SuperValu plans to meet upcoming maturities with cash from operations

By Jennifer Lanning Drey

Savannah, Ga., April 14 - SuperValu Inc. expects to repay its debt maturing over the next three years using cash flow generated from normal operations supplemented with short-term borrowings if needed, Sherry Smith, SuperValu's chief financial officer, said Thursday during the company's fourth-quarter and year-end earnings conference call for fiscal 2011.

The company has launched an effort to extend the $497 million term loan B-1 tranche of its credit facility to April 2018 from June 2012. Smith said SuperValu expects to complete the extension prior to its investor day in May.

If successful, SuperValu will have about $1 billion of debt maturing in the next three years.

In fiscal 2012, the company plans to remove one day of inventory as a result of new planning tools, improved store-level operations and a focus on working capital. As a result, SuperValu expects to reduce its total debt by $500 million to $550 million, Smith said.

The company expects to generate about $1.1 billion in cash from operations in fiscal 2012.

"Debt reduction remains a priority for the company," Smith said.

SuperValu reduced its total debt including capital leases by $880 million in fiscal 2011, exceeding its original guidance by more than $280 million. The debt-reduction was primarily funded using proceeds from asset sales, she said.

In addition, SuperValu pre-funded $65 million to its defined benefit pension plan for the fiscal 2012 plan year and invested more than $600 million back into the business in capital expenditures, Smith said.

"SuperValu's financial condition remains solid with cash from operations totaling $1.2 billion in the fiscal [2011] year," she said.

Year-end borrowings under the company's short-term revolving credit facility were $197 million.

SuperValu's year-end leverage ratio was 3.5 times, compared with a covenant maximum of 4.25 times, and the fixed-charge coverage ratio was 2.6 times, versus a covenant minimum of 2.2 times.

"We remain comfortable with these covenant levels," Smith said.

Continued pressure

SuperValu reported fourth-quarter net sales of $8.7 billion, versus net sales of $9.2 billion in the fourth quarter of fiscal 2010.

"While we continued to experience pressure on topline sales, they were in line with our internal forecast," Craig Herkert, SuperValu's chief executive officer, said during the call.

Fourth-quarter retail net sales were $6.7 billion, compared with $7.2 billion in the prior year. The company said the change primarily reflected identical-store sales of negative 5%, store closures and market exits.

"Our identical-store sales are not what we want them to be, but we have improved the ability to manage our margin and have made steady progress on right-sizing our cost structure," Herkert said.

Rightsizing operations and leveraging the company's scale will be ongoing efforts in fiscal 2012, Smith said. The CFO said she believes there are more opportunities to lower costs in fiscal 2012, making a "conservative" estimate that they will represent an incremental $115 million in permanent cost savings for the year.

SuperValu is an Eden Prairie, Minn.-based supermarket operator.

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