Consumer

Supervalu Shares Slump Over Clouded Future

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(credit: Jupiter Images)

(credit: Jupiter Images)

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NEW YORK (AP) — The future of supermarket chain Supervalu is becoming cloudier.

The retailer’s shares lost almost half their value on Thursday, the day after the company, which owns the Albertsons, Jewel-Osco, Save-A-Lot and other grocery chains, reported dismal first-quarter results, suspended its dividend and announced plans to potentially put itself up for sale.

Shares of rivals like Safeway Inc. and Kroger Co. also tumbled following Supervalu’s vow that it would be even more aggressive in its plan to permanently lower prices across the store, instead of offering fleeting discounts.

Analysts believe that it’s unlikely that Supervalu will find a buyer because of its high debt, $6.3 billion as of June 16. Furthermore, investors will probably shy away from the low-growth supermarket industry. Also, investors want companies that are quick fixes.

“The three- to five-year outlook is unclear,” said Monica Aggarwal, senior director at Fitch Ratings.

Supervalu has been working for a number of years to revive sagging sales. The big problem is that it has been sloppy with its pricing, but analysts also say it hadn’t properly invested in its stores. It was an industry laggard before the recession and was just getting its revamp ready as the economy took a nosedive. Despite its efforts, it has been unable to keep up with intense price competition.

Supervalu began to show signs of improvement in its fourth quarter and painted an optimistic picture that its efforts to permanently lower prices of up to 20 percent in its produce section late last year was resonating with shoppers. That resulted in higher sales in the produce area. Higher turnover resulting from the higher sales also meant that fruits and vegetables were fresher, which in turn improved shopper perceptions about the store, executives told investors in the spring.

But those efforts haven’t gained traction as rivals stepped up the discounting. Supervalu reported Wednesday that its fiscal first-quarter profit fell 45 percent. Revenue tumbled as it sold off gas stations and lost customers to competitors offering lower prices.

Supervalu and its financial advisers said late Wednesday that it will review various options. While the supermarket operator did not elaborate, this type of review traditionally includes the possibility of selling the company.

Supervalu is facing competition on all fronts beyond traditional retailers like Kroger.

Wal-Mart Stores Inc’s U.S. namesake business is roaring back after suffering more than two years of declines in part because it’s renewing its commitment to everyday low prices. It had strayed by offering temporary deep discounts on select items. Target has been expanding its food sections.

Meanwhile, dollar chains like Family Dollar Stores Inc. have been adding more national brands to their mix, and drugstores like CVS Inc. have been adding more food offerings.

Supervalu has been hoping to take a page from Wal-Mart with a plan to lower its prices permanently throughout the store. In the past, lower prices were fleeting as Supervalu couldn’t finance the cuts for the long-term. But the company has been looking to cut expenses to pay for these cuts. NBG Productions analyst Brian Sozzi believes that Supervalu is climbing an uphill battle.

“The pricing has been going on so long,” Sozzi said. He believes that it will take a long time for the chain to win back shoppers’ trust it has good deals on basic items that they need every time they visit the store.

Shares of Supervalu closed down $2.60, or 49 percent to $2.60 per share on Thursday.

(© Copyright 2012 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.)

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