you the flu, when, in fact, the injectable influenza vaccination contains inactive viruses that cannot give you the flu.
"If you haven’t already received a flu shot, it’s not too late," stated Papatya Tankut, VP pharmacy professional services at CVS/pharmacy. "Since the vaccine takes up to two weeks to become effective, it’s important to act now so you’ll be protected in February, when most flu cases are generally reported."
Licensed pharmacists are available to vaccinate at all 7,100 CVS/pharmacy stores, and flu shots can be scheduled in store or by using the online flu shot scheduler at CVS.com/flu. At more than 500 MinuteClinic walk-in medical clinics located inside select CVS/pharmacy stores in 26 states and the District of Columbia, flu vaccines are available on demand without an appointment, and are administered daily by nurse practitioners and physician assistants.
This year, only one vaccine is required for protection against three influenza strains, including the H1N1 virus and the seasonal H3N2 virus. The CDC is recommending for the first time that anyone ages 6 months or older get a flu shot.
MinuteClinic nurse practitioners can vaccinate patients who are 18 months or older, except in Massachusetts where the minimum age is 24 months of age. All CVS/pharmacy stores can issue flu shots to parties 18 years of age and up. For parties younger than 18 years, the minimum age for vaccinations by a pharmacist varies by state.