Fourth Quarter Fiscal 2018 Earnings Call

Transcription

1 Fourth Quarter Fiscal 2018 Earnings Call April 24, 2018

2 Safe Harbor Forward Looking Statements: Except for the historical and factual information contained herein, the matters set forth in this Presentation, particularly estimates and statements pertaining to SUPERVALU s expectations or future operating results, are forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially, including competition, ability to transform the business and execute on operations and initiatives, ability to execute and realize benefits from acquisitions and dispositions, ability to grow sales, reliance on the wholesale customers' performance, failure to perform services, wind down of Supervalu s relationships with Albertson s LLC and New Albertson s, Inc., ability to maintain or increase margins or identical store sales, restrictive covenants from indebtedness, labor relations and employee issues, escalating costs of providing employee benefits, intrusions to and disruption of information technology systems, changes in military business, adequacy of insurance, asset impairment charges, disruption of any proxy contest, fluctuations in our common stock price, impact of economic conditions, commodity pricing, severe weather, disruption to supply chain and distribution network, governmental regulation, food and drug safety issues, legal proceedings, pharmacy reimbursement and health care financing, changes in tax laws, intellectual property protection and other risk factors relating to our business or industry as detailed from time to time in SUPERVALU's reports filed with the SEC. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Presentation. Neither SUPERVALU nor any of its affiliates, representatives or advisors assumes any responsibility for, or makes any representation or warranty (express or implied) as to, the reasonableness, completeness, accuracy or reliability of the estimates and other information contained herein, which speak only as of the date identified on the cover page of this Presentation. SUPERVALU and its affiliates, representatives and advisors expressly disclaim any and all liability based, in whole or in part, on such information, errors therein or omissions therefrom. Neither SUPERVALU nor any of its affiliates, representatives or advisors intends to update or otherwise revise the estimates and other information contained herein to reflect circumstances existing after the date identified on the cover page of this Presentation, including to reflect the occurrence of future events even if any or all of the assumptions, judgments and estimates on which the information contained herein is based change or are shown to be in error. Regulation G Disclaimer: SUPERVALU s consolidated financial statements are prepared and presented in accordance with generally accepted accounting principles ("GAAP"). Certain items contained in this Presentation, including organic growth, adjusted sales, Adjusted EBITDA, Free Cash Flow, and Adjusted Free Cash Flow are non-gaap financial measures and are provided as a supplement and should not be considered an alternative to any GAAP measure of performance or liquidity. The presentation of these financial measures and items is not intended to be a substitute for or be superior to any financial information prepared and presented in accordance with GAAP. You are cautioned that there are material limitations associated with the use of non-gaap financial measures as an analytical tool. Certain adjustments to SUPERVALU s GAAP financial measures exclude certain items that are recurring in nature and may be reflected in SUPERVALU s financial results for the foreseeable future. These measurements and items may be different from non-gaap financial measures used by other companies. These measurements are provided as a reconciliation from a GAAP measurement. Management believes the measurements and items identified below are important measures of business performance that provide investors and financial institutions with useful supplemental information. SUPERVALU also considers certain non- GAAP financial measures to assess the performance of its business and understand underlying operating performance and core business trends, which it uses to facilitate operating performance comparisons of its business on a consistent basis over time. In addition, SUPERVALU utilizes certain non-gaap measures as a compensation performance measure. The non-gaap financial measures should only be considered as an additional supplement to SUPERVALU s financial results reported in accordance with GAAP and should be reviewed in conjunction with SUPERVALU INC. s results reported in accordance with GAAP, as reported in SUPERVALU s Quarterly Reports on Form 10-Q and the Annual Report on Form 10-K for the fiscal year ended February 24, 2018, filed with the Securities and Exchange Commission. 2

3 Fourth Quarter & Fiscal 2018 Supplemental Presentation This material is provided as a supplement to SUPERVALU s April 24, 2018 press release announcing fourth quarter and full year results for the year ended February 24, It summarizes and elaborates on information disclosed in SUPERVALU s press release and earnings call, including: Pursuing sale of its Shop n Save and Shop n Save East retail operations Sale leaseback transaction announced on April 24, 2018 Revised definition of Adjusted EBITDA beginning in Fiscal 2019 Outlook for Fiscal 2019 Longer term outlook 3

