North America's largest retailers have been fervently fighting to win the hearts and minds of the continent's penny-pinchers at all costs. While variety sellers' stock prices have done relatively well, the big grocery chains are still pinned down in the trenches, particularly SUPERVALU (NYSE:SVU). Let's see where the company now stands.

Recent earnings
Sales fell to $9.2 billion, a 9.4% year-over-year slide. Management blamed a large part of the decline on a 6.5% drop in same-store sales. But the company's exit from the Salt Lake City market, along with other closures, also hurt results, leaving the company's prior-year comparisons not exactly apples-to-apples. Still, the grocer's weak comps suggest its twin troubles of aggressive competition and deflationary pressures.

On the other hand, the grocer managed to stabilize gross margins at around 22.4%, a 0.3-percentage-point gain sequentially. The company also effectively contained costs, and operating margin got a boost to 3.3%, from 2.6% in the prior quarter. In sum, SUPERVALU's efforts allowed it to net $109 million in profit, about $0.51 per share, above consensus predictions.

Despite what some have called a "price war" among large retailers, SUPERVALU's gross margins have held up nicely as of late, after more than doubling over the last decade. But those levels remain below the numbers achieved by consistently profitable rivals such as Kroger (NYSE:KR) and Safeway (NYSE:SWY). Unsurprisingly, SUPERVALU's margin also badly trails the healthy 34% gross margin at Whole Foods Market (NASDAQ:WFMI).

View from the trenches
As you can see in the table below, it's been a tough year for the stocks of America's largest food retailers. For context, the S&P 500 index is currently up over 30% from a year ago.

Retailer

Trailing P/E

Estimated EPS Growth (5-Year)

1-Year Return

 Costco (NYSE:COST)

23.8

13.2%

25.0%

 Wal-Mart Stores (NYSE:WMT)

15.5

11.8%

7.4%

 Safeway

10.6

9.1%

(4.6%)

 Kroger

81.6

8.8%

(13.4%)

 SUPERVALU

           31.9

6.2%

(12.6%)

Source: Yahoo! Finance.

Financial health and outlook
Worse yet, SUPERVALU sits under a crushing $7.9 billion in long-term debt. In fact, in the last four quarters, the company's cash interest payments exceeded its free cash flow. That situation can't go on forever.

Total debt is almost three times equity. That's a bit misleading, however  -- and not in the good way. If you take out the company's huge slug of goodwill and intangibles (over $5.2 billion), then the company's tangible equity is negative.

Faced with so many macroeconomic headwinds and that much leverage, I think it's unlikely that SUPERVALU will achieve its full potential in the near term. Why buy a struggling grocer when there are plenty of good ones?

What do you see in store for grocers? Prolonged price war? Consolidation? Let us know in the comments section below.

Costco and Wal-Mart are Motley Fool Inside Value recommendations. Costco and Whole Foods are Stock Advisor picks. The Fool owns shares of Costco. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Chris Jones owns no shares of any company mentioned in this article, nor is he short anything. The Motley Fool's disclosure policy is all lost in the super market; it can no longer shop happily.