Fitch Affirms SuperValu's Senior Notes at 'BBB'; Outlook Stable

Business Wire, Jan 13, 2006

NEW YORK -- Fitch Ratings has affirmed the 'BBB' ratings of SuperValu Inc.'s (SuperValu) Issuer Default Rating (IDR), bank credit facility and senior notes. The Rating Outlook is Stable. SuperValu has about $1.6 billion of debt outstanding as of Dec. 3, 2005.

The ratings on SuperValu consider the company's improving financial profile, broad geographic presence, and complementary businesses. Also considered is SuperValu's competitive operating environment, the mature nature of the distribution business and its strategy for growth which may include acquisitions.

SuperValu's retail food and food distribution businesses span a broad geographic reach, with 1,546 retail locations in 40 states and 2,200 primary distribution customers across 48 states. As SuperValu's food distribution business is mature and continues to contract over time, the company has focused on growing its retail food businesses. As a result, while overall revenues have remained relatively flat, SuperValu's retail food operations have grown to 53.3% of total revenues as of Dec. 3, 2005 compared to 47.1% in 2002, while the food distribution business has declined to 46.7% from 52.9% over the same period.

The shift in sales mix between the retail food and food distribution businesses has positively affected SuperValu's operating margin, as the retail food operations generate higher profit margins than the food distribution business. For the first nine months of fiscal 2006, SuperValu's retail food operations generated an operating margin of 4.2% while the food distribution segment generated 2.4%. As a result, despite same store sales declines in fiscal 2006, SuperValu's EBITDAR margin has improved to 5.3% in the latest twelve months ended Dec. 3, 2005 from 4.9% in fiscal 2002, and cash flow generation has strengthened.

SuperValu has used its cash flow generation to reduce debt over time. Since 2002, SuperValu has reduced debt balances by approximately $575 million to $1.6 billion as of Dec. 3, 2005. As a result, credit metrics have strengthened with adjusted leverage declining to 2.6 times (x) from 3.1x in fiscal 2002 and EBITDAR/interest plus rents increased to 4.3x from 3.5x over the same period.

Nonetheless, competition in the retail grocery industry remains intense and SuperValu's same store sales have declined during the first three quarters of fiscal 2006, primarily in its regional banner stores. In addition, possible large scale debt financed acquisition activity remains a concern.

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