4 Advancing SUPERVALU s Business Transformation EBITDA Growth & Cash Flow Generation Grow Core Wholesale Business Optimize Asset Base De-Lever Balance Sheet Strategic and Opportunistic M&A Strong execution in Fiscal 2018 and significant recent steps taken Continued focus on delivering shareholder value 4

5 Recent Actions Continue Large Strategic Transformation $3.7 billion sales $0.6 billion sales Acquired (6/17) Acquired (12/17) Pursuing sale of owned Shop n Save and Shop n Save East retail operations (4/18) Sold (12/16) ~ 2 Million Square Feet of DC Space Acquired: Harrisburg, PA (3/17) and Joliet, IL (9/17) Announced Sale Plans (3/18) Announced Sale Leaseback on 8 Properties; ~ $445 million net proceeds (4/18) 5

6 Strategic Transformation Towards Wholesale Growth in Wholesale segment sales, the sale of Save-A-Lot, and reporting three retail banners in discontinued operations has dramatically shifted reported sales mix toward Wholesale XX% We expect to continue to increase Wholesale sales mix 6

7 Integration on Track, Increased Synergy Goals Original Synergy goal (1) : Updated Synergy goal (1) : At least $60M At least $80M At least $16M (1) Primary sources of synergies o Duplicative overhead costs o Improved cost of goods o Logistics efficiencies o Network optimization (1) Minimum expected run-rate cost savings by the end of the third year following the completion of the respective transaction closings. 7

8 Discontinued Retail Operations Continuing Retail Operations Optimizing Retail Assets Banner Total Store Count Location 53 (1) Predominantly MN 52 Baltimore / DC 8 Fargo (ND) / Moorhead (MN) 38 Virginia Beach, VA 38 St. Louis, MO 22 WV, MD, PA and VA Farm Fresh announced exit including sale of 21 stores to Harris Teeter, Kroger, Food Lion. Working to sell remaining stores to Wholesale customers and prospective Wholesale customers, as well as to select Farm Fresh employees. Pursuing sale of Shop n Save and Shop n Save East (2) retail operations. Currently plan to use net cash proceeds to reduce debt. Store counts as of 2/24/18. (1) Excludes % franchised and minority-owned Cub LLC stores as well as one Rainbow store. (2) Stores owned and operated by SUPERVALU. 8

9 Agreements for Sale Leaseback on 8 Industrial Properties 8 Distribution Centers As a result of this sale leaseback: SUPERVALU will have sold approximately 30% of its owned real estate for $483M, and SUPERVALU continues to own ~ 13.3M square feet of real estate (or ~ 42% of its operating property square footage) ~ 5.8M Total Square Feet ~ $483M Gross Proceeds (1) Plan to use net proceeds to reduce outstanding debt Future reported earnings will include annual straight line rent expense of approximately $37 million (~$27 million in F19) (1) Net proceeds estimated to be approximately $445M after taxes and customary fees. In addition to the $483M of gross proceeds, the buyer of these properties will also fund an approximate $20M expansion to the Harrisburg, PA distribution center. Of the $483M, approximately $382M is expected to be realized in May 2018 and the balance by October Year 1 annual cash rent related to these properties will be approximately $31M which equates to an effective cap rate of 6.4%. 9

10 Real Estate Monetization Strategy Providing Funding Support for Recent Acquisitions ($'s in Millions) Purchase price (including debt) $ 390 $ 193 Real estate sale leaseback proceeds (1) (145) (66) Net purchase price $ 245 $ 127 Remaining real estate FMV (2) $ 110 $ 12 Historical Adjusted EBITDA (3) $ 35 $ 20 Updated 3 year synergy goal Sale leaseback rent (10) (5) Run rate Adjusted EBITDA inc. synergies $ 105 $ 31 Sale Leaseback Distribution Centers Pompano Beach, FL Commerce, CA Stockton, CA Champaign, IL Green Bay, WI Harrisburg, PA Joliet, IL Oglesby, IL (Shaded DC's were acquired in 2017) Illustrative overview of Unified Grocers and AG Florida acquisitions (including synergies and following sale leaseback) shows compelling economics (1) Gross proceeds based on fair value allocation of properties agreed to be sold under sale-leaseback (2) Based on purchase accounting assigned values for Unified real estate and management estimates for AG Florida real estate, both less expected proceeds under agreed upon sale leaseback 10 (3) Unified for last completed fiscal year which ended October 1, 2016; AG Florida for year end July 29, 2017; see reconciliations

