Image source: The Irish Times
Investors in SUPERVALU Inc. (SVU, Financial) have not been able to fight off declining sales, and as grocery stores and drugstores become more competitive, the nearly century-old retailer continues to struggle.
The deflationary environment for groceries has not helped either. Coming into the July 27 fiscal first quarter earnings report, SUPERVALU investors didn't have much hope that the company could turn things around, but many wonder when and if the stock will hit zero. Let's take a look at what SUPERVALU told investors and if it was able to change the hearts of its shareholders.
Stats on SUPERVALU
| Expected EPS Growth | 38.70% |
| Expected Revenue Growth | (3.90%) |
| Forward Earnings Multiple | 8.10 |
| Expected 5-Year Annualized Growth Rate | (1.98%) |
Source: Yahoo! Finance
What's ahead for SUPERVALU?
In recent months, investors have mixed views on what SUPERVALU has done so far: Talk of a possible spinoff of Save-A-Lot, landing the Fresh Market (TFM, Financial) supplier deal, and acquiring 22 Food Lion grocery stores. The stock is up 12.24% in the last six months
SUPERVALU's fiscal first-quarter results at the end of July again showed a grim picture for the retailer. The company posted a disappointing 3.9% decline in sales, which was not as bad as the 10% decline in revenue in the fourth fiscal quarter. Cost deflation was at or around 5% during the quarter. First quarter wholesale sales were down $185 million from the last year. But the company is selling more produce wholesale than ever. Not surprisingly, the stock sunk after the earnings release.
The biggest "if" for SUPERVALU is whether it can recover its wholesale sales while continuing to build its wholesale produce segment. The company plans on opening 75 stores in 2017 and sees a more focused site-selection process and more rigorous evaluation method to open more profitable stores. A renewed focus opening stores and building the wholeale produce segment may be just what SUPERVALU needs to stop the bleeding.
Can SUPERVALU regain its glory?
At the same time, SuperValu has been "blocking and tackling." Management has taken a long-term view when it comes to improving sales slowly while also planning a strong private label program launch in the next few weeks. The tone from management during the conference call was that it feels no need to expend a lot of energy into the short term but instead is taking a slower and more steady path.
SUPERVALU has always kept a strict focus, and it's important to watch and see which strategies it takes to try and turn around retail operations. But management knows that it must also devote focus to increasing shareholder value and is willing to go as far as start up its own warehouses. The retailer has not slowed down in its marketing efforts, investing in radio, media and direct mail. But, the deal with the Fresh Market has given shareholders hope of a turnaround.
Disclosure: No position in the stock mentioned.
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