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Will Turnaround Efforts Help SUPERVALU to Recover in 2017?
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Grocery retailer SUPERVALU Inc. has been in troubled waters for the past one year due to tough competitive pressure, deflationary environment in the food industry and soft sales in the retail segment. The company’s shares have declined 31.3% in the past one year, underperforming the Zacks categorized Food-Miscellaneous Diversified industry that witnessed an increase of 9% in the same time frame. However, the company has undertaken several initiatives to turnaround its performance.
In order to combat declining sales at the retail segment, the company has plans to expand its retail banners. SUPERVALU is geared to rebrand most of its retail banners in order to create a unique clearly-defined identity for each of the brands, communicated through in-store signage, weekly ads, customer emails, mobile devices and banner web pages. Further, the company has developed the store-within-a-store concept to expand its offerings and started offering home delivery through Instacart app.
Although Save-a-Lot business segment had been one of the best performing units of the company in the past, its recent performance has not been noteworthy. Consequently, SUPERVALU entered into an agreement with private equity firm Onex Corporation under which it will spin-off its Save-A-Lot business for $1.365 billion in cash, subject to customary closing adjustments. The deal is anticipated to be complete by Jan 31, 2017, subject to regulatory requirements. The spin-off will allow the company to concentrate on more profitable core businesses and fund several other turnaround initiatives.
However, the company continues to face tough competitive pressure that has hit the grocery industry as a whole. Traditional grocery rivals are strengthening their franchises, while outside players are offering alternative outlets for food and other staples. Moreover, customers are becoming more receptive to purchasing private label products as a lower cost alternative to national brands.
To retain its market share due to competitive pressure, SUPERVALU has taken initiatives to expand its existing customer base. This is evident from its supply agreement with retailers such as Fresh Market Inc., American Foods Basket and Marsh Supermarkets, under which it will distribute traditional products such as meat, deli, bakery, seafood, grocery, frozen foods and dairy. These initiatives might help the Zacks Rank #3 (Hold) stock to turnaround in 2017 and aid it to attain its desired sales level.
Further, we notice that the stock outperformed the industry in the past six months, which may be considered as a start to the turnaround process of the company.
Sysco Corporation has an expected earnings growth of 8.6%. Lancaster has an expected earnings growth rate of 3%, while Pinnacle Foods has a long-term growth rate of 6.5%.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>
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Will Turnaround Efforts Help SUPERVALU to Recover in 2017?
Grocery retailer SUPERVALU Inc. has been in troubled waters for the past one year due to tough competitive pressure, deflationary environment in the food industry and soft sales in the retail segment. The company’s shares have declined 31.3% in the past one year, underperforming the Zacks categorized Food-Miscellaneous Diversified industry that witnessed an increase of 9% in the same time frame. However, the company has undertaken several initiatives to turnaround its performance.
In order to combat declining sales at the retail segment, the company has plans to expand its retail banners. SUPERVALU is geared to rebrand most of its retail banners in order to create a unique clearly-defined identity for each of the brands, communicated through in-store signage, weekly ads, customer emails, mobile devices and banner web pages. Further, the company has developed the store-within-a-store concept to expand its offerings and started offering home delivery through Instacart app.
Although Save-a-Lot business segment had been one of the best performing units of the company in the past, its recent performance has not been noteworthy. Consequently, SUPERVALU entered into an agreement with private equity firm Onex Corporation under which it will spin-off its Save-A-Lot business for $1.365 billion in cash, subject to customary closing adjustments. The deal is anticipated to be complete by Jan 31, 2017, subject to regulatory requirements. The spin-off will allow the company to concentrate on more profitable core businesses and fund several other turnaround initiatives.
However, the company continues to face tough competitive pressure that has hit the grocery industry as a whole. Traditional grocery rivals are strengthening their franchises, while outside players are offering alternative outlets for food and other staples. Moreover, customers are becoming more receptive to purchasing private label products as a lower cost alternative to national brands.
To retain its market share due to competitive pressure, SUPERVALU has taken initiatives to expand its existing customer base. This is evident from its supply agreement with retailers such as Fresh Market Inc., American Foods Basket and Marsh Supermarkets, under which it will distribute traditional products such as meat, deli, bakery, seafood, grocery, frozen foods and dairy. These initiatives might help the Zacks Rank #3 (Hold) stock to turnaround in 2017 and aid it to attain its desired sales level.
Further, we notice that the stock outperformed the industry in the past six months, which may be considered as a start to the turnaround process of the company.
Stocks to Consider
Some better-ranked stocks in the broader consumer staples sector include Sysco Corporation (SYY - Free Report) , Lancaster Colony Corporation (LANC - Free Report) and Pinnacle Foods Company , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Sysco Corporation has an expected earnings growth of 8.6%. Lancaster has an expected earnings growth rate of 3%, while Pinnacle Foods has a long-term growth rate of 6.5%.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>