Supervalu (NYSE:SVU) cut its outlook for fiscal 2009, sending the shares down 5% on Tuesday. The guidance cut came despite a 9% increase in earnings over the same period last year. Supervalu wasn't the first Grocer to feel the affects of higher energy prices and economic weakness, and investors should be careful before investing here until reduced earnings expectations are fully discounted across the entire sector.
Lowered Guidance
For the first quarter of fiscal 2009, revenue was $13.3 billion and the company earned $162 million, or 76 cents per diluted share. Supervalu's new guidance for fiscal 2009 diluted earnings per share on a GAAP basis was updated to $3.00-3.16 from the previous range of $3.06-3.22. Same store sales growth, excluding fuel, was cut to 0.5% from 1-2%.
Jeff Noddle, company chairman and chief executive officer, said in the earnings press release, "…the ongoing weakness in the economy combined with higher food and energy inflation has created conditions that make us take a more cautious view for the balance of the fiscal year."
During the conference call, management expanded on the reasons behind the guidance cut:
- Higher than anticipated increases in energy costs, particularly fuel and utilities.
- Economic weakness impacting its customers, causing them to trade down to lower priced substitutes.
- A non-cash LIFO charge that is expected to double from the original plan.(For more, check out Inventory Valuation For Investors: FIFO And LIFO.)
In particular during the conference call, management mentioned the "major impact" that higher energy and food prices are having on consumer purchasing behavior. When questioned by analysts further during the call, Supervalu executives said that the first few weeks of the current quarter showed no change in the negative trends that impacted the fiscal first quarter. (Find out what affects retail companies' revenues in Using Consumer Spending As A Market Indicator.)
Everyone Feeling It
Supervalu, which owns nearly 2,500 retail outlets, including the Albertson's super market chain, joins competitor Safeway (NYSE:SWY), who did nearly the same thing last week, posting a year over year profit gain, but lowering its forecasts for revenues and same store sales growth.
Other Grocers have told a similar tale. On July 18, Delhaize Group (NYSE:DEG), a Belgian company that owns the Food Lion chain in the U.S., cut its outlook, and now expects net profit from continued operations to grow by 15-20% instead of 25-30%. Revenue is expected to increase between 3-4.5% compared to the previous guidance of between 4-5.5%. U.S. comparable stores sales are now expected to grow between 1.5-2.5% versus the previous 2.5-3.5%.
More diversified retailers are also showing strains. On July 23, 2008, Costco (Nasdaq:COST) warned that its fourth quarter would fall short of analyst estimates and the stock traded down 11% for the day. Shares of BJ's Wholesale Club (NYSE:BJ) and Wal-Mart (NYSE:WMT) fell in sympathy.
Bottom Line
Two large food retailers are set to report earnings over the next few weeks. Ruddick (NYSE:RDK), reports earnings on July 31, 2008, and Whole Foods (Nasdaq:WFMI) reports on August 5, 2008. It will be interesting to see if high energy prices and economic weakness will hurt these two retailers as well. It might be better for investors to wait for these results, or hedge positions prior to the release.
