Beleaguered grocery retailer Supervalu, Inc. (SVU), which is reviewing strategic alternatives, decided Wednesday to shutter about 60 underperforming stores or non-strategic stores by the end of November in order to cut costs.
The company said it intends to use the cash proceeds from these actions to reduce outstanding debt and for other general corporate purposes. The closures will also be accretive to net earnings.
Supervalu has been facing rough weather lately, as customers switch over to large ratailers such as Wal-Mart Stores, Inc. (WMT) and Target Corp. (TGT) seeking lower prices. The stiff competition and higher costs have hurt its bottom line. The company is now trying to curb costs to aggressively lower its prices to improve customer satisfaction.
"These decisions are never easy because of the impact a store closure has on our team members, our customers, and our communities. Today's announcement reflects our commitment to move with a greater sense of urgency to reduce costs and improve shareholder value," Chairman, President and CEO Wayne Sales said in a statement.
Eden Prairie, Minnesota-based Supervalu, which will close 38 retail food stores and 22 Save-A-Lot locations, is expected to generate $35 million in cash within a year months and $80 million to $90 million over the next three years through the closures.
The savings will be generated by eliminating cash operating losses, selling departmental assets, and monetizing owned real estate. The Company owns the real estate for about one-third of the retail food stores being closed.
The company will also incur total non-cash pre-tax charges of $80 million to $90 million, with $50 million to $55 million of these expected in the second quarter, and the most of the remainder in the third quarter.
Additionally, the closure will result in gains on sale of departmental assets of about $10 million in fiscal 2013.
Supervalu, the third-largest food retailing company in the U.S. after Kroger Co. (KR) and Safeway, Inc. (SWY), serves customers across the U.S. through its network of more than 4,400 locations, which include traditional retail and hard discount stores, in-store pharmacies and independent stores.
Supervalu revealed in early July a review of strategic alternatives, including a sale of the company, and suspended its dividend payment and guidance. The company also has hired Goldman Sachs Group, Inc. (GS) and Greenhill & Co., Inc. (GHL) to find a buyer.
The company disclosed plans in June to cut 2,200 to 2,500 jobs at its subsidiary Albertsons, which is grappling with declining traffic and sales. The cuts were spread across all 247 Albertsons stores in California and Nevada. Albertsons is the largest retail chain at Supervalu. The company had also announced 800 job cuts in the U.S in February.
After reporting two consecutive quarterly losses, the company reported a profit for the recent first quarter that plunged from last year, due mainly to lower sales and margins. The company also replaced its CEO Craig Herkert in late July, with the then Chairman Sales taking over the additional positions of President and CEO.
SVU closed Wednesday's regular trading session at $2.28, up $0.04 or 1.79% on a volume of 3.72 million shares. The stock gained a further $0.09 or 4.02% in after-hours trading.
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