SUPERVALU Retail Cut Downs On Track, Plans More Store Sales

SUPERVALU INC . SVU announced intentions to sell 19 (out of 36) Shop 'n Save grocery stores to Schnuck Markets, Inc. These stores are mainly located in the St. Louis, MO area. The transaction is expected to close by the end of October 2018, after complying with certain customary closing norms.

We note that SUPERVALU has been on track with cutting down retail operations, thanks to poor performance in the segment. That said, let's take a closer look at the terms of the deal and how it is likely to impact this Zacks Rank #5 (Sell) company's performance.

Deal With Schnuck

Per the deal, 15 in-store pharmacy locations as well as one stand-alone pharmacy will now come under Schnucks' wings. Further, prescription files from 10 Shop 'n Save pharmacies will be transferred to pharmacies owned by Schnucks in the area. Schnucks will also be taking over Shop 'n Save's four fuel centers. Apart from these, SUPERVALU has also agreed to become the primary supplier to nine of Schnuck stores located across Wisconsin, northern Illinois and Iowa.

On Track to Sell Remaining Shop 'n Save Stores

Management stated that it remains on track to find prospective buyers for the remaining Shop 'n Save stores in the near term. Failing to do so, the company plans to close these stores by the end of the year. Further, the company revealed plans to shutter its St. Louis Distribution Center by 2018-end, since it predominantly catered to the fast receding Shop 'n Save stores in the area.

SUPERVALU Gradually Bids Bye to Retail stores

SUPERVALU has been witnessing persistent softness in the retail segment, which has been grappling with stiff competition, price competition and intense promotions for long. During the first quarter of fiscal 2019, net sales in the unit dropped 0.6% to $901 million. Though identical store sales inched up 0.4%, it was more than offset by lower sales from closed stores. Further, the segment reported adjusted operating loss of $6 million.

Persistent poor performance in the segment has compelled management to undertake endeavors to shutter retail stores. Apart from endeavors to shut down Shop 'n Save stores, the company completed the sale of its Farm Fresh banner during the first quarter of fiscal 2019. In this regard, SUPERVALU sold 21 stores to Harris Teeter, Kroger KR and Food Lion, while five stores were sold to independent retailers.

Shares Up on Takeover Offer

Despite headwinds like store closures and a dismal gross margin trend plaguing SUPERVALU's performance, the company's shares have been improving lately. This is attributable to the news of the planned takeover of SUPERVALU by United Natural Foods, Inc UNFI . The deal is expected to provide SUPERVALU with access to more market regions and resources. The enhanced scale of the combined entities will boost efficiency in operations. Hence, by merging with United Natural, SUPERVALU is expected to gain the necessary support to stay afloat.

No wonder, the news has been raising enthusiasm among SUPERVALU's investors. Shares of the company have rallied 53.8% in the past three months compared with the industry 's rise of 5%. That said, lets wait and see if the company can sustain the bull run.

If you find SUPERVALU to be a risky pick for now, you may consider investing in The Chef's Warehouse, Inc. CHEF , a Zacks Rank #2 (Buy) stock. The company, which belongs to the same space as SUPERVALU, boasts of a sturdy earnings surprise history and has a long-term earnings per share growth rate of 22%. 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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