Supervalu Inc. Q1 2010 Earnings Conference Call Transcript - Thomson StreetEvents

Supervalu Inc. Q1 2010 Earnings Conference Call Transcript

Supervalu Inc. Q1 2010 Earnings Conference Call Transcript - Thomson StreetEvents
Supervalu Inc. Q1 2010 Earnings Conference Call Transcript
Published Jul 28, 2009
Published Jul 28, 2009
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Abstract:

Final Transcript of SVU earnings conference call or presentation, 28-Jul-09 9:00am CT

  
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The following is excerpted from the question-and-answer section of the transcript.

(Questions from industry analysts are provided in full, but answers are omitted - download the transcript to see the full question-and-answer session)

Question: Meredith Adler - Barclays Capital - Analyst: Thanks for taking my question and I say hello to Craig for the first time. I would like to just start talking a little bit about your comments about store execution and operations and maybe you could talk about changes in how you are going to hold the operating folks accountable. Are there new incentives or how do you communicate to them that you're raising the bar.

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Meredith Adler - Barclays Capital - Analyst: And another question, I know that the company has been working hard to improve its relationship with vendors and to get more support from them. Is that -- has has the gone backwards at all given how week the sales are? Or are you making progress the way you wanted to with vendors.

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Meredith Adler - Barclays Capital - Analyst: Okay then my final question would be about -- I know you haven't come up with your long-term vision yet, but it is not clear whytheSaltLakemarketwasnoncoretoyou--maybebecauseyourmarketsharepositionwasn'tgoodordoesithavesomething to do with the fact that it is -- doesn't really fit into the dense urban suburban definition of many other markets where you operate?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Meredith Adler - Barclays Capital - Analyst: Okay I guess just tied to that, is there a deleveraging issue of some of the fixed costs in the intermountain region by closing those Utah stores?

Answer By: Pam Knous - Supervalu Inc. - EVP & CFO


Question: Meredith Adler - Barclays Capital - Analyst: Including distribution?

Answer By: Pam Knous - Supervalu Inc. - EVP & CFO


Question: Meredith Adler - Barclays Capital - Analyst: Okay, great, thank you very much.

Answer By: Pam Knous - Supervalu Inc. - EVP & CFO


Question: Susan Anderson - Citi - Analyst: Hi, this is actually [Susan Anderson] on the line for Deb. Can you talk to us about more EDLP pricing strategy. Can you talk about where you are with price investments you're making and then would you say you're about a third way there or there is a lot more that needs to be done and then also can you talk a little bit about the new pricing program in Chicago? How is that going and have you found any learnings there that you think you can apply to other markets?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Susan Anderson - Citi - Analyst: Sorry about that.

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Susan Anderson - Citi - Analyst: Okay great thanks. Just a follow-up to the 36 Albertsons stores in Utah. I guess how can we apply that to your expectations for store closures for this year and beyond. I think previously you guys said 20 to 25 annually. Basically I am trying to figure out if we can apply any of the factors that distinguish these 36 as nonstrategic to other stores that would expect to be closed?

Answer By: Pam Knous - Supervalu Inc. - EVP & CFO


Question: Susan Anderson - Citi - Analyst: Great, thank you very much.


Question: Ed Kelly - Credit Suisse - Analyst: Yes, hi, Good morning,. Welcome Craig. Your ID guidance assumes the environment gets better despite the fact that IDs are still deteriorating. So, what gives you the confidence that down 3% is really the right place to be right now and then as you think about your guidance in that $0.20 range you have a point estimate for ID. What are the variables that lead you to lower end and the upper end?

Answer By: Craig Heckert - Supervalu Inc. - CEO

Answer By: Pam Knous - Supervalu Inc. - EVP & CFO


Question: Ed Kelly - Credit Suisse - Analyst: In terms of that $0.20 range what is the big variable there? Is it sales where a down 3% ID is in the middle or is it the -- how you stand on promotions and the margins?