11 FINANCIAL RESULTS 11

12 SUPERVALU Delivered Results Within Prior Guidance ($'s in Millions) Fourth Quarter F18 Full Year F18 Continuing Discontinued Continuing Discontinued Operations Operations Total Operations Operations Total Sales $ 3,594 $ 343 $ 3,937 $ 14,157 $ 1,522 $ 15,679 Adjusted EBITDA (1) $ 117 $ 11 $ 128 $ 436 $ 42 $ 478 Full year consolidated Adjusted EBITDA met expectations of $475 - $485 million (1) Fourth quarter and full year Adjusted EBITDA for Continuing Operations includes stranded costs which would have historically been included in the results of Farm Fresh, Shop n Save and Shop n Save East. Approximately half of these costs are expected to be eliminated or mitigated by the end of fiscal 2019, including a portion of the $13M rent expense attributable to certain stores in discontinued operations. 12

13 Strong Sales Growth in Core Wholesale Business ($'s in Millions) Fourth Quarter Full Year F18 F17 % Change F18 F17 % Change Wholesale Sales $ 2,872 $ 1,793 60% $ 11,054 $ 7,705 43% - Unified and AG Florida (970) - (2,624) - Organic Growth $ 1,902 $ 1,793 6% $ 8,430 $ 7,705 9% - TFM (1) / Marsh /Military (241) (193) (1,081) (683) Adjusted Sales $ 1,661 $ 1,600 4% $ 7,349 $ 7,022 5% Wholesale organic sales growth has been strong (1) The Fresh Market 13

14 Core Wholesale Strength and Growth Adjusted EBITDA would have grown ~ 35% between F16 and F18 if not for the TSA wind down and the performance of Retail ($'s in Millions) F16 (1) F17 (1) F18 Adjusted EBITDA as reported (1) (2) $ 557 $ 507 $ Estimated Adjusted EBITDA from TSA (120) (120) (90) - Retail Adj EBITDA (2) (247) (163) (130) Adjusted EBITDA exc. TSA & Retail $ 190 $ 224 $ 258 (1) F16 and F17 reflect adjusted EBITDA as previously reported prior to retail discontinued operations presentation and includes proforma adjustments of $30 and $24 respectively to reflect fees that would have been collected from Save-A-Lot under the services agreement for periods prior to December 5, (2) Includes continuing and discontinued operations. The wind down of the Albertsons/NAI TSA will be substantially complete in fiscal 2019 Pursuing the sale of owned retail operations of Shop n Save and Shop n Save East 14

15 Improving ID Sales Trends At Retail Continuing Ops Banners (Cub, Hornbacher s, Shoppers) ($'s in Millions) Fourth Quarter ID Sales Over Last Five Quarters F18 F17 % Change Total Sales $ 690 $ % ID Sales vs Prior Yr 0.1% -5.8% 5.9% Adjusted EBITDA $ 23 $ 35 % of Sales 3.3% 5.0% ID sales for three Continuing Ops banners have sequentially improved over the past five quarters and were positive in Q4F18 15

16 Strong Liquidity Position With No Near Term Debt Maturities The capital structure has no near term maturities and approximately ~$860 million in available liquidity (including cash) Fiscal Year End Debt Profile (prior to sale leaseback) $100M of sale leaseback proceeds expected to pay down the Secured Term Loan Remaining $345M of expected net proceeds of sale leaseback to be used for further debt reduction 1 $184M of ABL Borrowings consists of $127M of borrowings and $57M in letters of credit 16

17 Corporate Pension Plan Funding Improved In F18, the underfunded status of SUPERVALU s historical defined benefit pension plans improved by approximately $115 million Including the addition of the acquired Unified Grocers cash balance plan, the underfunding still improved by nearly $70 million The estimated funded ratios at the end of F18 were 92% and 82% for the SUPERVALU and Unified Grocers plans, respectively Corporate Pension Deficit ($ s in Millions) 17

