If you think that investment in a grocer is not a potentially good use of your money, I think you should reconsider because, according to me, if the company sticks to its plans, it should deliver good returns.
Let’s take a look at the reasons which helped the company beat analysts’ estimates along with its plans for the future.
Business analysis
SUPERVALU INC. (NYSE:SVU) met expectations on revenue and beat expectations on earnings per share in the quarter. Total sales for the first quarter were $5.2 billion, down 1.5% from the year ago period. This drop was a result of a drop in customer transactions and tight economic conditions. However, the company managed to surpass the consensus estimate of $5.14 billion.
Sales in all its three segments declined, which was a direct outcome of the company’s incremental price investments and aggressive pricing actions by its competitors. This may not sound good, but the rate of decline in sales has been coming down.
The company recently sold nearly 900 supermarkets in a $3.3 billion deal as a part of a restructuring exercise. SUPERVALU INC. (NYSE:SVU) sold its Albertsons, Acme, Jewel-Osco, Shaw’s, and Star Market stores, along with Osco and Sav-on in-store pharmacies, earlier in the year to an investor group led by Cerberus Capital Management. This has resulted in lower infrastructure costs and enables the company to focus on a leaner business. The company’s lowered cost structure and simplified business model, which was a result of its decentralization, also helped it revive its margins.
Moving forward
SUPERVALU INC. (NYSE:SVU) recognizes the important role the independent retailers play in its business. Keeping this in consideration, the company hosted the first meeting of National Retail Advisory Group in Minneapolis in June. The company is also focused on bringing in new customers and retaining existing ones. SUPERVALU INC. (NYSE:SVU) is focusing on better advertisements, better merchandising, and more effective product displays, decentralizing its operations and the decision making process.
Moreover, better store management and controlling shrink by creating model stores in all five districts should lead to further efficiencies. The company is focusing on arranging its merchandise in a better manner so that sales improve. It is also trying other strategies to improve sales, such as weekly newspaper inserts that advertise new merchandise and are visually good to look at. So, SUPERVALU INC. (NYSE:SVU) is looking to become leaner and at the same time focus on the products that it sells. This is a good strategy in my opinion and should help SUPERVALU drive better performance in the future.
