UPDATE 3-Supervalu profit falls, shares up on revenue

Tue Oct 14, 2008 1:24pm EDT

Related Topics

* Supervalu cuts full-year earnings forecast

* Second-quarter profit misses analysts' expectations

* Shares rise 2 percent as revenue beats forecasts (Recasts, adds analysts, byline; previous CHICAGO)

By Lisa Baertlein

LOS ANGELES, Oct 14 (Reuters) - Grocer Supervalu Inc (SVU.N) posted a bigger-than-expected drop in quarterly profit on Tuesday, but a rise in revenue above Wall Street forecasts helped the company's battered shares gain over 2 percent.

The owner of the Albertsons, Jewel-Osco, Shaw's and Save-A-Lot chains also cut its earnings forecast for the current 2009 fiscal year, as it expects consumers to face more pressure from a U.S. economic slowdown.

Net income at the third-largest U.S. supermarket operator fell to $128 million, or 60 cents a share, in the second quarter ended Sept. 6 from $148 million, or 69 cents a share, a year earlier.

"We all know it is a difficult environment and one of the most challenging operating climates we have seen in a long time. We did not execute well on several fronts," Supervalu Chairman and Chief Executive Jeff Noddle said in a call with analysts.

The company expects earnings per share in the current fiscal third quarter to fall slightly, while earnings in the fourth quarter should "finish strong," aided by cost-cutting plans and an extra week in the year, Noddle said.

Net sales rose to $10.23 billion from $10.16 billion. Retail food net sales were flat at $8 billion.

Analysts on average forecast earnings of 69 cents a share on revenue of $10.13 billion, according to Reuters Estimates.

"The stock bounced after revenues topped estimates and the company offered some reassuring words about 2009," said Frederic Ruffy, options strategist at web site WhatsTrading.com in New York.

Supervalu shares are down nearly 58 percent from a high reached last November as cash-strapped consumers migrate to cheaper store brands and the company grapples with higher food and fuel costs.

WEAKER STORE SALES

Supervalu, which has about 2,500 stores, has rolled out new products ranging from its Wild Harvest organic brand to a newer line of premium prepared meals. It is also testing a small-store format with ready-to-go entrees as well as basics like milk and produce.

Noddle said sales at established stores were ticking up from second-quarter levels and the company's Save-A-Lot chain is well positioned to serve "economically distressed" consumers.

"This environment is perfect for Save-A-Lot," said Noddle. Investments in its own store brands and targeted promotions should also help boost earnings over time, he said.

Closely watched identical-store sales were down 1.3 percent for the quarter. Supervalu's identical-store sales figure includes results from outlets operating for four full quarters, including store expansions, and excludes fuel sales.

Second-quarter gross profit margin fell 60 basis points to 22.4 percent, as the company lowered some prices and boosted promotions.

Looking ahead, Supervalu now expects identical store sales, excluding fuel, to be flat to down 0.5 percent for fiscal 2009, and flat to up 0.5 percent for the balance of the year. In July, it had forecast a 0.5 percent increase in identical store sales, excluding fuel.

Supervalu said it expects to earn $2.86 per share to $2.96 per share this year, down from a prior forecast of $3 to $3.16. Analysts have been expecting $2.96. It forecast full-year net sales of about $45 billion, in line with analysts' average forecast.

Given results from the most recent quarter and the state of the economy, Pali Research analyst Robert Summers said the company's forecast could still be too optimistic.

"Even though they took a haircut ... it still looks a little aggressive to me today," Summers said.

Shares in the company were up 44 cents to $18.84 in afternoon trade after surging to as high as $20.12 earlier in the session. Rival Kroger Co (KR.N) was up almost 3 percent, while Safeway Inc (SWY.N) rose more than 5 percent. (Additional reporting by Jessica Wohl and Doris Frankel in Chicago; Editing by Lisa Von Ahn, Dave Zimmerman)

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