SUPERVALU (SVU, Financial) is a large player in the grocery market space, operating multi-brand stores at 1,500 locations a wholesale distribution network that supplies an additional group of roughly 2,000 independent retailers. The stock has gained around 27% during the last one year, awarding investors handsomely.
The company has been executing well on its multi-year transformation plans which has been reflected in the comps gain at Save-A-Lot and retail store units during the fiscal 2014. In addition, there is a lot of chatter in the supermarket industry toward consolidation to drive profitability. Let’s recap the numbers of last reported quarter and see what it holds for investors going forward.
Recap of reported quarter
- Consolidated net sales for the fourth quarter fiscal 2015 came in at $4.4 billion, including approximately $313 million in the 53rd week. Excluding the impact of additional week, sales clocked $4.1 billion, representing 2.5% year-over-year growth. For the fiscal 2015, net revenue grew over 10% year over year, beating consensus estimates both for the quarter and fiscal 2015.
- Network ID sales at Save-A-Lot registered sixth consecutive quarter of positive growth, registering gains of 3.6% year over year. ID sales from corporate stores within the Save-A-Lot network inched up 6.6% on the back of 4.0% increase in customer count and a 2.6% increase in transaction size. Licensee ID purchases were positive 1.2%, and overall Save-A-Lot performed very well.
- Consolidated gross profit came in at 15.1% of net sales, representing 20 basis points, or bps, expansion versus the year-ago quarter.
- SUPERVALU generated approximately $230 million in cash from continuing operations this quarter, including approximately $110 million in working capital recaptured from the holiday selling period.
- The retailer reduced debt by $490 million including the completion of the $350 million redemption of the 2016 bonds, and $140 million of other debt reduction from cash flow generated in the fourth quarter.
- Net earnings from continuing operations came in at $66 million or $0.24 per diluted share, trumping consensus estimates by a whopping 14.29%. For fiscal 2015, earnings came in at $0.72 per share, ahead of consensus estimates by $0.03 per share.
Driving growth further
SUPERVALU has performed well while reporting three earnings beats in the last four quarters. The company is working on different strategies to carry the momentum forward. Few growth initiatives for fiscal 2016:
- Focus on the "Fresh from Farm" products, as previously the products earned decent sales results historically.
- Improve on the penetration of the private label brands. By reducing the private label product range to 65 and by innovating on these consolidated brands, the company has increased its private label brand penetration to 60%, signifying a year over year jump of around 16%.
- Augmenting the Save-A-Lot store count. During the fiscal 2015, the company opened 46 new stores and shuttered 42 underperforming store. For the fiscal 2016, the company's CEO said:
“In fiscal 2016, our goal is to open up 100 new stores on a gross basis, with approximately 60 of these anticipated to be corporate stores. After that, our goal is to continue to grow the store base with an emphasis on corporate stores which is expected to include Save-A-Lot's entry into several new markets.” - In addition, SUPERVALU will keep expanding its footprint through licensee store agreements and the CEO said:
“Planning for the pace in licensee growth is more challenging, but we do believe that the improvements we are making to the brand and our operating model will help encourage licensees to open new stores. Assuming future licensee opening to remain at approximately 40 stores per year, our goal would be to open up to 150 total new stores in fiscal 2018 on a gross basis. Beyond that year, our current view as the market opportunity will allow for that level of growth for the foreseeable future.”
Final words
The company has performed well during fiscal 2015 and has a well chalked out plan to sustain the growth momentum in fiscal 2016. Right now the stock has forward P/E of 11.16, which compares favorably with overall industry P/E of over 21. In addition, P/S ratio is 0.13 versus industry average of 1.0. Analysts are pegging next five years CAGR at 3.30%. For fiscal 2016, there have been seven upwards and only one downward revisions on earnings estimates.
Hence, this stock is worth attention of value investors.
