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Why SUPERVALU Inc. Stock Dropped Today

By Jeremy Bowman - Jan 10, 2018 at 12:17PM

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Shares of the supermarket operator and supplier fell after the company turned in a disappointing earnings report.

What happened

Shares of SUPERVALU Inc ( SVU ) were heading lower again today after the diversified supermarket company posted weak results in its third-quarter report out this morning and lowered its outlook. As a result, shares were trading down 14.1% as of 11:03 a.m. EST this morning, continuing a slide from last year. 

A Supervalu supermarket from the outside.

Image source: Supervalu.

So what

Supervalu said net sales increased 31% to $3.94 billion, but that was boosted by its acquisition of Unified Grocers last year, and was short of estimates at $3.99 billion. That growth was driven by a 52% increase in wholesale revenue to $2.89 billion, primarily due to the Unified Grocers acquisition. However, its retail division continued to struggle as overall sales fell 4.1% to $1.02 billion, and comparable sales were down 3.5%.

On the bottom line, the company delivered adjusted earnings per share of $0.31, accounting for a $0.30 per-share tax benefit, which was below EPS of $0.35 a year ago and missed expectations at $0.46.

Supervalu also completed its acquisition of Associated Grocers of Florida in the quarter, doubling down on the wholesale business. CEO Mark Gross summing up that strategy, said, "With the influx of significant new business in certain distribution centers, we experienced a larger-than-anticipated increase in expenses, but we're encouraged by the work we are doing to address those costs and believe they are manageable going forward. We remain committed to investing in our Wholesale business to drive future growth." 

Now what 

Looking ahead, Supervalu sees diminished net income for the year, calling for -$20 million to $2 million in profit, which includes $35 to $45 million in non-cash charges. That compares to a previous forecast of $31 to $50 million.

While the company's wholesale strategy appears to be on track, it's not surprising to see the stock sell off after results missed expectations and cut its outlook.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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