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Acquisitions Could Help Supervalu’s 3Q18 Top Line

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Dec. 4 2020, Updated 10:53 a.m. ET

Supervalu’s 3Q18 top line

Wall Street expects Supervalu’s (SVU) 3Q18 total sales to increase 34% YoY (year-over-year) to $4 billion. Like the first two quarters, its sales growth will likely be driven by the company’s wholesale business.

The Wholesale segment, which accounted for 72% of Supervalu’s 2Q18 sales, reported a 58% increase in sales during the second quarter. Close to 80% of the increase came from the company’s acquisition of Unified Grocers.

Recently, Supervalu completed its ~$180 million acquisition of Associated Grocers of Florida. Associated Grocers has a strong customer base and presence in several international regions. The purchase will likely drive Supervalu’s top line in the coming quarters.

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What else is driving the top line?

Supervalu’s supply agreements with retailers like The Fresh Market and Marsh Supermarkets are also driving its top line. The agreements will continue to bolster its sales in the near term.

Retail segment is still lagging

Supervalu’s Retail segment has been a laggard. Retail sales fell for the ninth consecutive quarter in 2Q18. Retail sales fell 2.7% and 1.1% in 1Q18 and 2Q18 due to a decline in identical store sales.

Identical sales have stayed negative for the last ten quarters. Management continues to expect the retail business to struggle with competitive pressures and cut-throat price battles.

Waning revenue from Albertson’s service agreement

Supervalu’s 2018 sales are expected to be impacted by the end of Albertson’s service agreement. Management expects sales to fall by $40 million during fiscal 2018. The fall is expected to be partially offset by incremental revenue generated from the Save-A-Lot services agreement.

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

Next, we’ll discuss Supervalu’s profitability and margins.

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