Supervalu halts dividend, reviews options after 1Q

MINNEAPOLIS (AP) — Supervalu Inc.'s shares plunged in after-hours trading Wednesday after the grocery chain reported a dismal first quarter, suspended its dividend and announced plans to potentially put itself up for sale.

Supervalu, which owns the Albertsons, Jewel-Osco, Save-A-Lot and other grocery chains, has been working for a number of years to turn around its struggling business. It was an industry laggard prior to the recession and was just getting its revamp ready as the economy crumbled. Despite its efforts, it has been unable to keep up with the intense price competition fostered by the tough economic environment.

The company began to show signs of improvement in its fourth quarter but reported Wednesday that its fiscal first-quarter profit fell 45 percent. Revenue tumbled as it sold off gas stations and lost customers to competitors offering lower prices. The Minneapolis-based company's shares fell 26 percent after hours on the news.

Supervalu CEO Craig Herkert said that the chain remains profitable but the poor quarter demands sweeping changes to its strategy.

The company and its financial advisers will review various options. While the supermarket operator did not elaborate, this type of review traditionally includes the possibility of selling the company. Supervalu also said it will be more aggressive in lowering prices, paying down debt and investing in its stores, all while trying to lower its own expenses.

"These are bold but necessary moves, which will position Supervalu for success in this increasingly competitive environment," Herkert said in a statement.

Supervalu earned $41 million, or 19 cents per share, for the quarter that ended June 16. That is down sharply from the $74 million, or 35 cents per share, earned in the same quarter last year. It's also well below the 37 cents per share that analysts had expected, according to FactSet. Revenue dropped to $10.59 billion from $11.11 billion, missing analysts' $10.61 billion average estimate.

Supervalu brought in Herkert, a former Wal-Mart Stores Inc. executive, in 2009 to help shake things up at the company. The grocer subsequently put a heavier emphasis on lower prices and tried to position itself as a neighborhood store to draw new shoppers and keep customers.

Herkert said Wednesday that the company needs to make bolder moves in face of intensifying competition.

Supervalu plans to further cut prices. It also plans to trim $250 million in administrative and operational expenses over the next two years and slash capital spending to a range of $450 million to $500 million from $675 million. The company hopes to cut debt by $450 million to $500 million this year and pay down $400 million in each year following.

Supervalu also will replace its existing senior credit line with an asset-based lending facility and a term loan, secured by a portion of its real estate. This is aimed at boosting its financial flexibility. The company is suspending its quarterly dividend but said it will review it annually. It also withdrew all previous earnings projections for the year, in light of the massive changes.

Standard & Poor's Rating Services put Supervalu's ratings on review for downgrade on the news. The rating agency said charging lower prices could hurt the grocer's future profitability. S&P already has a junk-grade B+ corporate credit rating on the company.

Supervalu's shares fell $1.37 to $3.90 in after-hours trading. Its stock has lost nearly 90 percent of its value over the past five years, dropping to Wednesday's closing price of $5.29.

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