It doesn't take a genius to project that earnings reports will reflect slow retail sales activity in the last quarter of 2008.
In fact, reports in the last few days have, for the most part, reflected lower results than had been projected by the companies and the analysts following them.
The first read of the third-quarter results for Supervalu (NYSE: SVU) appeared to confirm that the company was performing consistent with the trends. SVU reported a loss of $13.95 per share, mostly resulting from a $3.3 billion charge for the writedown of goodwill and other intangible assets.
The reality is, however, that Supervalu is performing better than many of their competitors, such as Wal-Mart (NYSE: WMT), which reported sales and earnings well below expectations.
In its report to investors, SVU lowered its guidance for the full fiscal 2009 year to reflect the impact of higher commodity prices and cautious consumer spending.
The company is now projecting a loss of $12.39 per share and $12.14 per share, including items, versus the earlier guidance of earnings of $2.86 to $2.96 per share. Absent charge offs for company closings and further writedowns of goodwill, the projection is that SVU will earn around $2.80 per share for the year.
Supervalu is the fourth largest grocer in the country, including Wal-Mart. With sales of $45 billion, the company generated a modest return on capital of 6%. SVU's price-earnings ratio is among the lowest in the industry at less than 6 times.
Reflecting the schizophrenic behavior so often akin to stock research analysts, the company's debt-to-equity ratio has been viewed as a negative. This after having been criticized by the same analysts in the past who faulted the company's cautious approach to acquisitions. A large portion of the debt was incurred as a result of the acquisition of Albertsons, which has been a successfully managed addition.
Concerns have been expressed regarding the ability of Supervalu to roll over existing debt with near-term maturities of three years or less. The easing of the credit markets for high-quality corporate debt combined with effective balance sheet management by SVU should obviate this concern.
The company has noted that the relatively large amount of debt could be fully retired by delaying store remodeling and additional capital expenditures. As company CEO Jeff Noodle has noted, this would not be an effective long-term strategy for the company. Noodle, nonetheless, has announced a reduction in capital expenditures for the year to $850 million from the previous budget of $1.2 billion.
As consumers continue to reduce expenditures for discretionary items, such as dining out, grocery sales are likely to continue to rise.
Store brands, which deliver a higher margin than brand-name labels, will increase at an even greater rate, resulting in higher margins for grocers such as Supervalu, which has an expansive line of private labels.
On balance, the company more than deserves the hold rating given by the majority of stock analysts and should outperform the markets this year.
Jamie Dlugosch is a contributor to OptionsZone.com.
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Reader Comments (Page 1 of 1)
3-31-2009 @ 4:47AM
Ryan For Supervalue Inc. Stock Market said...
For the 28 weeks ended 10 September 2005, SUPERVALU Inc.'s revenues rose 1% to $10.53B. Net income fell 45% to $125M. Revenues reflect an increase in turnover from Retail Food and Supply Chain Services segments. Net income was offset by the absence of a $109.2M gain on sale of WinCo Foods, Inc. and an increase in selling & administrative expenses. The Company is engaged in the business of selling food and non food products.