Answer By: Pam Knous - Supervalu Inc. - EVP & CFO


Question: Ed Kelly - Credit Suisse - Analyst: Okay. And then, just lastly for you, you indicated, Craig, that Supervalu's issues seem to be more on the execution side. And maybe not the assets. Could you just elaborate on that and then does that mean that more meaningful divestitures are unlikely in the new strategy?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Ed Kelly - Credit Suisse - Analyst: All right. Then maybe just one last one for you then. Save-A-Lot is a business that the Company has not really talked about much over the last year. Can you give us your thoughts on that business? Do you like the license model of it? Does it fit the portfolio? Is it a growth business? Just your initial thoughts would be great.

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Ed Kelly - Credit Suisse - Analyst: Great, thank you.


Question: Simeon Gutman - Canaccord Adams - Analyst: It is Simeon Gutman. Craig from a strategic perspective and you touched on this. Given that your background comes from both EDLP formats and conventional how do you balance the tactical today with the asset base you have longer term.

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Simeon Gutman - Canaccord Adams - Analyst: All right. And then just an observation question. How do you think premium fresh and healthy stack stacks up vs. other conventional formats? Maybe right now it is not just about format but curious about your initial thoughts.

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Simeon Gutman - Canaccord Adams - Analyst: Lastly from an organizational standpoint you mentioned in some of your comments just tactically things that are important to the business regarding the independent customer. But is there or how much synergy there is between the distribution business and retail does there need to be?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Simeon Gutman - Canaccord Adams - Analyst: Okay, thanks.


Question: Scott Mushkin - Jefferies - Analyst: Thanks guys for taking my questions and Craig, welcome. So, just wanted to get into the -- two areas. One is the idea that maybe you can see some improvement, not necessarily in the environment but in your performance in the back half of the year and why even contemplate putting that into your EPS guidance when you may want to use some of that money to invest in price and have optionality there if it indeed happens. So I just want to understand a little more the thought process there given it seemed like you had an open window -- I think rumors out there were $1.90 to $2 so, you had some more downside. So that's number one.

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Scott Mushkin - Jefferies - Analyst: Okay. Then second question. It's a question I was asking your predecessor quite a bit. And I would like to hear your initial thoughts. If you look at some of the assets, in particular, in the northeast, you went through a process of investing a lot money ortheCompanydid,notyou.TheCompanyinvestedalotofmoneyinthestore-basedandyoualsoendedupinvestingadecent amount money in price over time. Yet market shares continue to decline. And you're now below 20 share in some of these markets and seem to be losing market share relevance. One of the reasons is-- why do you think that is taking place and how do you get that market share relevance back without dropping your prices meaningfully below competitors?

Answer By: Craig Heckert - Supervalu Inc. - CEO

Answer By: Pam Knous - Supervalu Inc. - EVP & CFO

Answer By: Craig Heckert - Supervalu Inc. - CEO

Answer By: Pam Knous - Supervalu Inc. - EVP & CFO


Question: Scott Mushkin - Jefferies - Analyst: So -- and then this is what -- one final thing and it is actually a request of more information on Save-A-Lot if you want to. I think people would love to see it. I know it has been an issue that is out there for awhile but love to see more numbers on that business.

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Scott Mushkin - Jefferies - Analyst: Thanks very much. And welcome.


Question: John Heinbockel - Goldman Sachs - Analyst: A couple of things. There seems to be a dichotomy, you think you're too promotional. You would like to start to move away from that, but the consumer seems to be reacting to promotions today. Maybe less to shelf price changes. Given that does that slow the transition down to being less promotional? Or do you do that anyway, and maybe the sales come under more pressure. How do you thread that needle?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: John Heinbockel - Goldman Sachs - Analyst: Do you find -- if you do this right, do you find that if you sell less on promotion and more at the regular price that the average selling price in the categories that you do this in, can actually go up, and there really is not much of an impact on margin if you do it right or no?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: John Heinbockel - Goldman Sachs - Analyst: Okay. Then if you look -- you talked about promotions that didn't work. Is there any commonality as to why they didn't work? Wrong categories, wrong markets or just competitive noise?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: John Heinbockel - Goldman Sachs - Analyst: But no one stood out?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: John Heinbockel - Goldman Sachs - Analyst: Okay. Does -- and does that influence as you go forward -- I assume is there an inability to invest with a higher ROI as we go forward -- ?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: John Heinbockel - Goldman Sachs - Analyst: All right. And finally looks like just from the numbers you gave out seems like that 0.5 item -- the number of items per basket -- was probably down 4%or 5% to get you to the comp you reported. Is that about right?

