Rising Competition and Deflation Pressure SVU’s Retail Segment



Supervalu’s Retail segment

Supervalu (SVU) operates ~200 retail stores in the US. The stores offer grocery, general merchandise, home, health and beauty care, and pharmacy products. The segment includes the company’s Cub Foods, Farm Fresh, and Shop ‘n Save banners.

The retail business didn’t have a good performance. It resulted in Supervalu selling part of the retail grocery business to Cerberus Capital Management in fiscal 2013.

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Retail business will likely remain sluggish in the near term

The retail business accounted for ~28% of the company’s total sales in 1Q17. The segment saw a 4% fall in sales over the last 12 months.

The segment’s revenue fell over the last four consecutive quarters as a result of negative identical store sales. Identical sales fell in the past three quarters from -2.6% in 3Q16 to -3.9% in 4Q16. The sales fell to -4.5% in 1Q17. In comparison, supermarket chains Kroger (KR) and Sprouts Farmer’s Market (SFM) reported same-store sales of 1.7% and 4.1% in their last reported quarters despite rising competition. Mass merchants Costco (COST) and Walmart (WMT) also recorded positive comps of 3% and 1.4%, respectively.


Supervalu doesn’t expect the trend of worsening ID sales to reverse shortly. The company predicted the fall to be more pronounced in 2Q17 due to rising competitive pressure and a challenging sales environment.

Rising competition and deflation forced SVU to lower guidance

In early September, Supervalu lowered its fiscal 2017 profit guidance. The company said that it expects the fiscal adjusted earnings before interest, tax, depreciation, and amortization to fall 5% YoY (year-over-year)—compared to the 1.5% YoY fall guided earlier. Supervalu cited higher levels of deflation and the challenging operating environment as the key reasons for the lower guidance.

ETF investors seeking to add exposure to Supervalu can consider the iShares Morningstar Small-Cap Value ETF (JKL). JKL invests 0.26% of its portfolio in the company.


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