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Comparing SuperValu’s 4Q17 Margins

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SuperValu finally beats earnings estimates in 4Q17

SuperValu (SVU) reported adjusted EPS (earnings per share) of $0.13 in 4Q17, outperforming Wall Street expectations by $0.05. The first earnings beat for the company in 2017, it was largely driven by a better-than-expected top line and an improved gross profit rate. However, EPS were 7% lower than they were in the same quarter the year prior.

 

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Gross margin surpasses expectations

SuperValu’s gross margin improved by ten basis points to 15% of sales, as both the wholesale and retail segments witnessed higher margins. Analysts were expecting a gross margin of 14.4% for the quarter.

Wholesale margins were driven by stronger vendor funds, better gross margins, and efficiencies driven by increased volumes during the quarter. Retail margins were driven primarily by lower levels of shrink.

Operating margin tumbles

The company’s operating margin, however, slipped by 140 basis points to 2.6% of sales as the SG&A (selling, general, and administrative expenses) expense rate rose 20 basis points to 12.3%. The rise in SG&A expenses was due to higher employee costs in retail.

SuperValu has one of the smallest margins among peers

SuperValu has one of the smallest margins in the peer group. Its trailing-12-month operating margin of 1.9% is narrower than Kroger’s (KR) 2.9% margin, Whole Foods Market’s (WFM) 5% margin, United Natural Foods’ (UNFI) 2.6% margin, and Sysco’s (SYY) 3.7% margin.

Investors seeking to add exposure to SuperValu could consider the iShares Morningstar Small-Cap Value ETF (JKL), which invests 0.2% of its portfolio in the company. In the next section, we’ll take a look at SuperValu’s stock market performance and valuation.

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