Image source: SUPERVALU.

Investors in SUPERVALU (NYSE:SVU) are quite familiar with the competitive pressures that have hit the grocery industry. Between traditional grocery rivals strengthening their franchises and outside players offering alternative outlets for food and other staples, SUPERVALU has faced difficulties in consistently producing growth. Coming into Wednesday's fiscal third-quarter financial report, SUPERVALU investors expected weaker earnings and revenue, but the extent of the declines turned out to be worse than many had predicted. Let's take a closer look at exactly what was in SUPERVALU's results and what conclusions you can draw from the quarter.

SUPERVALU's sales move lower
SUPERVALU continued to see sales growth evaporate in its fiscal third-quarter results, which is a trend that the company has seen for a while now. Revenue fell nearly 3% to $4.11 billion, which was far worse than the 1% drop in sales that most investors were expecting to see. Net earnings got cut by more than half to $34 million, and after adjusting for various extraordinary items, adjusted earnings of $0.16 per share was roughly in line with the consensus forecast but still down by more than 10% from the year-ago figure.

A closer look at SUPERVALU's businesses shows widespread weakness. Comparable-store sales fell sharply from year-ago figures, and the key Save-A-Lot discount business saw comps fall 3.4%. Even corporate-owned Save-A-Lot locations suffered a slight 0.4% decline in comparable-store sales, and the retail food unit encountered similar headwinds in seeing comps fall 2.6%. Total sales within the company's independent business segment fell 3.5%.

SUPERVALU had mixed success in keeping its costs down. Gross margins improved because of lower logistics costs and higher fees earned under transition services agreements. However, selling and administrative expenses climbed faster than revenue. Costs related to the potential separation of Save-A-Lot from the remainder of SUPERVALU's operating businesses added to overhead expenses for the quarter, but even after adjusting for those items, those costs rose as a percentage of sales from last year.

CEO Sam Duncan acknowledged the troubled times that SUPERVALU is going through but still tried to emphasize positives. "Third-quarter adjusted EBITDA was in-line with our operating plan," Duncan said, but "we continue to operate in a challenging environment." Duncan said that SUPERVALU continues to look for ways to improve sales for the remainder of the fiscal year.

Can SUPERVALU bounce back in 2016?
One of the key themes on the conference call that Duncan and his management team gave after the earnings release was that food deflation throughout many major parts of the market have contributed to SUPERVALU's difficulties. Duncan pointed to the decline in pork and beef products of roughly 20% as specifically hurting revenue, and he asserted that if food-inflation levels were where they were a year ago, Save-A-Lot would have shown positive comparable-store sales.

For the most part, SUPERVALU hasn't made major changes to its approach. The CEO said that customer counts aren't off dramatically, and the company hasn't changed its approach toward advertising, pricing or marketing. What SUPERVALU expects is that once food prices stabilize, its results should improve.

SUPERVALU also provided an update on its Save-A-Lot spinoff plans, saying that it filed a form with the SEC as a first step toward the expected tax-free separation. SUPERVALU intends to keep about 20% of Save-A-Lot's stock, distributing the rest to shareholders. The company still hasn't committed to the deal, but if it happens, the company expects it to occur in the first half of its 2017 fiscal year.

SUPERVALU shareholders weren't happy with the news, as the stock fell 16% in regular market trading Wednesday. As long as the grocery chain continues to see poor results in following its long-term strategy, some investors won't be convinced that SUPERVALU is pursuing the right course. On the other hand, if SUPERVALU executives are right and things do start to turn around, then this could be a turning point for the grocery chain and its future.

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.