It has been about a month since the last earnings report for SUPERVALU Inc. . Shares have lost about 5.8% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
SUPERVALU Q4 Earnings & Sales Top Estimates
SUPERVALU ended fiscal 2017 with better-than-expected fourth-quarter results, wherein both its earnings and sales beat estimates.
After posting negative earnings surprise of 61.5% in the fiscal third quarter, the company posted positive earnings surprise of 44.4% in the reported quarter. SUPERVALU posted adjusted earnings per share of $0.13 per share that outpaced the Zacks Consensus Estimate of $0.09 per share. However, earnings fell 7.1% from the prior-year quarter.
Adjusted earnings exclude $32 million of after-tax charges, which consists of $25 million of asset impairment and $7 million of unamortized financing cost expenses. Including these items, the company reported earnings of $0.02 per share.
However, we note that the company does not have a good track record of earnings and has reported negative surprises in two of the past three quarters. It 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. Further, deflationary environment in food products and depleting footfalls at the supermarkets are causes of concern for the grocery chain.
Revenues and Margins
SUPERVALU’s net sales inched up 0.6% year over year to $2,907 million. Also, the top line came ahead of the Zacks Consensus Estimate of 2,888 million. This upside was backed by increased sales witnessed at the Wholesale segment, coupled with higher gross margins.
Gross profit rose 0.9% year over year to $435 million, with gross margin expansion of 10 basis points (bps) to 15.0%. The increase was because of higher vendor allowances, along with reduced inventory shrink expenses.
Adjusted selling and administrative costs increased 2.3% to $358 million in the quarter. Also, the same as a percentage of sales, rose 20 bps to 12.3% primarily due to increased employee expenses, partly compensated by lower pension cost.
Further, adjusted net interest expense surged 24.3% to $28 million in the reported quarter, owing to reduced outstanding debt balances in connection with the utilization of the sale proceeds of Save-A-Lot business.
In the reported quarter, SUPERVALU completed the divestment of its Save-A-Lot business, as its recent performance has been quite disappointing. Moreover, management announced that Anne Dament will join SUPERVALU to supervise the company’s Retail business along with the merchandising and marketing operations.
Segment Details
Net sales at Wholesale business grew 3% year over year to $1,793 million, mainly driven by sales to new customers, coupled with greater sales from new outlets operated by existing customers. These were partly compensated by stores from the previous year that are no longer supplied by the company. Also, the segment’s operating income came in at $64 million, up from $50 million recorded in the year-ago quarter. Additionally, its operating margin expanded 70 bps to 3.6%, backed by increased gross margins and vendor allowances.
Net sales at Retail slipped 3.2% to $1,072 million. This decrease represents unfavorable identical store sales of 5.8%, partly mitigated by sales from acquired and new outlets. Moreover, customer counts decreased 4.3% as well as average basket dropped 1.5%. Also, deflation affected about 1% in the quarter.
Further, the segment recorded adjusted operating income of $14 million, down 53.3% from $30 million in the year-ago quarter. Also, operating margin contracted 140 bps to 1.3%, owing to soft sales along with greater employee charges. Notably, the operating income on excluding an asset impairment expense was the strongest of the year.
Corporate
During the fiscal fourth quarter, fees earned under services agreements were down 4.5% to $42 million.
Further, the segment reported an adjusted operating loss of $1 million as against operating income of $1 million delivered in the year-ago quarter. The decline was due to increased employee expenses, somewhat offset by lower pension charge.
Financial Update
SUPERVALU’s cash and cash equivalents totaled $332 million as of Feb 25, 2017, compared with $42 million as of Feb 27, 2016. Long-term debt was $1,263 million and total stockholders’ equity came in at $383 million.
Further, net cash from operating activities of continuing operations came in at $308 million in fiscal 2017 versus $245 million reported in the prior year.
Outlook
Management remains impressed with the performance witnessed at its Wholesale segment and improved balance sheet, post the sale of the Save-A-Lot business. Also, management remains encouraged to work as a grocery distributor to The Fresh Market, Inc.
Further, SUPERVALU is expanding its distribution network, boosting its brand portfolio and value-add services that can aid the company to operate effectively. We also note that the company is on track to improve the customers’ shopping experience at its retail outlets. However, the company continues to feel the pinch of competitive new store openings at its Retail segment.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 30.9% due to these changes.
SuperValu Inc. Price and Consensus
VGM Scores
At this time, the stock has a subpar Growth Score of 'D', though it is lagging a bit on the momentum front with an 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value based on our styles scores.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.
