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Supervalu’s Retail Food Segment: A Sliding Sales and Margins Story?

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SVU’s retail food sales fall for sixth straight quarter

Supervalu’s (SVU) Retail Food segment, under which it operates banners like Cub Foods, Farm Fresh, and Shop ‘n Save, reported a fall of 3.4% in total sales to ~$1.1 billion. This was the sixth consecutive quarter of revenue declines for this segment.

SVU’s retail business has been under pressure from the rising penetration of deep discounters like Aldi, on the one hand, and the strengthening of franchises and price cuts by retailers like Walmart (WMT) and traditional grocery rivals like Kroger (KR) on the other. 

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Same-store sales can’t stop the slide

Same-store sales dropped for the seventh consecutive quarter and stood at -5.7% in 3Q17. As in the last couple of quarters, the company’s management blamed persistent deflation and increased competition for the slide.

But Supervalu isn’t the only food retailer (XRT) that has been swimming in tough waters. Deflation has also affected other players. Kroger (KR), for instance, recorded a slow comparable sales growth in its last quarter, citing deflationary and competitive headwinds. Dollar General (DG) also reported negative comparable sales growth for the first time in 36 quarters due to deflation.

Margins suffer on lower sales and higher employee costs

SVU reported an operating loss of $14 million for its retail business in fiscal 3Q17 as compared to a profit of $21 million in 3Q16. The loss was a result of lower sales and a rise in employee costs, as the company added and acquired new stores during the quarter.

Management comments

Supervalu president and chief executive officer Mark Gross stated: “Wholesale team has done a tremendous job delivering for our customers. It is a significant accomplishment that we increased Wholesale sales compared to last year given the sales lost at the end of fiscal 2016. Unfortunately, in our Retail segment, we have not been able to overcome persistent deflation, competitive impacts, and other factors. It takes time to change customers’ shopping habits, but our team is dedicated to improving our results.”

Continue to the next part for a look at SVU’s position after the sale of its Save-A-Lot business.

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