SUPERVALU Inc. (NYSE:SVU) missed earnings and revenue estimates by substantial margins. The retailer has seen its stock suffer amid tougher competition and evolving food trends. Although the stock price rose the morning after the report, SVU finds itself in a long-term downtrend that shows no signs of turning soon.

SVU Missed Estimates by a Wide Margin

Q4 earnings came in at 61 cents per share. Wall Street had expected 79 cents per share. This also represents a huge drop from the same quarter last year when the company earned 91 cents per share. The company also disappointed by reporting $3.59 billion in revenue. Though it comes in substantially higher than the $2.91 billion reported a year ago, analysts had been looking for $3.94 billion.

The company also reported on the full fiscal year, which ended February 28, 2018. SVU reported earnings per share (EPS) of $2.31. Analysts had expected $2.45 per share in earnings. However, it represents an increase from the $2.03 earned in fiscal 2017. The company earned $14.16 billion in net sales. This marks an improvement from the $10.91 billion in net sales reported in 2017. Still, Wall Street had expected net sales of $15.63 billion.

For 2019, the company now expects net sales to come in between $15.5 billion and $15.7 billion.

Despite this negative news, SVU stock rose by just under 2% in morning trading. Investors have priced in much of the negativity. Also, the company announced it would sell its Shop ‘n Save and Shop ‘n Save East lines of stores, and sell or lease back eight of its distribution centers.

Competition Poses a Threat to SVU’s Existence

This sale is likely necessary. The Eden Prairie, Minnesota-based grocer, like peers such as Kroger Co (NYSE:KR), Walmart Inc (NYSE:WMT), Target Corporation (NYSE:TGT), and Costco Wholesale Corporation (NASDAQ:COST), have suffered from the competitive threat of Amazon.com, Inc. (NASDAQ:AMZN). Further, SuperValu has also struggled to keep up with trends such as organic and ethnic foods.

In the face of competition, even the economies of scale enjoyed by the likes of Kellogg Company (NYSE:K), Kraft-Heinz Co (NASDAQ:KHC), and General Mills, Inc. (NYSE:GIS) leave SVU frequently unable to compete on price. Moreover, those food companies have also struggled to keep up with current consumer tastes.

SVU Stock Now Trades at Multi-Year Lows

The stock has suffered a severe, long-term downtrend as a result. SVU stock traded above $83 per share as recently as three years ago. Today, the SVU stock price stands at under $15 per share.

However, rumors of a potential sale of the company have driven the stock price recently. The stock rose by 9.3% on April 6 on these rumors, then fell back a couple of days later after Dow Jones reported that no serious talks of a sale had occurred.

This word of a potential sale might attract investors hoping for a buyout. Also, with the reported earnings placing the price-to-earnings (PE) ratio at just above six, that could drive further interest. While I often like cheap, unfortunately SVU has become cheap for a reason.

Market trends have changed, and SuperValu has not changed with them. SVU has morphed into the Sears Holdings Corp (NASDAQ:SHLD) of grocers. The market is changing, and traditional grocery stores have become a niche. Kroger looks poised to own that particular segment. Between the large grocers — Kroger, Walmart, Target, Amazon, and Costco — and the numerous specialty grocers that exist to respond to current trends, I see little room for SVU.

Due to its inability to keep up with trends, I think the only way buyers of SVU stock make money is if the hoped-for buyout becomes a reality soon. Analysts currently forecast earnings growth in the low single-digits. However, they have also steadily reduced forecasts over the last few months. If they suddenly forecast negative growth, holders of SuperValu stock should not be surprised. Either way, this stock has positioned itself to move even lower, unless a buyout stops the downtrend.

Bottom Line on SVU Stock

An earnings miss and falling sales and profits have placed SVU stock in a long-term downtrend that will likely only end with a sale of the company. Both quarterly and yearly earnings came in well below analyst estimates. Now, as estimates and sales continue falling amid a changing retail environment, options for SVU begin to dwindle.

While a low PE ratio could draw in investors, buyers may struggle to earn a profit unless a buyout becomes a reality. Given its outdated product lines and falling profit, investors should look elsewhere for gains in the grocery sector.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.