Supervalu profit beats views; shares surge

LOS ANGELES (Reuters) - Supervalu Inc (SVU.N) forecast fiscal year earnings above Wall Street expectations after its quarterly profit fell less than feared, and the supermarket operator's shares rose 16.8 percent.

The timing of special offers and more financial backing from vendors for deals helped the company stem its decline in gross margins.

Supervalu shares closed up $1.53 at $10.61 after it reported net income of $95 million, or 44 cents per share, for the fiscal fourth quarter ended February 26, compared with $97 million, or 46 cents per share, a year earlier.

Excluding one-time items, Supervalu earnings were also 44 cents per share, beating analysts' average estimate by 10 cents, according to Thomson Reuters I/B/E/S.

Supervalu's chains include Albertsons, Jewel-Osco and Save-A-Lot.

The third-biggest U.S. supermarket chain by sales has vowed to get its everyday pricing as low as rivals like Kroger Co (KR.N) and Safeway Inc (SWY.N) amid fierce competition and rising food costs. Kroger shares closed up 2.1 percent at $24.70, and Safeway shares finished up 3.4 percent at $24.86.

Wal-Mart Stores Inc (WMT.N), which sells more groceries than any other U.S. retailer, closed down 0.24 percent at $53.50.

Chief Executive Officer Craig Herkert said on a conference call with investors that more effective promotions had contributed to the better-than-expected profit. During the quarter, the company passed "modest" cost inflation along to shoppers.

"We must improve our pricing, however we are sensitive to how we go about this," Herkert said on the call.

Gross margin was 23.3 percent of net sales, compared with 23.4 percent a year earlier. But that 10-basis-point decline compared with a 90-basis-point drop in the third quarter, when price cuts reduced profits.

"It definitely feels like they're preserving gross margin," said Susquehanna Financial Group analyst Robert Summers. "That's what drove the upside."

Revenue fell to $8.7 billion from $9.2 billion.

Identical-store sales, results from outlets operating for four full quarters including store expansions and excluding fuel sales, declined 5 percent as fewer specials translated into less traffic.

Supervalu, based in Minneapolis, Minnesota, forecast fiscal 2012 net earnings of $1.20 to $1.40 per share, above analysts' average outlook for $1.17.

That forecast assumes that identical-store sales declines will ease to a range of 2.5 percent to 1.5 percent. They fell 6 percent in fiscal 2011.

"I'm not convinced that they have this right," said Summers, who noted that Supervalu executives had cut their fiscal 2011 earnings forecast multiple times.

Supervalu is saddled with relatively expensive debt from what many analysts call a disappointing $12.4 billion acquisition of more than 1,100 Albertsons stores in 2006.

The company, which has cut workers, closed stores and sold assets in an ongoing restructuring, plans to reduce its debt by $500 million to $550 million this year.

Janney Capital Markets analyst Jonathan Feeney said in a note to clients that asset sales appeared to be the company's best bet for boosting results in the near term.

"It is clear that no obvious change in operating strategy is expected to right the ship any time soon, meaning near-term value creation is likely to come via strategic actions," he said.

(Reporting by Lisa Baertlein, editing by Dave Zimmerman and Lisa Von Ahn and John Wallace)