18 Fiscal 2019 Outlook 18

19 Revising Definition of Adjusted EBITDA for F19 Revised definition of Adjusted EBITDA (F19 forward) more closely aligns with cash generation Historical definition added back to net income: o Income tax / interest expense / depreciation-amortization / LIFO o Identified items of non-recurring nature New definition also adds back: o Non-cash pension income / expense o Non-cash OPEB income / expense (other post employment benefits) o Stock compensation expense F17 and F18 Adjusted EBITDA with revised definition and including both continuing and discontinued operations is shown below for illustrative purposes: ($'s in Millions) F17 F18 Adjusted EBITDA (1) (2) $ 483 $ 478 Exclude pension (income) (13) (44) Exclude OPEB (income) (11) (12) Exclude stock comp expense Adjusted EBITDA - Revised Definition (1) (1) F17 reflects adjusted EBITDA as previously reported prior to discontinued operations presentation; includes both continuing and discontinued operations; excludes Save-A-Lot. (2) F18 reflects both continuing and discontinued operations. 19

20 Revising Definition of Adjusted EBITDA for F19 ($'s in Millions) On a continuing ops basis, F18 Adjusted EBITDA under the revised definition would have been $399 million Fiscal 2018 Discontinued Continuing Consolidated (2) Ops Ops Adjusted EBITDA (1) $ 478 $ 42 $ Definition Change (36) 1 (37) Adjusted EBITDA (revised definition) $ 442 $ 43 $ 399 (1) Full year Adjusted EBITDA for Continuing Operations includes stranded costs which would have historically been included in the results of Farm Fresh, Shop n Save and Shop n Save East. Approximately half of these costs are expected to be eliminated or mitigated by the end of fiscal 2019, including a portion of the $13M rent expense attributable to certain stores in discontinued operations. (2) Includes continuing and discontinued operations. 20

21 Fiscal 2019 Guidance Continuing Operations Sales (1) o Total sales: $15.5B - $15.7B / Retail identical store sales: flat to slightly positive Adjusted EBITDA (revised definition) o $375M - $400M o Includes $27M of rent expense from sale leaseback o Reflects up to $50M impact from the wind down of the Albertsons/NAI TSA Interest expense o Approximately $113M Tax rate o Approximately 26% o Cash taxes expected to be nominal other than related to the sale leaseback Capital expenditures o $190M - $210M o Includes ~ $35M of Unified / AG Florida non-recurring capital and ~ $100M of maintenance capital Free Cash Flow (2) o At least $550M (includes ~$445M of net proceeds from sale leaseback) o Excludes any future sale leasebacks and proceeds from any sale of Shop n Save or Shop n Save East Leverage (3) o Ending net leverage: low 3-times range (1) Excludes sales of Retail banners in disc ops. (2) Net cash provided by operating activities plus net cash (used in) or provided by investing activities. (3) Net debt / Adjusted EBITDA; net debt equals the sum of long-term debt, long-term capital lease obligations, and current maturities of long-term debt and capital lease obligations, less cash and cash equivalents. 21

22 F18 Bridge to Midpoint F19 Outlook $ s in Millions $436 (37) $ $388 (50) (13) (27) $ (29) F18 Adjusted EBITDA (Cont. Ops) Definition Change F18 Adjusted EBITDA (Cont. Ops - Revised Definition) Albertson s TSA Wind Down Lancaster Exit Sale Leaseback Rent Subtotal All Other (1) Stranded Cost Mitigation Wholesale Growth (2) (1) Includes favorable F18 items not expected to repeat, including incentive compensation favorability, and F19 infrastructure investments to support Wholesale business growth (largely in Technical Services) which collectively total ~ $23M. (2) Includes annualized contribution from Unified Grocers and AG Florida, incremental synergies, and base business growth. Midpoint of F19 Outlook Adjusted EBITDA (Cont. Ops - Revised definition) 22

