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What Restricted Supervalu’s Growth in Fiscal 2017?

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Evaluating Supervalu’s top-line performance

Supervalu (SVU) has failed to impress investors with its financial performance over the last several quarters. The company’s top line has contracted for the past five quarters, missing the consensus on all occasions. For the nine months ending in November 2016, the company’s top line contracted 4.4% YoY (year-over-year) to $9.6 billion (excluding the Save-A-Lot business).

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What was behind the slump?

SVU’s total revenue fell 3.9% and 4.8% in the first and second quarters of 2017, as the company witnessed weakness in all three of its business segments: Wholesale, Retail, and Save-A-Lot. The Wholesale segment revenue tumbled due to lower sales after losing important accounts like Albertsons, Haggen, and Gordy’s.

Save-A-Lot sales and retail sales were hampered by higher deflation, lower SNAP (supplemental nutrition assistance program) benefits, and a tough operating environment.

The company, however, sold its grocery chain Save-A-Lot in October 2016 to increase focus on its remaining businesses. Third quarter sales (after treating Save-A-Lot as discontinued operations) were down 1.4% YoY. The key positive for the quarter was a 0.2% jump in wholesale sales. The wholesale business returned to positive territory after witnessing five straight quarters of sales declines.

Looking forward

The company’s business is likely to witness an improvement in 4Q17, as sales are expected to increase 0.3%. This would be SVU’s best performance over the last six quarters, as the top line would return to the green territory once again. 4Q17 total sales, as per Wall Street estimates, are likely to come in around $2.9 billion.

ETF investors seeking to add exposure to SVU can consider the iShares Morningstar Small-Cap Value ETF (JKL), which invests 0.2% of its portfolio in the company.

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