Trimmed Supervalu Gets New Team

Leading grocery chain Supervalu Inc. ( SVU - Analyst Report ) has reshuffled its leadership roles following the sale of a number of its supermarkets to Cerberus Capital.

Under the leadership of former OfficeMax Inc. ( OMX - Analyst Report ) Chief Executive Officer Sam Duncan, who became Supervalu's CEO in Feb 2013 the company made many changes to its management team.

After the sellout closes by Mar 18, 2013, Tim Lowe, the present executive vice president of merchandising and Michael Moore, the present chief marketing officer, will be replaced by Mark Van Buskirk, from Supervalu’s rival grocery chain The Kroger Company ( KR - Analyst Report ) . He will take up the responsibility of executive vice president of merchandising and marketing in the company.

As a part of broad-based strategic alternatives, Supervalu will sell Albertson's, Jewel-Osco, Acme, Shaw's and Star Market chains, all of which combined come to about 877 stores. These go to private equity firm Cerberus Capital Management LP, for $3.3 billion.

Management commented that it wants to slim down in order to focus more on Save-A-Lot discount stores, as well as its smaller regional chains Cub, Farm Fresh, Shoppers, Shop 'n Save and Hornbacher's.

The company has also changed the management team of St. Louis-based supermarkets Shop ‘N Save and Save-A-Lot. Ritchie Casteel replaces Santiago Roces as president and CEO of Save-A-Lot. Eric Hymas replaces Marlene Gebhard as president of Shop ‘N Save.

We believe that the executive management turnaround could prove beneficial to Supervalu’s fundamentals as all the new appointees have extensive retail and grocery experience. Also, the idea of increasing focus on the Save-A-Lot discount stores is encouraging as it happens to be the highest revenue earner for Supervalu and has the potential to remain the key growth driver.

The financial performance of Save-A-Lot was disappointing in the past few quarters and we expect a full-proof turnaround strategy from the new leaders to make the Save-A-Lot program profitable.

Supervalu missed estimates in the third quarter of fiscal 2013 and also posted lower earnings from the year-ago quarter. Moreover, the company reported negative identical store sales successively for the past four years. The trend has continued in the first half of fiscal 2013.

Now, in order to combat four successive years of negative identical store sales and re-position the company for growth, Supervalu is geared for expansion of its private brand portfolio and to step up cost-reduction initiatives.

These are expected to reduce administrative and operational expense by an additional $250 million by fiscal 2014. The anticipated shutdown of meat plants like Sanderson Farms Inc. ( SAFM - Snapshot Report ) due to the scheduled sequester by the U.S. government may disrupt supply to the company, which may in turn affect sales.

Currently, Supervalu carries a Zacks Rank #3 (Hold).