23 Anticipate Strong Free Cash Flow in F19 ($'s in Millions) F18 (3) F19 (est) Net Cash Provided By Operating Activities (1) $ 135 $ Net Cash Provided By / (Used In) Investing Activities (2) (506) 300 Free Cash Flow (3) $ (371) $ 550 +/- Working capital changes 42 (35) + Merger & restructuring costs (4) 48 + Harrisburg / Joliet Business acquisitions Non-recurring Unified / AG Florida capex 35 - Net Proceeds from sale-leaseback (445) - Farm Fresh proceeds (53) Adjusted Free Cash Flow $ 46 $ 100 Included in Net Cash provided by Operating Activities Included in Net Cash provided by / (used in) Investing Activities (1) F18 includes non-acquisition related investment in higher net inventories of ~ $42M; F19 includes approximately $35M working capital improvement primarily driven by the exit from the Lancaster DC shared with NAI. Includes continuing and discontinued operations. (2) F18 includes strategic DC purchases of $135M as well as acquisition of Unified Grocers and AG Florida for $240M; F19 includes $445M net proceeds from sale leaseback, $53M from Farm Fresh exit, and $35M in Unified/AG Florida non-recurring capex. Includes continuing and discontinued operations. (3) Net cash provided by operating activities plus net cash (used in) or provided by investing activities 23 (4) Includes merger and integration costs from Unified and AG Florida as well as estimated restructuring costs.

24 Long-Term Outlook 24

25 Vision To Create Value EBITDA Growth & Cash Flow Generation Grow Core Wholesale Business Optimize Asset Base De-Lever Balance Sheet Strategic and Opportunistic M&A 25

26 Long-Term Outlook Grow Wholesale Grow Core Wholesale Business Focus on 3-pronged wholesale strategy o Keep customers o Do more business with customers o Add new customers Traditional and non-traditional formats Leverage our scale, variety, and service offerings Market Centre Private brands Unified Grocers and AG Florida Annual Wholesale Sales Growth Goal (1) Low to mid single digits (1) As a % above prior year, excludes future M&A 26

27 Long-Term Outlook Optimize Asset Base Optimize Asset Base Further review asset base for optimal mix o Retail optimization o DC network optimization o Sale-leasebacks o Surplus / excess property o Working capital opportunities Expect to generate additional cash from asset base 27

28 Long-Term Outlook De-lever Balance Sheet De-Lever Balance Sheet Use free cash flow to pay down debt Banner exits and sale-leasebacks to meaningfully reduce debt relative to F18 Focus on reducing leverage (absent M&A) Outlook for Leverage (1) End Fiscal 2019 ~ Low 3x range Longer Term Further reduction (1) Net debt / Adjusted EBITDA; net debt equals the sum of long-term debt, long-term capital lease obligations, and current maturities of long-term debt and capital lease obligations, less cash and cash equivalents. Excludes M&A. 28

29 Long-Term Outlook Consolidation Expected To Continue Industry consolidation expected to continue Company has strategically grown through acquisition o Unified Grocers o AG Florida Has platform and capabilities to further grow through M&A opportunities Disciplined approach to preserve balance sheet strength Invest to expand / enhance capabilities o Traditional wholesalers o Meat, produce, specialty and ethnic, alternative channels 29

30 Long-Term Outlook Cash Provided By Operating Activities F19 forecasted at ~ $250M Future growth expected from higher sales, synergy realization, and lower interest expense Cash Used In Investing Activities (1) Wholesale Capex 0.8% to 1.0% of Wholesale sales Retail Capex 1.25% to 1.75% of Retail sales Additional Cash Generation Additional Opportunities Working capital Real estate monetization Network/business optimization (1) Excludes M&A and new Retail stores 30

