SUPERVALU Enters Into An Agreement With AFB; Stock Up

Grocery retailer SUPERVALU Inc. (NYSE:SVU) shares rose 7.8% in the after-trading session following its announcement that it has entered into a long-term supply agreement with grocery retailer America’s Food Basket (AFB). This move is in sync with its strategy to ink supply agreements with other retail giants in an attempt to boost sales.

The company will supply traditional products such as meat, deli, bakery, seafood, grocery, frozen foods and dairy to AFB. Further, SUPERVALU will serve as AFB’s distributor of its Ideal Brands. Additionally, AFB stores will offer SUPERVALU’s private brand products including Essential Everyday, Wild Harvest, and Culinary Circle.

We believe that this is a win-win deal for both the parties as SUPERVALU will gain access to 47 neighborhood stores located primarily in New York and parts of New England where AFB currently operates. On the other hand, AFB’s customers will gain from SUPERVALU’s popular grocery brands like Wild Harvest, Culinary Circle and Essential Everyday.

The participants to the agreement, plan to convert few of the 47 AFB member stores before Dec 2016. The remaining stores are expected to be transitioned to SUPERVALU stores during first-quarter 2017.

SUPERVALU recently entered into several strategic agreements with quite a few supermarkets in order to strengthen its position in the grocery retail industry as well as boost its top line. On Jul 6, it inked a long-term supply deal with Indianapolis, IN-based grocery wholesaler Marsh Supermarkets. Under the agreement, which became effective on Sep 2016, SUPERVALU provides certain professional services to the grocery chain. (Read: SUPERVALU's Marsh Supermarkets Deal Drives Stock)

A month later, SUPERVALU entered into a similar agreement with NC-based specialty retailer, The Fresh Market, Inc. under which SUPERVALU will serve as The Fresh Market’s primary distributor by fall 2016 and intends to take on additional stores as the transition continues. (Read: SUPERVALU Inks Supply Agreement with Fresh Market)

These deals come at a good time as SUPERVALU has found a bidder for selling its Save-A-Lot business. SUPERVALU entered into an agreement with private equity firm Onex Corporation under which it will spin off its Save-A-Lot business for $1.365 billion in cash, subject to customary closing adjustments. The deal is expected to be closed by Jan 31, 2017, subject to regulatory requirements.

SUPERVALU will show the Save-A-Lot results as discontinued operations henceforth until the sell-off materializes.

SUPERVALU has been reporting lower earnings over the past few quarters due to a substantial reduction in profits. Moreover, the company's sales have been declining due to lower comps.

However, the recent contract with several supermarket chains may turn things around for SUPERVALU.

Stocks to Consider

SUPERVALU currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader consumer staples sector include Inter Parfums Inc. (NASDAQ:IPAR) , ConAgra Foods Inc. (NYSE:CAG) and Sysco Corporation (NYSE:SYY) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Inter Parfums Inc. has an expected earnings growth of 15%. Con Agra Foods has an expected earnings growth rate of 8.82%, while Sysco Corporation has a long-term growth rate of 8.7%.

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