Struggling SuperValu soars on bullish guidance

Investors are giving the company a second look.

By Jonathan Berr Apr 10, 2012 11:34AM
Image: Toddler in supermarket (© Susan Barr/Photodisc/Getty Images)SuperValu (SVU), the embattled supermarket chain, on Tuesday gave investors a reason not to head to the check-out lane -- at least not yet.

The parent of Acme Markets, Albertson's, Save-A-Lot and Shaw's said that its earnings for the 2013 fiscal year would be $1.27 to $1.42 per share on revenue of $35.0 billion to $35.5 billion.  Analysts had expected $1.19 a share on revenue of $35.3 billion. Shares of the Minneapolis company soared 19% at one point in early trading. Unfortunately, the long-term prospects for SuperValu are still lousy.

The company reported a quarterly net loss of  $424 million, or $2.00 share, compared with $95 million, or 44 cents, a year earlier. Revenue fell 5% to $8.23 billion. When adjusted for one-time items, earnings were $81 million, or 38 cents per share, beating Wall Street expectations by 3 cents. 

SuperValu has been laying off staff and closing poorly performing stores to cut costs. Wall Street should expect more of the same as the company tries to attract to low-income shoppers.

The company is being squeezed by a myriad of competitors on the high and low end, ranging from Kroger (KR) to Target (TGT) to Whole Foods (WFM) -- and it is faring badly.  During the fourth quarter, gross profit margin was $1.9 billion, or 22.8% of net sales, compared to $2.0 billion, or 23.3% of net sales, a year ago.

I don't remember the last time I went to the Acme Market that for generations has served the suburban Philadelphia community where I live. Acme markets began in 1891 and are as much a part of the Philadelphia region as soft pretzels, Rocky and the Liberty Bell.   Whatever affection people have for Acme -- pronounced by some Philadelphians as ACK-A-Me -- seems to be eroding. A sleek, modern Acme in a neighboring town to mine closed its doors after a Wegman's opened up. The Acme that's closest to my house is not competitive on pricing with Target or Costco (COST) and is a far less appealing place to shop. Its margins will be squeezed even further because Bottom Dollar Food is opening a new location nearby.

About the best that shareholders can hope for is that Supervalu management can improve the company's balance sheet enough so that either a larger rival or a private equity player will want to take them over.

Jonathan Berr is long Target. Follow him on Twitter @jdberr.

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