SuperValu: A Supermarket Special Victim

SuperValu (NYSE:SVU) touts a ticker that brings to mind the hit TV show Law & Order: SVU. SVU stands, of course, for special victims unit — a dramatic title that seems all-too-fitting for this struggling grocery chain.

SuperValu is, as Dan Burrows put it, the poster child of the many supermarkets that have fallen victim to the Great Recession. And it wouldn’t take a detective to round up the evidence and make a case.

So, on the news that the company has ousted CEO Craig Herkert and handed the reins over to Wayne Sales, I can’t really think of much to say to the new chief besides … well … good luck.

Sales says his first order of business is to “generate profitable sales.” OK, that’s a goal you pretty much want any company to have. But while it sounds simple, it doesn’t look so easy for SVU.

SuperValu, which also operates the Albertsons, Jewel-Osco, Shaw’s and Save-A-Lot nameplates, has suffered from offering prices that are too high for cash-strapped consumers. Among those able to steal away SuperValu’s market share by snatching at the low end: dollar stores like Dollar General (NYSE:DG), Dollar Tree (NASDAQ:DLTR) and Family Dollar (NYSE:FDO); versatile retailers like Wal-Mart (NYSE:WMT) and Target (NYSE:TGT); and warehousers like Costco (NASDAQ:COST).

When you see a list like that, it’s easy to understand why it’s not just SuperValu that’s suffering in the grocery world.

But while other grocery stores like Kroger (NYSE:KR) and Safeway (NYSE:SWY) also have felt the heat from low-cost competitors, they’ve been able to weather the storm much more effectively. In the past three years, SuperValu has lost a remarkable 85% of its value — even after today’s 10%-plus boom off the regime change. In that same period, Safeway is off 17%, while Kroger actually is more than 2% in the black!

Half of SuperValu’s losses in that time frame have come since 2012 rang in, with a large chunk of that coming on the heels of its most recent earnings report: Profits plummeted 45%, revenue slipped 5%, and the cash situation is getting so bad that SVU suspended its dividend.

Yikes. A special victim, indeed.

The company has attempted to lower prices, but the move hasn’t turned things around fast enough — or really at all. In fact, price-slashing has merely cut away at the company’s margins. Super-low prices might boost foot traffic, but they don’t really bode well for that whole “profitability” goal.

Another one of Sales’ plans is to “take significant costs out of the business” — a nice way of saying it needs to preserve the precious cash it actually has. This will be done by trimming administrative and operational expenses over the next two years and cutting capital spending — this year’s range was slashed to $450 million to $500 million, down from an expected sum of $675 million.

Of course, that also will be accomplished by savings from the dividend suspension. However, losing that payout — which never was much to begin with though, with SVU yielding an average of about 1% the past five years — doesn’t make SuperValu any more attractive to investors.

If I were Sales, I’m hoping to survive long enough that a buyer — any buyer! — gets sucked in by SuperValu’s “for sale” sign. But then again, I also don’t see who in their right mind would consider a company that’s expected to see earnings and sales continue shrinking for years and is hemorrhaging cash.

In a recent pep talk to employees, the new head honcho vowed to “prove the naysayers wrong.” I say go right ahead. But until then, I remain a naysayer.

Once again, best of luck, Sales. You’re going to need it.

As of writing this, Alyssa Oursler did not own a position in any of the aforementioned securities.

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