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SUPERVALU (SVU) Down 5.8% Since Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for SUPERVALU Inc. . Shares have lost about 5.8% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
SUPERVALU Q4 Earnings & Sales Top Estimates
SUPERVALU ended fiscal 2017 with better-than-expected fourth-quarter results, wherein both its earnings and sales beat estimates.
After posting negative earnings surprise of 61.5% in the fiscal third quarter, the company posted positive earnings surprise of 44.4% in the reported quarter. SUPERVALU posted adjusted earnings per share of $0.13 per share that outpaced the Zacks Consensus Estimate of $0.09 per share. However, earnings fell 7.1% from the prior-year quarter.
Adjusted earnings exclude $32 million of after-tax charges, which consists of $25 million of asset impairment and $7 million of unamortized financing cost expenses. Including these items, the company reported earnings of $0.02 per share.
However, we note that the company does not have a good track record of earnings and has reported negative surprises in two of the past three quarters. It 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. Further, deflationary environment in food products and depleting footfalls at the supermarkets are causes of concern for the grocery chain.
Revenues and Margins
SUPERVALU’s net sales inched up 0.6% year over year to $2,907 million. Also, the top line came ahead of the Zacks Consensus Estimate of 2,888 million. This upside was backed by increased sales witnessed at the Wholesale segment, coupled with higher gross margins.
Gross profit rose 0.9% year over year to $435 million, with gross margin expansion of 10 basis points (bps) to 15.0%. The increase was because of higher vendor allowances, along with reduced inventory shrink expenses.
Adjusted selling and administrative costs increased 2.3% to $358 million in the quarter. Also, the same as a percentage of sales, rose 20 bps to 12.3% primarily due to increased employee expenses, partly compensated by lower pension cost.
Further, adjusted net interest expense surged 24.3% to $28 million in the reported quarter, owing to reduced outstanding debt balances in connection with the utilization of the sale proceeds of Save-A-Lot business.
In the reported quarter, SUPERVALU completed the divestment of its Save-A-Lot business, as its recent performance has been quite disappointing. Moreover, management announced that Anne Dament will join SUPERVALU to supervise the company’s Retail business along with the merchandising and marketing operations.
Segment Details
Net sales at Wholesale business grew 3% year over year to $1,793 million, mainly driven by sales to new customers, coupled with greater sales from new outlets operated by existing customers. These were partly compensated by stores from the previous year that are no longer supplied by the company. Also, the segment’s operating income came in at $64 million, up from $50 million recorded in the year-ago quarter. Additionally, its operating margin expanded 70 bps to 3.6%, backed by increased gross margins and vendor allowances.
Net sales at Retail slipped 3.2% to $1,072 million. This decrease represents unfavorable identical store sales of 5.8%, partly mitigated by sales from acquired and new outlets. Moreover, customer counts decreased 4.3% as well as average basket dropped 1.5%. Also, deflation affected about 1% in the quarter.
Further, the segment recorded adjusted operating income of $14 million, down 53.3% from $30 million in the year-ago quarter. Also, operating margin contracted 140 bps to 1.3%, owing to soft sales along with greater employee charges. Notably, the operating income on excluding an asset impairment expense was the strongest of the year.
Corporate
During the fiscal fourth quarter, fees earned under services agreements were down 4.5% to $42 million.
Further, the segment reported an adjusted operating loss of $1 million as against operating income of $1 million delivered in the year-ago quarter. The decline was due to increased employee expenses, somewhat offset by lower pension charge.
Financial Update
SUPERVALU’s cash and cash equivalents totaled $332 million as of Feb 25, 2017, compared with $42 million as of Feb 27, 2016. Long-term debt was $1,263 million and total stockholders’ equity came in at $383 million.
Further, net cash from operating activities of continuing operations came in at $308 million in fiscal 2017 versus $245 million reported in the prior year.
Outlook
Management remains impressed with the performance witnessed at its Wholesale segment and improved balance sheet, post the sale of the Save-A-Lot business. Also, management remains encouraged to work as a grocery distributor to The Fresh Market, Inc.
Further, SUPERVALU is expanding its distribution network, boosting its brand portfolio and value-add services that can aid the company to operate effectively. We also note that the company is on track to improve the customers’ shopping experience at its retail outlets. However, the company continues to feel the pinch of competitive new store openings at its Retail segment.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 30.9% due to these changes.
SuperValu Inc. Price and Consensus
SuperValu Inc. Price and Consensus | SuperValu Inc. Quote
VGM Scores
At this time, the stock has a subpar Growth Score of 'D', though it is lagging a bit on the momentum front with an 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for value based on our styles scores.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.