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SVU’s Wholesale Business Finally Enters Green Territory

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Supervalu’s fiscal 3Q17 sales tumble on weak retail sales

Supervalu (SVU) released its fiscal 3Q17 results on January 11, 2017, reporting total revenues of $3 billion, 1.4% lower than one year ago, as the company’s Retail Food segment succumbed to competitive pressures and deflationary headwinds.

The Wholesale segment’s sales, however, rose 0.2% YoY (year-over-year) to ~$1.9 billion in fiscal 3Q17. Growth returned to positive territory after recording five straight quarters of sales declines. SVU’s wholesale business was negatively affected by the loss of some key customer accounts over the last couple of quarters.

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Increased focus on wholesale after Save-A-lot sale

Supervalu sold its discount grocery chain, Save-A-Lot, to Onex for ~$1.4 billion at the end of 2016. The company is now mostly focused on wholesale, which accounts for 63% of the company’s top line. The company reported the Save-A-Lot business under discontinued operations starting in 3Q17.

Wholesale’s fiscal 3Q17 sales and margins

The Wholesale segment’s fiscal 3Q17 sales got a boost from SVU’s recent agreements with new clients as well as from increased sales in its new stores. The company inked supply agreements with Marsh Supermarkets and the Fresh Market during the last quarter.

However, operating income for the segment fell 3.7% YoY as the company faced higher employee and trucking costs during the quarter.

As a result, the operating margin fell ten basis points to 2.7% in 3Q17. By comparison, wholesale players United Natural Foods (UNFI), Sysco (SYY), and Costco Wholesale (COST) reported operating margins of 2.3%, 4%, and 3%, respectively, in their last reported quarters.

ETF investors seeking to add exposure to SVU can consider the iShares Morningstar Small-Cap Value ETF (JKL), which invests 0.21% of its portfolio in the company.

In the next part, we’ll discuss the performance of Supervalu’s retail business in fiscal 3Q17.

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