Why SUPERVALU Shares Surged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: SUPERVALU (NYSE: SVU  ) were soaring again today, climbing as much as 19% after the company reported better-than-expected earnings this morning.

So what: The struggling supermarket chain posted an adjusted earnings per share of $0.14, well ahead of estimates at $0.06, evidence that its cost-cutting strategy seems to be paying off. In March, the company sold off over 900 stores under several banners, and laid off 1,100 workers following the sale. The desperately needed restructuring caused the company to lose more than half of its revenue, but after adjusting for discontinued operations, sales were down only 1.5% to $5.16 billion, slightly below estimates.

Now what: The jump in SUPERVALU shares seemed to be at least partly motivated by a short squeeze as 26% of shares were held short before the earnings announcement. The supermarket chain's stock is now up nearly 500% since bottoming out last October, but there are still reasons to be concerned. Same-store sales were down 3% and 1.9% for the Retail Food and Save-A-Lot segments, respectively; the chain is also facing increasing competition from big-box retailers like Wal-Mart and Target and continues to run cash flow negative. If earnings continue to grow, shares should keep moving higher, but there are plenty of risks to watch out for, here.

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