Supervalu shares drop 49% on news of struggles [Pioneer Press, St. Paul, Minn.]
July 12--After a fearful 49 percent plunge in its stock price Thursday, the survival of grocery giant Supervalu grew further in doubt, as Wall Street debated the company's dismemberment.
The parent company of Cub Foods and grocery chains around the country was hit with tough news on all sides on Thursday, July 12: Its bond rating was lowered, analysts downgraded its stock, critics scoffed at its latest turnaround plan and short-sellers led a shocking free-fall.
Shares plummeted $2.60 to $2.69, after the Eden Prairie-based grocer halted its dividend and said it would explore selling some or all parts of the troubled company. Trading volume Thursday was massive, 10 times the typical level.
Supervalu executives insist there's still a future for America's third-largest grocer, and they've unveiled an emergency recovery plan. It prompted one analyst to upgrade the stock Thursday. But other believers were scarce.
"Supervalu could become the next casualty in the troubled supermarket space, as its fundamentals have finally begun to show real signs of distress," wrote Credit Suisse analyst Edward Kelly, adding that the business "may be beyond repair at this point."
Supervalu is one of Minnesota's largest and most venerable companies, with 3,000 employees in the state and 130,000 full-time workers nationwide. Besides Cub Foods in the Twin Cities, it boasts a series of supermarket brands that include Jewel-Osco in Chicago, Albertson's in the western U.S. and Save-A-Lot
hard-discount stores.
In 2006, Supervalu purchased the Albertson's grocery empire, a massive deal that gave it a coast-to-coast presence -- and saddled it with a massive debtload. Then came the recession, strapped consumers and new low-cost competitors, and the mega-deal became an anchor.
To stay afloat, Supervalu for years has been pruning back, selling assets, announcing layoffs and squeezing wherever it could. According to one former worker, even wastebaskets were no longer being emptied in corporate offices.
Fitch, one of three major credit-rating agencies, Thursday downgraded Supervalu's debt from B to CCC, one step above default. Supervalu
Fitch also suggested Supervalu's most likely future will be chopping it apart and selling off the pieces. Its huge debtload and declining market share suggest "a complete sale of the business is unlikely," it said, although private-equity firms are said to be scouting the company.
But to Fitch's analyst, the lucrative parts of Supervalu aren't its traditional supermarkets, which have struggled against low-cost competitors like Wal-Mart, Target , Aldi and Costco. It's the less glamorous segments.
"The hard discount segment (Save-A-Lot) would be an attractive property to the right buyer, and the independent (distribution) business is relatively stable, and could garner some interest," Fitch said.
The Credit Suisse analyst was even more blunt. Except for the Jewel-Osco chain in Chicago, which might interest rival Kroger, "the company's other (supermarket) assets may not have much value as there is a lack of buyers in the market place."
Supervalu CEO Craig Herkert already has said bankruptcy is not an option. But other scenarios have emerged.
On Wednesday's earnings call, JPMorgan analyst Ken Goldman asked, "Is one option to spin off the Albertson's business and throw all that Albertson's debt on to it? ... What would prevent you from saying, 'This is a bad acquisition but it's a sunk cost, let's just cut our losses here'?"
Herkert didn't comment on that idea. As he told employees on Wednesday, he won't be commenting while financial advisers are shopping the company around.
"You can expect over the next several months there will be a lot of rumors and speculation about this process in the media and among financial analysts who follow the company," he wrote in an email to Supervalu employees. "Unfortunately during this period, for legal, business and other reasons we will not be commenting."
Supervalu's woes dragged the entire grocery sector lower Thursday. Partly, that's because of fears that a do-or-die supermarket price war would hurt everyone's margins.
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http://www.forbes.com/sites/abrambrown/2012/07/12/little-value-left-in-supervalu-prospects-rotting-away-from-uncertainty/
Supervalu Rotting Away: Little Value Left In Grocery Chain
(Photo credit: Wikipedia)
Attention, shoppers. It’s time to dump Supervalu from shopping carts. The company is in bad need of a clean-up. Unfortunately, it doesn’t seem to be poised to complete this anytime soon.
The grocery-store operator yesterday reported a steep drop in quarterly profit and falling sales. Supervalu, the third largest U.S. grocery business, withdrew its fiscal 2013 guidance (It originally saw earnings between $1.27 to $1.42 a share on a GAAP basis). What’s more, Supervalu said it’s exploring strategic options and cancelling its dividend.
Supervalu will use the savings from the suspended dividend to fund a lower-price structure, in an attempt to quicken the pace of its turnaround. It hopes to install the new pricing scheme in half its stores at the end of fiscal 2013 and to have it in all stores by 2014. All told, Supervalu, which owns such chains as Jewel-Osco and Save-a-Lot, will cut $325 million in expenses, up from an originally expected $75 in cost reductions.
Capital expenditures will also be lowered, to $450-$500 million in 2013 from a planned $600 million. Savings will go toward paying down loans after it refinances its debt structure.
Shares of Supervalu lost nearly half their value today, as Wall Street analysts lowered price targets and voiced skepticism about the plan’s feasibility. “Supervalu could become the next casualty in the troubled supermarket space, as its fundamentals have finally begun to show real signs of distress after years of steady underperformance,” says Credit Suisse analyst Edward Kelly. In early afternoon trading, Supervalu sold at $2.85, down 46.1%.
