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SUPERVALU Buys Associated Grocers: What You Need to Know

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SUPERVALU INC. (SVU - Free Report) recently concluded the acquisition of Associated Grocers, for approximately $193 million. This Florida-based company is likely to be a profitable inclusion to SUPERVALU’s wholesale business, given its strong customer and retailer base as well as presence in key international regions.

Notably, shares of SUPERVALU rose 3.6% following the announcement, during the after market trading session on Dec 8. So let’s see how Associated Grocers is expected to help SUPERVALU’s business and other factors impacting the company’s performance.  

Expanding Wholesale Business Spectrum

SUPERVALU derives a major portion of revenues from the wholesale business and has been consistently expanding operations, primarily through acquisitions. In fact, the company’s takeover of Unified Grocers in June drove wholesale segment sales by 58% year over year in second quarter fiscal 2018.

Management believes that the wholesale segment offers significant growth prospects owing to rapidly changing consumer needs. The inclusion of Associated Grocers is expected to further enable the company reap benefits from the opportunities offered by this segment.

Further, the acquisition of Associated Grocers and Unified Grocers are expected to augment the company’s offering in the specialty and organic food categories. Notably, organic food products are becoming popular owing to rising health consciousness amongst consumers. Thus, the company has been evaluating prospects in the organic foods arena and has partnered with wholesale merchants to explore opportunities in this category.

Competition & Cost Inflation Weighs On Stock

Although SUPERVALU has been progressing steadily with the wholesale segment, the company’s retail category is challenged with price competition, competitive store openings and tough market conditions. As a result, the company has resorted to several store closures in the retail segment.

Further, the company has been facing stiff competition from grocery rivals in terms of innovative food offerings and related services. On account of these headwinds, shares of the company have lost 31.7% over the past three months, compared with the industry’s decline of 5.2%.

Can Growth Efforts Boost Performance?

Nevertheless, we expect SUPERVALU’s wholesale segment growth strategies such as the acquisition of Associated Grocers to offset softness in the retail arena. Also, to revive the retail segment’s performance, this Zacks Rank #3 (Hold) company is rebranding most of its banners, launching new brands and expanding offerings in the Wild Harvest line.

Do Consumer Staples Stocks Grab Your Attention? Check These

Investors interested in the same sector may consider stocks such as Estee Lauder Companies Inc. (EL - Free Report) , Conagra Brands Inc. (CAG - Free Report) and Meredith Corp. (MDP - Free Report) . While Estee Lauder sports a Zacks Rank #1 (Strong Buy), Conagra Brands and Meredith carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Estee Lauder came up with an average positive earnings surprise of 18% in the trailing four quarters. It has a long-term earnings growth rate of 12.5%.

Conagra Brands pulled off an average positive earnings surprise of 7% in the trailing four quarters. Also, it has a long-term earnings growth rate of 7%.

Meredith delivered an average positive earnings surprise of 7.1% in the trailing four quarters. It has a long-term earnings growth rate of 8%.

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