SUPERVALU Lowers Guidance After Sprouts; Shares Tumble

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Shares of SUPERVALU Inc.SVU tumbled almost 9.5% after the grocery retailer announced guidance cut for EBITDA for fiscal 2017. SUPERVALU is the latest grocery chain to join the troubled food service chains that have slashed their outlook in the past few days.

The supermarket chain now expects EBITDA to decline 5% year over year, compared to a dip of 1.5% anticipated previously.

What Led to The Guidance Cut?

SUPERVALU cited lower than expected sales in the Retail and Save-A-Lot segments in the second-quarter fiscal 2017as the reason for its soft guidance. Higher competition in the grocery business as well as a challenging sales and retail environment also led to the decline. Moreover, the Save-A-Lot segment is impacted negatively due to deflationary environment as well as lower SNAP (supplemental nutrition assistance program) benefits compared to first-quarter.



The cumulative effect of these factors is expected to affect the top line in second-half fiscal 2017. The company also anticipates the comparable sales in second quarter to be lower than the first quarter.

Gloomy Grocery Environment

The grocery business is highly competitive and fragmented. Thus, as more companies are entering into the fray as well as expanding their presence, it is becoming tough for the existing players to retain their market share. Further, deflationary environment in food products and depleting footfalls at the supermarkets are causes of concern for these grocery chains.

Very recently, another grocery retailer, Sprouts Farmers Market Inc.SFM trimmed its forecast for third-quarter and full-year 2016 citing a tough retail environment. Sprouts drastically slashed its third-quarter comparable sales guidance to come in flat with last year from the previous forecast of 3-4% growth. Simultaneously, the company curtailed its earnings and comps view for full-year 2016. The company now anticipates earnings per share in the range of 83-86 cents against 92-94 cents projected earlier. Further, the company's comps growth guidance for the year was substantially lowered to 1.5-2.5% from the earlier forecast of 3.5-4.5%.

Following the guidance cut by Sprouts, several other grocery stocks also reported share price decline, Among the stocks that bore the brunt are Whole Foods Market, Inc. WFM , United Natural Foods, Inc. UNFI and The Kroger Co. KR which drew attention with significant price decline.

SUPERVALU currently carries a Zacks Rank #4 (Sell). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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