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SUPERVALU (NYSE: SVU  ) announced a third-quarter loss of $0.95 per share Tuesday, missing analyst estimates of $0.31 earnings per share. With a long-term debt-to-equity ratio of about 5.5, you might wonder if bankruptcy is around the corner. But all is usually not as it seems, and SUPERVALU's situation is no exception.

The loss includes a non-cash intangible asset impairment charge of $0.99 for starters, which tells us the dramatic losses are mostly accounting figments. EPS year-to-date is negative $7.58, but cash flow from operations per share, a metric less susceptible to accounting gimmicks, is actually a positive $3.07.

Also included is a $0.06 per share charge related to employee severance – namely, several of the company's top executives, who were replaced after new CEO Craig Herkert was hired in 2009. Herkert came to SUPERVALU from Wal-Mart, where he had been CEO of the Americas and COO of the International Division, but before that he had spent more than 20 years working in various SUPERVALU divisions.

Herkert was brought on board to turn SUPERVALU around, and while positive cash flows stave bankruptcy off for now, he's got his work cut out for him. The company saw a same store sales decline of 4.9% this quarter, as grocers in the middle of the economic spectrum, like SUPERVALU or Safeway (NYSE: SWY  ) , lose sales to deep discounters like Dollar Tree (Nasdaq: DLTR  ) or luxury retailers like Whole Foods (Nasdaq: WFMI  ) .

In the middle of the pack, there isn't much to differentiate an Albertsons from a Safeway, so companies resort to price wars, which don't always work out as hoped, as Herkert himself conceded on the conference call. The company went so far as to lower guidance for the rest of the year, sending the stock into an 11% freefall.

On the bright side, SUPERVALU has been able to pay off nearly 1.5 billion in debt over the past two years, bringing long-term debt down 17% to $6.9 billion. The company will have to continue paying that debt down while trying to turn sales around -- which might be like wrestling a wolf while putting out a fire -- but at a new 52-week low, the market isn't pricing in much chance, if any, for a recovery, which creates a possible opportunity for the savvy turnaround investor.

More Grocer Foolishness:

Fool contributor Jacob Roche hopes his readers will forgive him for the terrible pun. He holds call diagonals on Wal-Mart but holds no other position in the companies mentioned. Wal-Mart Stores is a Motley Fool Inside Value recommendation. Whole Foods Market is a Motley Fool Stock Advisor pick. Wal-Mart Stores is a Motley Fool Global Gains selection. The Fool owns shares of SUPERVALU and Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 16, 2011, at 10:11 PM, jlanganki wrote:

    Save-A-Lot and Aldi are the two major hard-discount grocers in America. Aldi is a private company and Save-A-Lot is owned by SuperValu. If Americans continue to trade down on price then Save-A-Lot will do well. If Americans begin to move back to traditional grocers then SuperValu's other stores will do well. In Germany (Aldi's home country), hard-discount grocery store chains command about half of the profits in the entire grocery industry. This means that even Wal-Mart could be at risk in a future where Save-A-Lot and Aldi dominate. On the other hand, as the economy rebounds and oil prices rise then people may start looking to their nearest local grocery store to make their purchases rather than shopping purely on price. There are a lot of likely scenarios that point to SuperValu seeing a successful future.

  • Report this Comment On October 10, 2011, at 8:23 AM, TimoDOZ wrote:

    Forget about discount grocers. The Shaw's stores division here in New England just can't compete on basics. More and more shoppers are going there to buy their weekly promotions of loss leaders that there are very few of. In New England you can get fresh fish for half what Shaw's jacks it's customers up for at more than one of their competitors. Hannafords is rapidly expanding and this is just killing Shaws. More people do their grocery shopping across the street from Shaws and then pop in to the convienently located Shaws to take advantage of the one or two loss leaders they occassionally offer. How is buy one get one free worth anything when the price of a pound of bacon is $7.98? Shaws also baits and switches as when a sale item is sold out they will substitute a very similar item in the empty shelf space. An item NOT sale priced but at some ridiculous price. In their last chance reduced aisle a dented can of soup is priced at $2 while the competitor has it on their shelf at $1.25 every 4th or 5th week they have a sale on it. In this economy shoppers are increasingly aware of price gouging. Their self check out registers are a joke and most people with more than 5 items just avoid them. Good luck to Super-Valu we will be sad to see them go out as having 4 grocers in my area makes for being still able to find split chicken breasts @ $1.24/LB, whole chickens @ $0.79/LB, Pork loins at $1.69 lb and oven tip or top round roasts at $2.79/lb. Shaws each 6-8 weeks offers the whole chicken fried and cut into eight pieces for $5 +tax so we would miss that. Last week we took advantage of a $3.99 haddock sale, Indian Summer and had a fish fry . The same fish at Shaws was $6.99 that week. Most stores are selling sea scallops these days for a buck a piece. Shaws no longer features sea bass and so sea scallops must be the next to go as they look to get $1.25 each in their stores. Our local Shaws just added the Badia spices option. While limited in selection that is at least something. Who wants to pay +$6.50 for less than an ounce and half of MCMK or Durkee chili powder when you can buy more than twice that amount in a Badia brand for half that? $2 for a dented can of soup ...Jeeez..

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