It’s hard to muster a great deal of confidence in Supervalu CEO Craig Herkert. Since taking the company’s helm in 2009, shares are off 78%, and in the last year alone, the stock dropped 69%. That’s a great deal of value rotten away. Herkert come in with plans to oversee a gradual turnaround, despite calls for a more aggressive approach. “For more than two years, we have suggested that Supervalu…take more aggressive actions, which the company’s flailing business finally brought to bear,” says Jeffries analyst Scott Mushkin. Since 2009, sales dropped to $36.1 billion from $44.6 billion. Profit followed a similar course, as Supervalu booked an annual loss in three of the past four years.
Cutting prices puts Supervalu squarely in competition with well-positioned rivals. Too much uncertainty lingers about its ability to draw shoppers from say, Wal-Mart, which has doubled down on lower prices and elevated advertising, says Citi’s Deborah Weinswig, who lowered her price target on Supervalu to $4 from $7. “Competition is growing more intense,” she says, “and we believe that it will likely take time for new price investments to gain traction.”
Keep in mind that it took Kroger about five years to right its direction. That was a decade ago, in a stronger economy and less competitive environment, says Guggenheim analyst John Heinbockel, who also lowered his price target to $4 from $7. He sees Supervalu’s earnings before interest and taxes and its comparable store-sales continuing its decline two years from now.
To be sure, rivals are unlikely to stand pat. A pricing war might be on the horizon, not just between Supervalu and big-box retailers like Wal-Mart andTarget, but with grocery chains like Kroger and Safeway. Should the competition act equally as aggressive, Supervalu’s price investments may not mean enough volume growth to offset costs, says Barclays analyst Meredith Adler. Moreover, Adler says, the lower prices may be seen as only a one-time promotion.
And that only a strategic review was announced, not an actual decision, makes matters worse. Unknowns are vast. A spinoff is possible, but might not come with a great deal of value, says JPMorgan Chase analyst Ken Goldman. Pension plan liabilities might hamper plans, as would debt allocation in any divestment. Goldman cut his rating on the stock to Neutral from Overweight, saying he needed to see a fundamental catalyst to support the higher rating.Buyers would do better to find fresher investments elsewhere. Supervalu’s report sent Kroger and Safeway shares down today, 10.8% and 3.6% respectively. Those companies might see an increasingly competitive environment, as Supervalu details its pricing plan. But in the long-term, both appear better positioned. “Supervalu could eventually be a competitive catalyst for the industry at some point,” Credit Suisse’s Kelly.
Staying with Supervalu would see investors ringing up losses, not profits.
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http://www.stltoday.com/business/local/supervalu-s-struggles-put-its-grocery-chains-in-limbo/article_1da7fd72-cc66-11e1-b549-001a4bcf6878.html
Supervalu's struggles put its grocery chains in limbo
The locally based Shop 'n Save and Save-A-Lot grocery chains could find themselves on the chopping block as their troubled parent company, Minnesota-based Supervalu Inc., tries to save itself in the wake of dismal profits and plummeting sales.
Supervalu, the country's third-largest grocery business, announced this week that net income fell 45 percent in its first quarter, continuing a slide in recent years. Company executives told analysts that they have hired Goldman Sachs and Greenhill & Co., a merger and acquisitions specialist, as advisers to help explore a possible sale of all or part of the company. The news sent stocks tumbling to new lows, closing at $2.69, a drop of 49 percent. The company also announced it was suspending dividends.
“There have been problems brewing for quite some time,” said Jim Hertel, an analyst with Willard Bishop, a Chicago-based consulting firm. “They've had pricing issues, debt-service issues. They have an old, and quite frankly, tired store base, with small stores in challenged areas. When you put that all together, it's just a matter of when, not if.”
Supervalu employs about 3,800 people at its Earth City-based Save-A-Lot and Kirkwood-based Shop 'n Save stores in the St. Louis area, company spokesman Michael Siemienas said Thursday. In addition to Shop 'n Save and Save-A-Lot, the company owns Jewel-Osco, Albertsons, a number of other chains and a wholesale business that supplies nearly 2,000 independent stores, including Dierbergs.
On Wednesday, the company said it would separate out Save-A-Lot's financial information in its earning statements, signaling to some analysts that the chain could be positioned for sale.
The company has been “reluctant to provide financial for Save-A-Lot until now despite significant pressure from the investment community,” wrote Karen Short, of BMO Capital Markets. “So the decision to provide more color on Save-A-Lot's financials combined with Greenhill's involvement, in our view, could imply that Save-A-Lot might be monetized.”
She estimated that Supervalu could realize $1.1 billion from a sale of Save-A-Lot.
Some analysts were decidedly grim about Supervalu's prospects, saying that Save-A-Lot, its largest division by store count, was not worth as much as they thought, meaning a spin-off wouldn't fetch the kind of price the company might need to stay afloat. In the first quarter, Save-A-Lot generated 12 percent of the parent company's sales but just 5 percent of its operating profit.
“Though a [Supervalu] break-up is more likely now that the company has hired strategic advisers, former hidden jewel Save-A-Lot appears much less attractive than we originally believed,” wrote Ken Goldman, an analyst with J.P. Morgan.
In an earnings call Wednesday, Supervalu said the company was planning to slash prices at its stores to try to gain some ground and recapture customers.
“First and foremost, we are accelerating our price investments across all banners,” CEO Craig Herkert said. “This... will allow us to deliver fair price plus promotion to half of our stores this fiscal year and the balance by the end of fiscal 2014.”
Herkert continued on an upbeat note, telling analysts that Supervalu “is a profitable company with solid cash flows, and while these strategies will put pressure on our margins and profits in the near-time, it is important that we take the bold actions necessary to put the company on a solid course for long-term success.”
EDITOR'S NOTE: This story was updated Friday to clarify the location of of two chain's local headquarters.
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