31 APPENDIX 31

32 Reconciliation F18 Adjusted EBITDA (Continuing Operations and Discontinued Operations) RECONCILIATIONS OF NET EARNINGS ATTRIBUTABLE TO SUPERVALU INC. TO ADJUSTED EBITDA TO TOTAL SUPERVALU INC ADJUSTED EBITDA INCLUDING DISCONTINUED OPERATIONS (In millions) SUPERVALU INC. Fourth Quarter Ended February 24, 2018 (12 weeks) Continuing Operations Discontinued Operations SUPERVALU INC. Fiscal Year Ended February 24, 2018 (52 weeks) Continuing Operations Discontinued Operations Net earnings (loss) including noncontrolling interests $ 33 $ 25 $ 8 $ 46 $ 49 $ (3) Income tax provision (benefit) (10) 3 28 (25) Equity in earnings of unconsolidated affiliates (14) (14) (16) (16) Interest expense, net Total operating earnings (loss) $ 66 $ 68 $ (2 ) $ 165 $ 193 $ (28) Add Equity in earnings of unconsolidated affiliates Less net earnings attributable to noncontrolling interests (1) (1) Depreciation and amortization LIFO (credit) charge (3) (3) 1 1 Pension settlement charges Asset impairment charge Store closure charges and costs Severance costs Legal reserve charge Merger and integration costs Gain on sale of property (1) (1) (3) (3) Vendor legal settlement income (5 ) (5 ) (5 ) (5 ) Benefit plan termination gain (8 ) (8 ) (8 ) (8 ) Gain on sale of unconsolidated affiliates (13 ) (13 ) (13 ) (13 ) Adjusted EBITDA (1) $ 128 $ 117 $ 11 $ 478 $ 436 $ 42 Pro forma adjustments: Lease contract primary obligor accounting (2) 3 (3 ) 13 (13 ) Pro forma adjusted EBITDA $ 128 $ 120 $ 8 $ 478 $ 449 $ 29 (1) Supervalu s measure of adjusted EBITDA includes operating earnings, as reported, plus depreciation and amortization, LIFO charge, equity earnings of unconsolidated affiliates and certain adjustment items as determined by management, and less net earnings attributable to noncontrolling interests. (2) The application of continuing operations accounting presentation requires Supervalu to present lease expense based on the legal entities that have the contracts with the landlords, regardless of these locations being held for sale. This lease expense is attributable to held-for-sale retail stores for which Supervalu is pursuing sale agreements where Supervalu will not be selling the legal entities that are party to these contracts. This lease expense is primarily related to two retail banners for which Supervalu is likely to pursue sale agreements in which the leases would be assigned. Upon reaching agreements to sell these retail stores, Supervalu anticipates that lease payments will be paid directly by the acquirer, and Supervalu will no longer incur the expense. 32

33 Reconciliation - Segment Adjusted EBITDA (Continuing Ops) RECONCILIATION OF OPERATING EARNINGS FROM CONSOLIDATED SEGMENT FINANCIAL INFORMATION AS REPORTED TO SUPPLEMENTALLY PROVIDED ADJUSTED EBITDA AND PRO FORMA ADJUSTED EBITDA (In millions) Fourth Quarter Ended February 24, 2018 (12 weeks) February 25, 2017 (12 weeks) Fiscal Year Ended February 24, 2018 (52 weeks) February 25, 2017 (52 weeks) Reconciliation of segment operating earnings to total operating earnings, as reported Wholesale operating earnings $ 68 $ 60 $ 226 $ 225 Retail operating earnings (loss) 1 10 (13 ) (3 Corporate operating loss (1) (5) (20 ) (27 Total operating earnings $ 68 $ 65 $ 193 $ 195 Reconciliation of segment operating earnings, as reported, to segment Adjusted EBITDA and consolidated pro forma adjusted EBITDA: Wholesale operating earnings, as reported $ 68 $ 60 $ 226 $ 225 Adjustments: Supply agreement termination fee (9 Legal reserve charge 9 Severance costs 4 4 Merger and integration costs 2 Vendor legal settlement income (5) (5 ) Wholesale operating earnings, as adjusted Wholesale depreciation and amortization LIFO charge 5 Wholesale adjusted EBITDA (1) $ 91 $ 74 $ 325 $ 270 Retail operating earnings (loss), as reported $ 1 $ 10 $ (13 ) $ (3 Adjustments: Store closure charges and costs 1 5 Goodwill impairment charge 13 Retail operating earnings (loss), as adjusted 1 11 (13) 15 Retail depreciation and amortization LIFO (credit) charge (3) (1) (4 ) 1 Equity in earnings of unconsolidated affiliates Gain on sale of unconsolidated affiliates (13 ) (13 ) Net earnings attributable to noncontrolling interests (1 ) (1 ) (4 Retail adjusted EBITDA (1) $ 23 $ 35 $ 85 $

