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Supervalu Focuses on Wholesale to Boost Sales

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Oct. 13 2017, Published 8:10 p.m. ET

Discussing Supervalu’s top-line expectations

For the second quarter of fiscal 2018, Wall Street has projected Supervalu’s (SVU) total sales landing around $3.78 billion, which translates to a 2.2% fall compared to last year’s top line that also included the company’s Save-A-Lot business. However, after excluding Save-A-Lot, total sales are likely to rise around 37% from continuing operations.

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Retail versus wholesale—what’s driving the top line?

The company’s retail segment has been struggling for some time, thanks to persistent and rising competition in the grocery space. Retail comps have stayed negative for the last nine consecutive quarters, and management doesn’t foresee much improvement any time soon.

The wholesale segment, however, has delivered solid results in the recent past. Management’s three-pronged strategy focuses on improving customer retention rates, acquiring new supply agreements, and improving product offerings. The strategy has proven to be quite effective. The segment saw a 12.4% YoY (year-over-year) rise in the company’s wholesale business revenue in 1Q18.

Management expects the wholesale segment to deliver robust performance throughout 2018. The company’s recent acquisition of Unified Grocers on June 23, and its strong pipeline, should boost wholesale sales during the second quarter.

Supervalu’s 2018 sales prospects are likely to be affected by the winding-off of the company’s agreement with Albertson’s. Management has estimated a sales decline of $40 million in fiscal 2018. This reduction is, however, expected to be partially offset by the incremental revenue generated from the Save-A-Lot services agreement.

Read the next part of this series to learn about the company’s profitability and margins.

ETF investors seeking to add exposure to SVU can consider the iShares S&P Small-Cap 600 Value ETF (IJS), which invests 0.2% of its portfolio in the company.

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