We reiterated a Neutral recommendation on
Supervalu Inc.
(
SVU
) following a dismal second quarter for fiscal 2013 and
consistently negative same-store sales.
Eden Prairie, Minnesota-based Supervalu reported break even
earnings in the second quarter of its fiscal 2013, lagging the
Zacks Consensus Estimate of 12 cents and the prior-year quarter
earnings of 28 cents a share. The weak results were due to
disappointing sales in all the segments during the quarter. Gross
profit in the second quarter declined 8.2% to $1.7 billion from
$1.8 billion a year ago.
Moreover, Supervalu has reported negative same-store sales
consistently for the past four years. The trend has continued in
the first half of fiscal 2013 as well. Although management is
taking several initiatives to rebound, the efforts have not shown
any substantial result so far.
However, we appreciate Supervalu's efforts to develop its retail
operations primarily through new store development, the addition
of merchandise to existing stores and an increase in the number
of replacement food distribution centers. The company expects to
complete the remodeling of approximately 100 stores and add
approximately 50 Save-A-Lot stores in fiscal 2013. Further, the
company plans to add 250 Save-A-Lot stores in the next five
years. This strategic expansion is expected to give a wider base
for the retailer's products, thereby generating revenue streams
going forward.
Moreover, the company is geared up to expand its private brand
portfolio. The 'Essential Everyday' equivalent brand launched
last year with 41 categories and more than 500 Stock Keeping
Units (SKUs) has gained popularity. The company has undertaken a
fair price plus promotion strategy, under which it aims to lower
the pricing of its products to match with its competitors. The
company expects to do so by the end of fiscal 2013. Although this
initiative may hurt short-term operating margins, it is expected
to help the company gain market share over the longer term.
However, the fair price strategy has not yet generated the
desired results as core competitors like
Kroger
(KR)
are also offering goods at very low prices. Moreover, management
does not appear to be reaching any constructive decisions on its
plans to sell off the company or parts of its business. Supervalu
currently holds a Zacks #4 Rank (Short-term Sell rating).
SUPERVALU INC (SVU): Free Stock Analysis
Report
To read this article on Zacks.com click here.
Zacks Investment
Research