Rising Competition and Deflation Have Hit Supervalu’s Top Line

Evaluating Supervalu’s top-line performance

Supervalu’s (SVU) performance has gone downhill over the last year. The company’s top line has contracted for the last four consecutive quarters, and it has missed the consensus estimates in all of these quarters.

In 2Q17, the company’s top line fell 4.8% YoY (year-over-year) to $3.8 billion, missing the consensus by $80 million. This decline was driven by falling sales in all three of the company’s segments.

Rising Competition and Deflation Have Hit Supervalu’s Top Line

Sales from the largest segment, the wholesale or independent business segment, were down 5.5% YoY. This was the fifth straight quarterly decline in this business. Lower sales were primarily a result of losing some key customer accounts.

Save-A-Lot sales fell 5.2% YoY as the company had to bear the negative impact of lower SNAP (supplemental nutrition assistance program) benefits, higher deflation, and increasing competition. Save-A-Lot’s network identical store sales dropped 5.2% during the quarter.

Retail sales were down 5.4% YoY during the quarter as sales comps contracted 5.9%, mainly due to the rising competition and a tough operating environment.

How are competitors doing?

2016 was a tough year for food retailers and grocers (XRT). Persistent deflations and lower SNAP benefits resulted in a highly promotional and challenging operating environment. As a result, same-store sales and the top lines of supermarket chains, discount stores, and big-box retailers have been affected.

Kroger (KR) recorded a same-store sales increase of 0.1% in the last quarter, the slowest growth the company’s comps have seen in several quarters. Dollar General’s (DG) comps turned negative for the first time in the last 36 quarters, and Walmart’s (WMT) food comps were negatively affected by 150 basis points due to deflationary headwinds.

These headwinds are not expected to reverse anytime soon, and SVU’s retail business is likely to be under pressure. Read the next section to know how the company’s key segments are likely to perform for the remainder of the year.