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Why SUPERVALU INC. Shares Slumped on Wednesday

By Brian D. Pacampara, CFA - Jan 13, 2016 at 11:06AM

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The competition continues to eat the grocery chain's lunch.

What: Shares of SUPERVALU (SVU) were down 11.3% at 11:15 a.m. ET Wednesday after its quarterly results disappointed Wall Street.

So what: SUPERVALU shares have fallen sharply over the past year on a string of disappointing quarters, and today's Q3 results -- earnings fell to $34 million from $74 million in the year prior, on a revenue decline of 2.6% -- suggest that the downtrend isn't slowing anytime soon. In fact, same-store sales in the retail food division fell 2.6% while net margin decreased 110 basis points, giving analysts plenty of negative vibes over SUPERVALU's ability to differentiate itself amid increasingly fierce competition.

Now what: SUPERVALU recently announced intentions to spin off its heavy discount segment, Save-A-Lot, but there's still a chance that those plans will eventually fall through. "Although third-quarter adjusted EBITDA was in line with our operating plan, we continue to operate in a challenging environment," said President and CEO Sam Duncan. "Improving sales is a primary focus as we look to complete the fiscal year." When you couple the possibility of a value-generating spin-off occurring in the near future with the stock's paltry forward P/E of 7, SUPERVALU's downside might even be limited enough to bet on that improvement. 

Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Supervalu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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