Answer By: Pam Knous - Supervalu Inc. - EVP & CFO


Question: John Heinbockel - Goldman Sachs - Analyst: Okay, thank you.


Question: Radina Russell - JPMorgan - Analyst: Hi this is Radina Russell for Charles Grom this morning. Wanted to touch back on the gross margin investment this quarter one more time. In Q4 you mentioned that you had made about 40 bits of gross margin investment in the retail division. I was wondering if you can quantify the level investment in quarter and two maybe break apart how much of that was an ongoing price investment and how much of that was promotional?

Answer By: Pam Knous - Supervalu Inc. - EVP & CFO


Question: Radina Russell - JPMorgan - Analyst: Okay. And then you obviously spoke to second quarter, but as I look at the back half, am I expecting to see maybe this level of price investment through the back half. Or are we expecting it to fall off a bit?

Answer By: Pam Knous - Supervalu Inc. - EVP & CFO


Question: Radina Russell - JPMorgan - Analyst: All right that was it thank you.

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Jason Whitmer - Cleveland Research - Analyst: Good morning, hi, I first chuckled when I thought you said Craig, " We are who we thought we were in Chicago. " Hopefully, you don't let them off the hook this time. A quick question on your to-do list. Obviously you have a lot of things on your agenda. If you were to focus in on the top two or three most urgent items to address over the near and median term how would you prioritize those?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Jason Whitmer - Cleveland Research - Analyst: Do you have any wish list of tools or resources that you would like to have -- day one coming into the office that would make you more efficient in your role or things you want to do to address within the organization. Is there anything you would like to bring into the Company?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Jason Whitmer - Cleveland Research - Analyst: Very good. And, just a final thought then on centralization and/or systems. Just the progress you have made to date and where you expect to take that next step going forward.

Answer By: Pam Knous - Supervalu Inc. - EVP & CFO


Question: Jason Whitmer - Cleveland Research - Analyst: Great, thank you.


Question: Mark Wiltamuth - Morgan Stanley - Analyst: I wanted to focus a little more on your breadth of price investment. Are you really going just market by market or are you doing chain wide investments today?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Mark Wiltamuth - Morgan Stanley - Analyst: Okay. And if you look across your markets how many do you feel like you're a little out of bounds on price. When we do our price surveys you come out middle of the road. Not the highest, not the lowest but often middle of the road. What is your view on where you stand on pricing?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Mark Wiltamuth - Morgan Stanley - Analyst: Okay and I guess as performance is weak here you will have more stores pulled into the red and maybe not attractive from a cash flow position. Do you think you could amp up more store closures over time?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Mark Wiltamuth - Morgan Stanley - Analyst: Okay. And lastly you have had the marketing organization under one roof for some time now. If you could -- you mentioned earlier that there were maybe some difficulty for suppliers in dealing with Supervalu. Has that all now passed or do you still have work to do connecting with your suppliers?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Mark Wiltamuth - Morgan Stanley - Analyst: Okay. All right. That will do it. Thank you very much.

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Chuck Cerankosky - Northcoast Research - Analyst: Good morning, everyone. If we -- Pam this might be a question for you if you're looking at this current quarter vs. a year-ago. What percent of sales are being done on credit cards vs. last year?

Answer By: Pam Knous - Supervalu Inc. - EVP & CFO


Question: Chuck Cerankosky - Northcoast Research - Analyst: Okay, will do. When we look at some of the guidance numbers you put out there regarding cash flow, and add in that -- about $150 million from proceeds, from the Salt Lake City stores, it looks to me like you could pay down more than $700 million in debt. Am I missing something here? Is this D&A dropping year-over-year?

Answer By: Pam Knous - Supervalu Inc. - EVP & CFO


Question: Chuck Cerankosky - Northcoast Research - Analyst: When you say "conservative" can I read that as minimum?

