SUPERVALU Weighs on Grocers (SVU, KR, SWY, WFM)

SUPERVALU Inc. (NYSE: SVU) is not proving to be super nor is it proving to be value.  Investors are reeling on news of its earnings warning.  The grocery chain operates Acme, Albertsons, Cub Foods, Farm Fresh, Hornbacher’s, Jewel-Osco, Lucky, Shaw’s, Shop n Save, Shoppers Food & Pharmacy, and Star Markets.

The news is dragging shares of Kroger Co. (NYSE: KR) down 1.2% to $24.02 and dragging shares of Safeway Inc. (NYSE: SWY) down 1.6% to $21.05.  Whole Foods Market, Inc. (NASDAQ: WFM) is down 0.4% today but the move there is probably hard to tie together.

Now SUPERVALU has a wider loss as its turnaround plan costs have escalated along with high food prices and evidence that Joe Public is still cautious on spending.  Raising prices is a tricky game because customers have choices and grocery margins are thin in most cases.  The company is simultaneously trying to lower its store count and to consolidate brands. 

It sees its annual sales guidance of about $36.1 billion rather than the $36.5 billion previously offered.  The good news is that its earnings guidance was maintained at $1.20 to $1.30 EPS and the target from Thomson Reuters is $1.25 EPS.  It would be easy to argue that things are too cheap for value investors, but the loss after items was about $750 million or -$3.54 EPS even if its operating earnings outside of items was $0.24 EPS.

After a drop of 11% to $7.44 so far today, SUPERVALU shares are trading at close to 6-times operating earnings.  The net losses eat at how attractive this is, which an understatement.  The 52-week trading range is $6.26 to $11.77 and the current price is far worse than at the peak of the recession’s panic selling in early 2009. If you go back to 2007, this was a $40 stock.

JON C. OGG