In guidance presented to analysts today, SuperValu CFO Sherry Smith said the company will pay down between $400 million and $450 million of its debt this year and aims to do likewise in the years ahead. “In general, SuperValu is committed to reducing outstanding debt by a minimum of $400 million per year for the foreseeable future,” she said during the earnings call.
Smith sees that figure as a way to avoid triggering SuperValu’s debt covenants, which became stricter toward the end of last year. The leverage ratio the company is allowed to have under the credit line decreases every year. As of December 31, it was supposed to be 4.0 to 1.0, which was an agreement the company was able to meet. (SuperValu didn’t disclose how it calculates its leverage ratio.)
Moreover, for its most recent fiscal year (which ended February 25), the company — whose brands include Albertsons, Jewel-Osco, and other supermarket chains — reduced its outstanding debt by about $530 million.
Progress in debt reduction may be a bright spot for a company that is trying to prove itself to Wall Street after coming off a two-year turnaround period. Scott Andrew Mushkin, an analyst for Jefferies & Co., remarked on the company’s stock price being “as bad as it’s been” and questioned how management and the board are considering shareholder value.
In response, CEO Craig Herkert said that “management and the board have a regular process of reviewing the business and business performance, and the best way to achieve shareholder value, and we review that regularly with our board.” On Monday, the company’s stock was trading at $5.32, less than half of what the price was last May.
For its fourth quarter, SuperValu will record a $424 million loss. The company recorded $492 million in noncash goodwill and intangible asset impairment charges. It also took a hit in restructuring charges after eliminating 800 positions as of the end of February.
Saying the company is operating in a leaner way, Herkert said SuperValu is focusing on growing sales, controlling costs, and investing in price changes that will encourage existing customers to spend more and may entice customers who have not used the company’s stores in a while. The stores have new tools to help them better manage inventory, and change prices accordingly if necessary to sell more product.