Answer By: Pam Knous - Supervalu Inc. - EVP & CFO


Question: Chuck Cerankosky - Northcoast Research - Analyst: Okay. Do you have a guidance number for depreciation and amortization, Pam?

Answer By: Pam Knous - Supervalu Inc. - EVP & CFO


Question: Chuck Cerankosky - Northcoast Research - Analyst: Okay. All right. Do you see the possibility, Craig, of any retail divisions becoming wholesale customers over time?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Chuck Cerankosky - Northcoast Research - Analyst: All right. Do you have any criteria when you look at store groups to determine had whether they are going to have a long term fit with the Company. Can you share those with us please?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Chuck Cerankosky - Northcoast Research - Analyst: And last question, were the Salt Lake City stores profitable?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Chuck Cerankosky - Northcoast Research - Analyst: All right, thank you.

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Neil Currie - UBS - Analyst: Thank you and thanks for taking my question. Craig, I wonder if I can ask you, you had a great job at Wal-Mart and coming to Supervaluobviouslyentailedsomeduediligenceonyourpartbeforeyoutookjob.WhatwasitabouttakingtheroleatSupervalu that you thought was most attractive? What did you think was most channeling and has anything surprised you either way since you came aboard?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Neil Currie - UBS - Analyst: Clearly there are different models that can survive and thrive, within the food retailing business -- there are alternative formats and there are conventional formats -- but some of the more conventional supermarkets that are doing well right now really addressed their business model issues seven, eight, nine years ago. You're coming into into this quite late on the day. What is the risk that the work that you're intending to do with Supervalu -- even if you execute well on it -- helps just to stop the Company going backwards rather than actually move the Company forwards and it becomes more of a cost of doing business?

Answer By: Craig Heckert - Supervalu Inc. - CEO


Question: Neil Currie - UBS - Analyst: Thanks very much and good luck and we look in order to the second quarter.

Answer By: Craig Heckert - Supervalu Inc. - CEO

Table Of Contents

Supervalu Inc. Q2 2010 Earnings Conference Call Summary – 2009-10-20 – US$ 54.00 – Edited Brief of SVU earnings conference call or presentation, 20-Oct-09 9:00am CT

Supervalu Inc. Q2 2010 Earnings Conference Call Transcript – 2009-10-20 – US$ 54.00 – Final Transcript of SVU earnings conference call or presentation, 20-Oct-09 9:00am CT

Supervalu Inc. at Goldman Sachs Retailing Conference Transcript – 2009-09-10 – US$ 54.00 – Final Transcript of SVU presentation, 10-Sep-09 3:00pm ET

Supervalu Inc. at CanaccordAdams Global Growth Conference Transcript – 2009-08-13 – US$ 54.00 – Final Transcript of SVU presentation, 13-Aug-09 9:00am ET

Supervalu Inc. Q1 2010 Earnings Conference Call Summary – 2009-07-28 – US$ 54.00 – Edited Brief of SVU earnings conference call or presentation, 28-Jul-09 9:00am CT

Supervalu Inc. Annual Meeting of Stockholders Transcript – 2009-06-25 – US$ 54.00 – Final Transcript of SVU shareholder or annual meeting, 25-Jun-09 10:00am CT

Supervalu Inc. at Barclays Capital Retail and Restaurant Conference Transcript – 2009-04-29 – US$ 54.00 – Final Transcript of SVU presentation, 29-Apr-09 9:30am ET

Supervalu Inc. Q4 2009 Earnings Conference Call Summary – 2009-04-23 – US$ 54.00 – Edited Brief of SVU earnings conference call or presentation, 23-Apr-09 9:00am CT

Supervalu Inc. Q4 2009 Earnings Conference Call Transcript – 2009-04-23 – US$ 54.00 – Final Transcript of SVU earnings conference call or presentation, 23-Apr-09 9:00am CT

Supervalu Inc. Q3 2009 Earnings Conference Call Summary – 2009-01-07 – US$ 54.00 – Edited Brief of SVU earnings conference call or presentation, 7-Jan-09 9:00am CT

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