Will the New SUPERVALU Shine in 2014?

SUPERVALU (SVU +0.00%) will release its quarterly report on Thursday, and after solid gains during most of 2013 investors have backed away from the stock somewhat in recent months. Now that the company has adjusted to its smaller size after selling off many of its grocery chains to private-equity investors, SUPERVALU has to prove that its slimmed-down operations can compete more effectively against Kroger (KR 1.16%), Safeway (NYSE: SWY), and other traditional grocery chains in an increasingly competitive environment.

This quarter's report will mark the last time that SUPERVALU's numbers reflect comparisons to figures from before its sale of Albertsons, Jewel-Osco, and three other grocery chains to Cerberus Capital in early 2013. Yet even with the big corporate transformation, SUPERVALU has still had to handle changing conditions within the industry, as Kroger and Safeway have both made their own strategic moves to take advantage of opportunities in the grocery business. Now that SUPERVALU has a leaner operation, investors want to see it start to isolate its most promising growth opportunities and produce greater profits. Let's take an early look at what's been happening with SUPERVALU over the past quarter and what we're likely to see in its report.

Stats on SUPERVALU

Source: Yahoo! Finance.

Will SUPERVALU earnings climb higher this quarter?
In recent months, analysts have gotten much more enthusiastic about SUPERVALU's earnings prospects, raising estimates for the quarter ended in November by $0.03 per share and boosting their full-year fiscal 2014 projections by a dime per share. The stock has turned downward from its gains from the earlier part of 2013, falling 15% since early October.

SUPERVALU's quarterly results released in October were a big contributor to the stock's decline, with shares plunging more than 8% the day after the numbers were released. The company reversed a year-ago loss from continuing operations, but same-store sales results were less promising, as the retail food segment suffered a 0.9% decline in comps. SUPERVALU also reported falling comps for its two other segments, Save-A-Lot and Independent Business, and that compared badly to rising comps for Kroger and Safeway.

SUPERVALU has continued to face the challenge of trying to get its margins up. Its gross margin is among the lowest in the business, falling consistently below higher levels for Safeway and Kroger, let alone premium grocery chains like Whole Foods Market. Moreover, although SUPERVALU has done a good job with cost-cutting, it's unclear whether what's left in the operating-expense budget will be enough to sustain ordinary levels of promotional activity.

Changes in federal programs have also had an adverse impact on SUPERVALU over the past quarter. In November, the stock fell sharply after analysts at Goldman Sachs noted the potential for cuts in the food-stamp program to hurt SUPERVALU's results. With competition coming not only from traditional grocery chains like Safeway and Kroger, but also from deep-discount dollar stores, Goldman suggested that taking the huge profits that SUPERVALU shares generated during 2013 made sense for shareholders in light of coming challenges.

In the SUPERVALU earnings report, watch to see how the company's three main divisions are able to perform. If all three segments keep declining, it could spell further trouble ahead for SUPERVALU shares. But if the company finally starts to see traction either from Save-A-Lot or from its other concepts, then SUPERVALU might break out of its funk and start moving higher again.

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