Supervalu, Inc. (NYSE: SVU) is expected to release its second quarter financial results on Oct.17 and hold a conference call on the same day at 7:00 a.m. Central time.
Minnesota-based Supervalu is one of the largest grocery wholesalers and retailers in the U.S. with annual sales of about $17 billion. It has 3,420 stores composed of 1,900 independent stores serviced primarily by its food distribution business, 1,332 Save-A-Lot stores, of which 957 are operated by licensee owners, and 191 traditional retail grocery stores. The company has approximately 35,000 employees.
Wall Street expects Supervalu to earn 10 cents a share, according to analysts polled by Thomson Reuters. In the same quarter last year, the company reported breakeven results.
In the past four quarters, Supervalu have missed the consensus view thrice, with only the last quarter beating the Street's estimates by a wide margin of 8 cents. Also, the consensus estimate has improved by 6 cents during the past three months, suggesting the Street's increased optimism on the company's prospects. In the last 30 days, three analysts raised their profit view.
Quarterly revenue, however, is expected to decline 51.8 percent to $3.88 billion from $8.04 billion a year-ago. This is one of the biggest sales drop for Supervalu, which sold Albertsons, Acme, Jewel-Osco, Shaw's and Star Market stores and related Osco and Sav-on in-store pharmacies to Cerebrus. Following the sale, the company has its food business and Save-A-Lot discount grocery chain.
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The primary risks to Supervalu are increasing price competition and rising food inflation. The pricing war got fierce in the industry, and Supervalu has been losing market share to lower-priced rivals such as Kroger Co. (NYSE:KR) and Safeway Inc. (NYSE:SWY).
Moreover, the strategy of carrying more groceries by club stores like Costco Wholesal! e Corp. (NASDAQ: COST) and mass retailers such as Wal-Mart Stores Inc. (NYSE:WMT) hurt the prospects of Supervalu, whose pricing of certain products remains too high relative to competitors, resulting in lower customer traffic.
"We model Q2 EPS at $0.15, materially ahead of consensus at $0.09. This is despite being slightly below cons sales (by -1%) and gross margin (by -20bps). The reason is SG&A, where we continue expect benefits from a reduction in "stranded costs," UBS analyst Jason DeRise wrote in a note to clients.
Supervalu has been managing to post a profit from improved margins due to its recent cost cutting measures rather than topline growth. The company is benefiting from the savings coming out of the deal with Cerberus, and it is right sizing its overhead.
However, at some point, Supervalu will need to show progress on revenue, which could be the focus point of the results as investors may want to know a time period when the company will post sales improvement in its food and Save-A-Lot business.
The company posted identical store sales of negative 3.0 percent for Retail Food and negative 1.9 percent for Save-A-Lot network in the first quarter. Identical store sales for corporately operated stores within the Save-A-Lot network were negative 1.2 percent.
On the positive side, there would be continued improvement in distribution gross profit against easy comparisons over the last two years.
For the first quarter, the company reported net earnings of $85 million or 34 cents a share, higher than $41 million or 19 cents a share in the prior-year quarter. Excluding items, adjusted earnings from continuing operations for the latest quarter was 14 cents a share. Total net sales for the quarter declined 1.5 percent to $5.16 billion.
Shares of SVU gained 5 percent since the last quarterly report and trade 12 times its forward earnings. In the past 52-weeks, they have traded between $1.82 and $8.48. Shares are likely to keep their value despite weak sale! s
"! We think the market may be willing to look through another weak revenue quarter for traditional food retail (UBSe -2% identical store sales growth) and Save-A-Lot (UBSe flat ID sales). The risk is if the market loses faith in the LT sales turnaround story," DeRise said.
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