Edited by Kate Boehme
Supervalu (SVU) is one of the oldest corporations in the United States. It is considered as one of the most important wholesale distributors among independent retailers. The company purchased New Albertsons Inc, on June 2, 2006, which greatly increased its size. New Albertson is composed of a number of key grocery store enterprises, and runs around 1,125 shops under the company brands of Acme, Albertsons, Jewel-Osco, Shaw's and Star Market.
Debt Issue
High debt load often makes companies much more vulnerable to undesirable economic circumstances. Supervalu already has - and is expected to carry on having - a considerable amount of financial debt. Its considerable debt load may possibly rise the company's borrowing expenses and minimize business versatility.
Supervalu must use a significant portion of the cash flow from operations for the settlement of principal debts and the corresponding interest payments. Indebtedness thus reduces the availability of cash for working capital, capital costs, purchases, and other operational necessities.
Supervalu's indebtedness restricts its capability to acquire, or raise, the expense level at which it is possible to obtain financing. Indebtedness creates problems, which often makes it necessary to refinance current debt to provide for operating capital, capital costs, and purchases.
Indebtedness reduces Supervalu's potential for modifying the business and marketplace circumstances. Rather, indebtedness gives the company a relatively negative position in comparison with its rivals that might have a smaller amount of financial debt.
Due to Supervalu's standing debt, the value of their stockholders' equity has fallen dramatically. Furthermore, Supervalu's associated net income must also be considered with regard to Delaware law, before the company is able to repurchase stock or pay out dividends.
Contractual Obligations
The following table indicates Supervalu's contractual obligations:
Figures are in million | Total | Fiscal 2013 | Fiscal 2014-2015 | Fiscal 2016-2017 | Thereafter |
Contractual Obligations: | |||||
Long-term debt | 5,376 | 324 | 787 | 1,596 | 2669 |
Interest on long-term debt | 3,531 | 356 | 671 | 517 | 1987 |
Capital leases | 1,861 | 146 | 287 | 272 | 1156 |
Operating leases | 2,654 | 310 | 606 | 485 | 1253 |
Benefit obligations | 6,930 | 152 | 277 | 297 | 6204 |
Construction commitments | 117 | 115 | 2 | ||
Deferred income taxes | 478 | (54) | 56 | 56 | 420 |
Purchase obligations | 650 | 379 | 249 | 22 | |
Self-insurance obligations | 1,115 | 237 | 300 | 272 | 407 |
Total | $22,712 | 1965 | 3235 | 3416 | 14096 |
Supervalu's debt-management tools seem to carry a variety of economic problems as well as other limitations. If Supervalu fails to comply with any of the specified obligations, then the corresponding indebtedness could be due earlier than expected. Defaulting under Supervalu's current debt-management tools could also have an affect on the ability to acquire future or alternate sources of funding.
Supervalu's ability to refinance the financial commitments will ultimately rely on the company's functionality and financial performance. Overall financial performance is subject to existing economic conditions, and other elements beyond its control. Specifically, uncertainties related to the international economic climate and capital trading markets may affect Supervalu's capability of getting debt financing.
Such circumstances could negatively influence Supervalu's financial situation and the success of company operations.
Comparing Fiscal Year 2012 with Fiscal Year 2011
The net revenue for 2012 was $36.1 billion, slightly below 2011 revenue of $37.5 billion. Meanwhile, the net loss for 2012 was $1.04 billion, or $4.91 per share. The losses were lower than that of 2011, when the company reported a net loss of $7.13 per share.
It is also worth noting that the 2012 fiscal-year results suggest an operating loss of $519 million. In 2011, the operating loss amounted to $976 million. Total interest expenses were $554 million in 2011 and $514 million in 2012.
Summary
In 2012, Supervalu reorganized its business model with the goal of becoming known as America's "Neighborhood Grocer." In order to achieve this objective, Supervalu focused on winning clients and encouraging expansion. A large part of this effort was its "8 Plays to Win" approach, which increased control over procedures and made it easier for the company to deliver on financial obligations.
Partially as a result of these concerted efforts to improve business, Supervalu's overall outstanding financial debt was reduced by about $500 million in the 2012 fiscal year. In the most recent calendar year, Supervalu also developed an alternative version of its senior credit services, which permits it to expand the Term B-1 loan. Supervalu has extended the secure company accounts receivable service until November 2014. With such measures, Supervalu has reduced the overall debt by significantly more than $3.2 billion since 2006, and continues to behave in accordance with the existing debt agreements.
All of Supervalu's shops are currently situated within the United States, meaning that the revenue outcomes are highly dependent on the self-confidence and spending behavior of American consumers. Unfortunately, the U.S. market has encountered economic instability in the last several years due to concerns over increases in the joblessness rate. Energy costs, decreases in the real estate market, and the recent financial crises have all also played a role in shattering consumer confidence.
Furthermore, the potential for inflation remains immeasurable, though analysts predict that deflation in the food industry could decrease sales revenue and hurt its capacity for expansion. If customer spending behavior gets worse, this could also seriously damage Supervalu's financial status.
