SUPERVALU (SVU) Stock Grapples With Multiple Headwinds

Grocery retailer SUPERVALU Inc. (NYSE:SVU) seems to be in a state of doldrums at the moment. The company, which has seen its stock price plunge 16.6% over the past one month and nearly 31.6% on a year-to-date basis, carries a Zacks Rank #4 (Sell) today. What’s going on with this consumer staples stock? Let’s find out.

What’s Wrong with SVU?

The grocery business is highly competitive and fragmented. Thus, as more companies are entering into the fray as well as expanding their presence, it is becoming tough for the existing players to retain their market share. Further, deflationary environment in food products and depleting footfalls at the supermarkets are causes of concern for these grocery chains.

SUPERVALU even announced a guidance cut for its EBITDA for fiscal 2017. The supermarket chain now anticipates EBITDA to decline 5% year over year, compared to a dip of 1.5% anticipated previously.

SUPERVALU cited lower than expected sales in the Retail and Save-A-Lot segments in second-quarter fiscal 2017 as the reason for its soft guidance. Higher competition in the grocery business as well as a challenging sales and retail environment led to the decline in sales in the retail business of the company. Moreover, the Save-A-Lot segment is impacted negatively due to deflationary environment as well as unfavorable comparisons with the previous year.

The cumulative effect of these factors is expected to affect the top line in second-half fiscal 2017. The company also anticipates the comparable sales in the second quarter to be lower than the first quarter.

Following the subdued outlook, the Zacks Consensus Estimate has been trending downwards, underscoring the negative sentiment among analysts covering the stock. Evidently, the estimate for fiscal 2017 and 2018 has dropped 3.0% and 4.3% to 65 cents and 66 cents, respectively over the past 7 days.

Apart from this, SUPERVALU is experiencing lower revenues due to declining fees from the company’s Transition Services Agreements (TSAs) with Albertson's LLC and New Albertson's, Inc. which may result in lower profits in the future. Further, pharmacy headwinds as a result of lower managed-care reimbursement rates may put pressure on margins. .

Bottom Line

As a prudent investment strategy advises one to exit underperforming stocks at the right juncture, we suggest you to do the same with SUPERVALU, before it burns a hole in your portfolio.

Nonetheless, one can count on better-ranked stocks like Cal-Maine Foods, Inc. (NASDAQ:CALM) , The Kraft Heinz Co. (NASDAQ:KHC) and Ingredion Inc. (NYSE:INGR) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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