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What to Expect from Supervalu’s Retail and Wholesale Segments

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Apr. 24 2017, Updated 7:38 a.m. ET

Retail food business

As discussed, Supervalu is expected to report fourth quarter results on April 25. In the current section, we’ll discuss the performance of the company’s key business segments.

The retail food segment, which accounts for 35% of Supervalu’s (SVU) top line (after the Save-A-Lot sale), has been the company’s worst-performing segment. Its same-store sales have been negative for the last seven quarters, negatively impacted by increasing competition, deflation, and lower levels of SNAP benefits.

While Supervalu doesn’t foresee the competitive landscape and deflationary headwinds changing anytime soon, it’s working on several initiatives to reduce the negative impact.

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The company is developing banner-specific pricing and working on customer segmentation. Another key focus area is e-commerce. Supervalu already has one million digital accounts and aims to double this number by fiscal 2018. Also, it has been expanding home delivery and click-and-collect services throughout its banners.

Wholesale business

As discussed, SVU’s wholesale business witnessed some recovery in 3Q17 with sales rising 0.2% during the quarter. This business got a boost from SVU’s recent agreements with new clients like Marsh Supermarkets and the Fresh Market as well as increased sales in its new stores. The company should continue benefiting from these developments in the next quarter as well.

Supervalu recently acquired Unified Grocers, a wholesale grocery distributor that supplies independent retailers, for $375 million. The deal will result in combined fiscal 2017 sales of $16 billion. It’s expected to close by mid-to-late summer 2017.

ETF investors seeking to add exposure to SVU can consider the SPDR S&P Retail ETF (XRT), which invests 1.5% of its portfolio in the company.

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