34 Reconciliation F16 and F17 Adjusted EBITDA RECONCILIATIONS OF NET EARNINGS FROM CONTINUING OPERATIONS TO ADJUSTED EBITDA AND PRO FORMA ADJUSTED EBITDA (In millions) Fourth Quarter Ended February 25, 2017 (12 weeks) February 27, 2016 (12 weeks) Fiscal Year Ended February 25, 2017 (52 weeks) February 27, 2016 (52 weeks) Results of operations, as reported Net earnings from continuing operations $ 6 $ 30 $ 27 $ 84 Income tax (benefit) provision (9 ) (20 ) 24 Equity in earnings of unconsolidated affiliates (2 ) (2 ) (5 ) (5) Interest expense, net Total operating earnings $ 35 $ 75 $ 183 $ 298 Add Equity in earnings of unconsolidated affiliates Less net earnings attributable to noncontrolling interests (1) (2) (4) (8) Depreciation and amortization LIFO charge (2 ) (3 ) 1 3 Pension settlement charges 1 42 Asset impairment charge Goodwill and intangible asset impairment charges 15 6 Store closure charges and costs Severance (benefit) cost (1 ) 6 Sales and use tax refund (2 ) Supply agreement termination fee (9 ) Adjusted EBITDA (1) $ 124 $ 127 $ 483 $ 527 Pro forma adjustments: Net sales (2) Cost of sales (3) (2 ) (9 ) (17) Total pro forma adjustments Pro forma adjusted EBITDA $ 124 $ 133 $ 507 $ 557 (1) The Company's measure of adjusted EBITDA includes SUPERVALU INC.'s operating earnings (loss), as reported, plus depreciation and amortization, LIFO charge, equity earnings of unconsolidated affiliates and certain adjustment items as determined by management, and less net earnings attributable to noncontrolling interests. (2) This adjustment reflects (1) the fees that the Company expects to recognize in connection with performing services for Save-A-Lot under the services agreement entered into with Save-A-Lot on December 5, 2016 (the "Services Agreement") and (2) Wholesale distribution sales to Save-A-Lot pursuant to a customer agreement between the Company and Save-A-Lot that had historically been intercompany sales. Actual Services Agreement fees are subject to adjustments pursuant to the terms of the Services Agreement including for changes in service levels. This adjustment only applies to time periods prior to the sale of Save-A-Lot on December 5, (3) This adjustment reflects the Cost of sales related to Wholesale s distribution to Save-A-Lot, which was previously eliminated on an intercompany basis. No adjustment for expenses related to the Services Agreement has been included within Cost of sales because the shared service center costs incurred to support back office functions related to the Services Agreement represent administrative overhead costs that have been included within Selling and administrative expenses within the Company s historical consolidated financial statements. This adjustment only applies to time periods prior to the sale of Save-A-Lot on December 5,

35 Reconciliation F16 and F17 Segment Adjusted EBITDA (Continuing Operations) RECONCILIATION OF OPERATING EARNINGS FROM CONSOLIDATED SEGMENT FINANCIAL INFORMATION AS REPORTED TO SUPPLEMENTALLY PROVIDED ADJUSTED EBITDA AND PRO FORMA ADJUSTED EBITDA (In millions) Results of operations, as reported: Fourth Quarter Ended February 25, 2017 (12 weeks) February 27, 2016 (12 weeks) Fiscal Year Ended February 25, 2017 (52 weeks) February 27, 2016 (52 weeks) Net earnings from continuing operations $ 6 $ 30 $ 27 $ 84 Income tax provision (9) (20 ) 24 Equity in earnings of unconsolidated affiliates (2) (2) (5 ) (5) Interest expense, net Total operating earnings $ 35 $ 75 $ 183 $ 298 Reconciliation of segment operating earnings to total operating earnings, as reported Wholesale operating earnings $ 64 $ 50 $ 238 $ 230 Retail operating (loss) earnings (27) 30 (45 ) 94 Corporate operating loss (2) (5) (10 ) (26) Total operating earnings $ 35 $ 75 $ 183 $ 298 Reconciliation of segment operating earnings, as reported, to segment Adjusted EBITDA and consolidated pro forma adjusted EBITDA: Wholesale operating earnings, as reported $ 64 $ 50 $ 238 $ 230 Adjustments: Supply agreement termination fee (9 ) Intangible asset impairment charge 6 Wholesale operating earnings, as adjusted Wholesale depreciation and amortization LIFO (credit) charge (1) (1) 1 Wholesale adjusted EBITDA $ 77 $ 61 $ 283 $ 286 Retail operating (loss) earnings, as reported $ (27) $ 30 $ (45 ) $ 94 Adjustments: Asset impairment charge Goodwill impairment charge 15 Store closure charges and costs 5 1 Retail operating earnings, as adjusted Retail depreciation and amortization LIFO (credit) charge (1 ) (2 ) 1 2 Equity in earnings of unconsolidated affiliates Net earnings attributable to noncontrolling interests (1 ) (2 ) (4 ) (8 ) Retail adjusted EBITDA $ 45 $ 63 $ 163 $ 247 The Company's measure of adjusted EBITDA includes SUPERVALU INC.'s segment operating earnings (loss), as reported, plus depreciation and amortization, LIFO charge, equity earnings of unconsolidated affiliates and certain adjustment items as determined by management, and less net earnings attributable to noncontrolling interests. 35

