SuperValu’s Gross Margin Deteriorates in Fiscal 4Q18


Apr. 25 2018, Updated 9:49 p.m. ET

SuperValu misses earnings expectations

SuperValu (SVU), which reported its fiscal 4Q18[1. fiscal 4Q18 ended February 24, 2018] results on April 24, reported adjusted earnings per share (or EPS) from continuing operations of $0.61. On average, analysts had predicted adjusted EPS of $0.78 for its fiscal 4Q18 earnings.

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Gross margin falls yet again

SuperValu’s (SVU) gross margin fell another 350 basis points to 9.9% of sales during fiscal 4Q18. SVU was down 80 basis points in fiscal 1Q18, 280 basis points in fiscal 2Q18, and another 300 basis points in fiscal 3Q18.

The primary reason for this decline is a shift in its sales mix toward wholesale. Wholesale, which represented about 80.0% of the company’s fiscal 2018 sales versus 62.0% in fiscal 4Q17, typically carries a lower gross margin.

SVU’s ongoing integration with Unified Grocers has pressured its margins because the business has a lower profit rate. However, SVU’s management believes that the margins of the Unified Grocers business could eventually move closer to the company’s legacy wholesale margins over time.

SuperValu has the lowest margins among retailers and wholesalers

SuperValu’s trailing-12-month (or TTM) gross margin stands at ~12.0% of sales and is among the lowest in the food wholesale group and its retail peer group. In comparison, supermarkets Kroger (KR) and Sprouts Farmers Market (SFM) recorded TTM gross margins of 22.0% and 29.0%, respectively.

Although food wholesalers typically carry lower margins than food retailers, competitors have displayed better profitability numbers than SVU. The gross margins of United Natural Foods (UNFI) and Sysco (SYY) stood at 15.2% and 18.9%, respectively, over the last 12 months.

ETF investors seeking to add exposure to SVU can consider the SPDR S&P Retail ETF (XRT), which invests 1.2% of its portfolio in the company.


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