3 q14 earnings presentation final

3Q14 Earnings Conference Call

July 10, 2014

A Word of Caution Certain statements contained in this presentation which are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address the Company’s plans, activities or events which the Company expects will or may occur in the future.

A number of important factors could cause actual results to differ materially from those expressed in any forward-looking statements. Such factors, risks and uncertainties are set forth under the headings “Cautionary Statement Regarding Forward-Looking Statements,” or “Risk Factors” or "Management’s Discussion and Analysis of Financial Condition and Results of Operation" in the Company’s annual report on Form 10-K and quarterly reports on Form 10-Q filed or to be filed, respectively, and which are expressly incorporated herein by reference.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of July 10, 2014. The Company does not undertake to update or revise its forward-looking statements even if experience or future changes make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law.

In addition, the amounts and timing of all estimates are subject to change. The actual amounts and timing may vary materially based on various factors, including the timing of store closings; the timing and amount of sublease income and other lease expense; factors relating to real estate including sale proceeds; asset write-downs and other factors affecting inventory value; changes in management's assumptions; and other factors.

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Agenda

Introduction & Safe Harbor Kiley Rawlins, CFA VP – IR & Communications

Opening Remarks Howard Levine Chairman & CEO

Financial Review and Outlook Mary Winston Chief Financial Officer

Questions & Answers Howard Levine Mary Winston

3

Opening Remarks

Howard Levine Chairman & CEO

Difficult Operating Environment

• Customers facing pressures

– Elevated unemployment levels

– Reductions to key government assistance programs

– Healthcare uncertainties

– Energy price volatility

• Competitive environment

– Elevated traffic-driving promotions

– Aggressive every day pricing

5

Improving Trends

• Comparable store sales

• Shrink

• Store manager turnover

• Inventory management

6

Price Investments: Return to Value

• $50+ million annualized price investment on nearly 1,000 basic SKUs

• More compelling values for our customers

• Encouraging early trends

7

Driving Profitable Growth

• Refine and enhance key-traffic driving consumables categories – Refrigerated and frozen food

– Beer & wine

• Improve merchandise markups – Global sourcing

– Private Brand

• Driving operational efficiency – Palletized delivery program

8

Delivering Long-term Shareholder Value

• Executing previously announced strategic actions

• Investing in longer-term strategic initiatives to improve financial performance and operational efficiency

• In-depth business review continues with the goal to unlock further actions to enhance shareholder value

9

Financial Review and Outlook

Mary Winston CFO

3Q14 Highlights

• Total net sales increase 3.3% to $2.66 billion

• Comparable store sales decrease 1.8%

• Adjusted Earnings per diluted share of $0.85*

– Gross margin pressure

– SG&A deleverage

11 *Excludes $0.14 relating to restructuring charges

Third Quarter Revenues

$2.57

$2.66

Net Sales (billions)

3Q13 3Q14

2.9%

-1.8%

Comparable Store Sales Growth

3Q13 3Q14

12

Assortment Enhancements

• Food

– 400 new items

– Focus on key national brands

– Improved adjacencies

• Household

– New items and formulations in both national brands and private brands

13

Third Quarter Gross Profit

72.5% 73.3%

10.3% 9.8%

8.0% 7.9%

9.2% 9.0%

3Q13 3Q14

Category Sales Mix (% of Sales)

Consumables Home Products

Apparel & Accessories Seasonal & Electronics

36.6% 36.2%

35.8%

34.7% 34.3%

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3Q10 3Q11 3Q12 3Q13 3Q14*

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ss P

rofi

t ($

M)

Gross Profit Trends

GM$ GM Rate

*3Q14 results exclude restructuring charges. 14

Third Quarter SG&A Expense

• Lower sales growth

• De-leverage

– Store occupancy

– Labor

– Advertising

• Leverage

– Incentive compensation

28.1% 27.9%

27.6% 27.4%

28.8%

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SG&

A E

xpen

se (

$M

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SG&A Trends

SG&A SG&A (% of Sales)

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Workforce Reduction and Store Closures

• Reduced corporate overhead by 10% in third quarter fiscal 2014 and re-aligned key organizational functions

• Closing approximately 370 stores in fourth quarter fiscal 2014

16

Estimated $40 - $45 million in Annualized Operating Profit Benefit

Third Quarter Earnings Results

(in millions except for per share amounts)

3Q13 3Q14 Change

Net Income* $120.9 $96.5 -20.2%

Diluted Earnings per Share*

$1.05 $0.85 -19.0%

Weighted average shares - diluted

115.5 114.2

17 *3Q14 results exclude restructuring charges.

$147 $163

$191 $189 $193

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ou

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ds)

• Anniversary of FY12 consumables expansion

• Consumable assortment changes

• Well-managed discretionary inventories

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Capital Expenditures

$136

$230

$391

$600

$307

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(mill

ion

s)

• New store openings ($107M)

• Renovation program ($93M)

• Existing stores ($51M)

• Corporate/ IT ($36M)

• Supply Chain ($20M)

Year to Date

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Store Activity FY13 FY14

Openings Closings Openings Closings

1Q 125 1 126 1

2Q 126 17 118 21

3Q 129 3 111 3

YTD 380 21 355 25

Ending Store Count 7,801 8,246

Selling square footage (in 000s) 55,994 59,488

Renovations, Relocations and Expansions

556 585

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Returning Capital to Shareholders

58 62 67 78 95

272

513

92 75 125

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Dividends Share Repurchases

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Year to Date

Outlook*

4Q14

Comparable Store Sales Flat

Gross Margin Decline

SG&A Expense De-leverage

Diluted Earnings per Share^ $0.75 - $0.85

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*As provided in earnings press release dated July 10, 2014. ^Excludes $0.37 of earnings per diluted share related to restructuring charges.

Outlook*

FY14

Total Sales^ Low-single-digit growth

Comparable Store Sales Low-single-digit decline

Gross Margin Decline

SG&A Expense De-leverage

Tax Rate 34.0% - 34.5%

Diluted Earnings per Share@ $3.07 – $3.17

Capital expenditures $450M - $500M

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*As provided in earnings press release dated July 10, 2014. ^Excluding impact of the extra week in FY13. @Excluding $0.51 of earnings per diluted share related to restructuring charges.

3Q14 Earnings Conference Call

July 10, 2014