Every once in a while, investors have to deal with a type of company that I broadly refer to as a "whatzit." These companies don't neatly compare to a sector or industry, making for more challenging analysis. SUPERVALU (NYSE:SVU) seems like a case in point. About half of its revenue comes from operating supermarkets in competition with the likes of Albertsons (NYSE:ABS) or Kroger (NYSE:KR). The remainder comes from a distribution business similar to Nash-Finch (NASDAQ:NAFC).
The stock responded well to the company's third-quarter earnings announcement, but I'm not sure it was all that great of a quarter. Though same-store sales fell 0.9%, total sales were up 3%, with 1.9% growth in retail food and 4.4% growth in the supply/distribution business. Gross margin eased off slightly, and operating income was actually down 2% year over year, factoring in restructuring charges for each year. True, reported net income rose 16% -- but I think it pays to look at the number both with and without those considerable charges in the year-ago period.
Given the exceptionally competitive nature of the grocery business, it's probably not surprising that SUPERVALU management is working on several ideas to try to differentiate itself and boost sales. Some of the ideas, like a value-priced organic food retail concept, seem a little questionable to me. Other ideas, like customizing stores to cater to local shopper demographics, seem like real winners -- provided that such specialization doesn't create too many kinks in the logistics and distribution system.
Overall, though, it's tough for a company to do one thing well, let alone several. SUPERVALU already splits itself amongst extreme-value stores and value stores, not to mention regional supermarkets and its distribution business. Now it appears to be adding an organic concept as well. While the company's return on capital seems to be improving and the stock has been a solid (if erratic) winner over the past 15 years, investors might be reasonably concerned that SUPERVALU seems to be pulling in several directions at once.
For more Foolish takes on the food biz:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
