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Supervalu unveils aggressive expansion of its Save-A-Lot discount food division

BY Jim Frederick

EDEN PRAIRIE, Minn. Responding aggressively to the rapid growth of discount food retailer Aldi, Supervalu is planning a massive expansion of its Save-A-Lot discount food-store division.

Save-A-Lot will double in size over the next five years, Supervalu CEO Craig Herkert told investment analysts Tuesday in a conference call following release of the company’s disappointing second-quarter results. Over that time, the value-driven Save-A-Lot division will expand grow from its current store count of 1,180 units to roughly 2,400 stores, he said.

At press time, it was unclear how many of those smaller-scale, tightly merchandised stores were likely to be franchise units. Currently, roughly 75% of Supervalu’s Save-A-Lot stores are licensed to franchise owners.

Herkert was quick to point out that the move “is not an abandonment of traditional grocery,” according to a report in today’s The Wall Street Journal. And he pointed out that the company’s 1,200 traditional and premium supermarkets — 850 of which include in-store pharmacies –would remain the core of Supervalu’s business.

The pre-emptive expansion strategy for Save-A-Lot could help Supervalu counter the increasing threat posed by its fast-growing, European-based rival as both companies seek to capture lower- and middle-income consumers hit hard by the recession. Aldi, the Batavia, Ill.-based U.S. division of the German Aldi supermarket giant, opened its first U.S. store in Iowa in 1976. But in recent years, the chain has staged a determined assault on the eastern half of the country, with roughly 1,000 small-box, value-priced food stores now open in 29 states.

Supervalu, for its part, reported net earnings of $74 million for the fiscal 2010 second quarter, compared with $128 million in the same period last year. Sales were also down, to $9.5 billion from $10.2 billion the previous year.

“Consumer purchasing behavior, deflationary pressures, as well as our decision to make meaningful investments in price and promotions significantly impacted our second quarter sales and margins,” said Herkert. “As a result, earnings were lower than the prior year, generally in line with our expectations, and slightly better than analysts’ consensus of $0.33 per share as reported by First Call.”

On the plus side, Herkert said Supervalu had reduced its total debt $340 million since the end of fiscal 2009. “As we move into the last half of the year, we will place intense focus on in-store execution and merchandising programs,” he said. “I am confident that our strategy to provide shoppers with enhanced value and other changes we are now making, will allow us to compete more effectively.”

Nevertheless, Supervalu, along with many other supermarket retailers, will face uphill sledding over the next several quarters as the nation struggles to restore consumer confidence and lost jobs. Herkert predicted the company would see a 4% drop in same-store sales over the course of fiscal 2010, and would post full-year sales of approximately $41 billion.

“We are taking ten cents off the top of our previous fiscal 2010 earnings guidance range as the economic outlook in the back half of the year and its impact on consumers has become clearer,” he said.

“Capital spending is projected to be approximately $700 million, which will include 65 to 70 major store remodels, 25 to 30 minor remodels, 3 new traditional supermarkets and 45 to 55 new hard discount stores, including 20 to 25 licensed stores,” the company reported yesterday.

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A&P CEO leaves as Q2 loss widens

BY Antoinette Alexander

MONTVALE, N.J. A&P has announced the departure of president and CEO Eric Claus. The news came as the company posted a wider net loss for the second quarter and a dip in sales.

Christian Haub, executive chairman of the board, has reassumed the CEO duties, a position he held from 1998 to 2005, while the company searches for a successor. 

“The current challenging economy continues to impact our business. The macro headwinds, including rising unemployment, intensifying price competition and now also deflation, are creating an even more difficult short-term economic environment,” Haub stated. “Nonetheless, we have made progress in several of our formats and many of our initiatives.” 

Sales for the second quarter ended Sept. 12 were $2.1 billion, compared with $2.2 billion in the year-ago period. Same-store sales dropped 3.8%. 

Reported loss from continuing operations was $62.2 million, compared with a loss of $4.3 million last year, which includes a $50 million increase in non-cash mark to market adjustments related to financial liabilities. Total net loss for the quarter was $80.3 million, or down $3.74 per diluted share, compared with a loss of $18.1 million, or a decrease of $1.97 per diluted share, in the year-ago period.

Haub noted that securing more than $400 million in new funds “was clearly done at the right time to ensure that we have the resources to address future debt maturities and to invest in our optimization strategies.”

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Garnier Fructis’ Anti-Humidity Hairspray collection

BY Antoinette Alexander

NEW YORK Garnier Fructis’ new Anti-Humidity Hairspray collection was spotted on shelf at a CVS/pharmacy in Manhattan.

Unveiled at a press event earlier this year, the Anti-Humidity Hairsprays are infused with bamboo extract. The line includes four formulas: Full Control Anti-Humidity Hairspray (Ultra Strong Hold), Sleek & Shine Anti-Humidity Hairspray (Ultra Strong Hold), Flexible Control Anti-Humidity Hairspray (Strong Hold) and Volumizing Anti-Humidity Hairspray (Extra Strong Hold).

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