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Can SUPERVALU’s (SVU) Strategic Efforts Help Gain Momentum?


Shares of SUPERVALU Inc. SVU have been in the red zone of late, mainly due to the company’s retail business that have been witnessing a slowdown due to tough competitive pressure, soft sales and deflationary environment in the food industry. Its shares have underperformed both the Zacks categorized Food – Miscellaneous/Diversified industry and the broader sector. We note that the stock has plunged nearly 37%, while the industry fell 1.7% over the last six months.

Meanwhile, the Zacks categorized Consumer Staples sector gained 10.5% in the same time frame. Let’s discover the shortcomings that are currently affecting the stock.

Delving Deep

SUPERVALU has been witnessing sluggish sales in the retail business. Evidently, in the fourth quarter of fiscal 2017, retail sales fell 3.2% year over year, while same-store sales remained negative at 5.8%, making it the eighth consecutive quarter of decline. Traffic at the stores was also down 4.3%.

We note that price competition, ongoing deflation and lower SNAP (Supplemental Nutrition Assistance Program) benefits were cited as key reasons for the poor performance. Moving ahead, management expects to continue to feel the impact of competitive new store openings against its retail stores in fiscal 2018.

We note that this grocery dealer does not have a good track record of financial performance. The company’s earnings have missed the Zacks Consensus Estimate in two of the trailing four quarters, with an average miss of 6.7%. Moreover, its sales have lagged the consensus mark in six of the seven straight quarters.

In addition, the company is facing competitive pressure that has hit the grocery industry as traditional grocery rivals are strengthening their franchises and outside players offering alternative outlets for food and other staples. The company expects the trend to continue in the near term. Also, food deflation across major parts of the market is adding to the further woes.

However, on the positive front, SUPERVALU is taking measures to turn around in its performance. In fact, the company is geared to expand its retail banners in order to boost sales growth. Notably, management is rebranding most of its retail banners so that each has a clearly-defined identity communicated through in-store signage, weekly ads, customer emails, mobile devices and banner web pages.

Moreover, it is planning to capitalize on the private brands portfolio among the retail banners. During fiscal 2017 (Sep 2016), Supervalu acquired 22 Food Lion stores located in northern West Virginia, western Maryland, south central Pennsylvania and northwestern Virginia.

Moreover, it is also taking initiatives to reduce costs and increase efficiency. To this end, the company has resorted to ‘single sourcing’ in its independent business, where it is supplying goods to retailers who source their products only from SUPERVALU. In fact, the grocer is focusing on its wholesale business and is making efforts to improve comparable store sales (comps) in the retail sector.

To add up to these positives, the company carries a Zacks Rank #3 (Hold) and the estimates have been stable in the last 30 days.

Stocks That Warrant a Look

Better-ranked stocks in the same industry include SunOpta Inc. STKL, Aramark ARMK and B&G Foods, Inc. BGS.

SunOpta, with a long-term earnings growth rate of 15% has skyrocketed 103.5% in the last one year. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aramark carries a Zacks Rank #2 (Buy) with a long-term earnings growth rate of 12%. Also, it has posted an average earnings beat of 4.5% in the trailing four quarters.

B&G Foods, a Zacks Rank #2 stock has a long-term earnings growth rate of 10%. Also, it has posted an average earnings beat of 2% in the trailing four quarters.

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