SuperValu Stock Has Fallen 40% YTD: Is It Justified?
Supervalu has fallen 40% YTD
Grocery retailer and wholesaler SuperValu (SVU) witnessed a 20.0% fall in its stock in August, extending its YTD (year-to-date) fall to ~40.0%. The company is currently trading at $19.66 as of September 8, 2017, which is ~95.0% below its 52-week high price.
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Why the fall?
SuperValu has been struggling for a long time with falling same-store sales in its retail segment. As with other grocers, the reason behind declining comps (comparables) has been the rise in competition among food retailers.
However, SuperValu’s recent fall has been driven mostly by growing pessimism around the retail food industry rather than its financial performance. The company has fallen 25.0% to date since the announcement of Amazon’s (AMZN) acquisition of Whole Foods on June 16, 2017.
SuperValu’s financial results have been quite strong over the last two quarters since the company’s wholesale segment outperformed expectations in both quarters.
Is the fall justified?
SuperValu stock has suffered due to the rising glumness in retail. However, let’s remember that SVU is more of a food wholesaler than a retailer since the company has derived more than 60.0% of its revenue from the wholesale business after the disposal of its Save-A-Lot segment. The impact of Amazon’s acquisition of Whole Foods could have a limited impact on SVU since the two have a different set of customers.
“We don’t think Amazon plans to directly compete for SVU wholesale customers. Amazon’s impact would be related to market share gains at the expense of SVU’s retail customers. WFM and Amazon Fresh are very urban, in the most dense population areas, and average 585 people/MSA square mile. This is well above average (357/sq. mile) and SVU’s retailer customers (277/sq. mile),” noted RBC Capital analysts William Kirk and Shiyao Ling in June 2017.
ETF investors seeking to add exposure to SVU can consider the SPDR S&P Retail ETF (XRT), which invests ~1.0% of its portfolio in the company.
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