36 Reconciliation F19 Adjusted EBITDA Outlook The following table reconciles Supervalu s outlook for full year fiscal 2019 Adjusted EBITDA, as revised for fiscal 2019 definition changes, to Net earnings from continuing operations, the most comparable GAAP measure. The table below illustrates the expected changes to management s definition of Adjusted EBITDA. Finally, the outlook below includes the expected $27 million of (pre-tax) rent expense associated with the sale leaseback announced on April 24, Additional adjustments not related to our on-going business performance may also arise during fiscal (In millions) For the Fiscal Year Ending February 23, 2019 (52 weeks) Projected Low End Amount Projected High End Amount Results of operations, as projected Net earnings from continuing operations $ 55 $ 73 Income tax provision Equity in earnings of unconsolidated affiliates (1 ) (1 ) Net pension and other postretirement benefit income (1) (38 ) (38 ) Interest expense, net Total operating earnings (1) $ 147 $ 171 Add Equity in earnings of unconsolidated affiliates 1 1 Less net earnings attributable to noncontrolling interests (1) (1) Depreciation and amortization LIFO charge 3 3 Merger and integration costs Net pension and other postretirement benefit income (1) Adjusted EBITDA, as historically defined $ 388 $ 413 Fiscal 2019 Adjusted EBITDA definition (1) Net pension and other postretirement benefit income (1) (38) (38) Stock-based compensation (1) Adjusted EBITDA, as revised for fiscal 2019 definition changes $ 375 $ 400 (1) Accounting standard update requires entities to present non-service components of net periodic pension and other post retirement benefit income in a new financial statement line below operating earnings. Supervalu is required to adopt this accounting standard in its first quarter of fiscal As a result of this required change, Supervalu determined it would reduce its measure of Adjusted EBITDA by the effect of the financial statement line item change, which will negatively impact the measure of Adjusted EBITDA, as historically defined. Upon considering this accounting standard change and as part of Supervalu s fiscal 2019 planning process, Supervalu determined it would revise its definition of Adjusted EBITDA in fiscal 2019 to exclude the non-service components related to net periodic pension and other post retirement benefit income that it will be required to move below operating earnings and has also revised the definition to exclude stock-based compensation. 36

37 Unified Grocers and AG Florida Adjusted EBITDA Reconciliations ($ in thousands) Unified Grocers Fiscal Year Ended October 1, 2016 (52 Weeks) Associated Grocers of Florida Fiscal Year Ended July 29, 2017 (52 Weeks) Net (loss) earnings from continuing operations $ (7,923) $ 3,785 Income tax provision 234 2,672 Patronage dividends 6,500 6,390 Interest expense 10,177 3,376 Operating earnings 8,988 16,223 Add: Depreciation and amortization 20,655 4,153 Audit committee investigation costs 2,702 - Loss on sale of dairy equipment 2,165 - Adjusted EBITDA $ 34,510 $ 20,376 Sources: Historical audited financial statements. Adjusted EBITDA for Unified Grocers and Associated Grocers of Florida was calculated based on Supervalu s definition and presentation of Adjusted EBITDA. Unified per Form 10-K filing for the year ended 10/1/