Shares of Supervalu shed nearly half their value, falling to an all-time on Thursday after the grocery store chain reported dismal first-quarter results and said it is considering options for the business, which may include putting itself up for sale.
Supervalu, which owns Albertsons, Jewel-Osco and Save-A-Lot, lost $2.60 to close at $2.69 at the end of trading Thursday.
Its previous all-time low was $4.05, reached on June 11.
Analysts said the steps the company is now taking to improve — refinancing its debt, cutting prices — could be a case of too little, too late.
“Desperate times call for desperate measures . finally,” said Jefferies analyst Scott Mushkin. “For more than two years, we have suggested that Supervalu’s board take more aggressive actions, which the company’s flailing business finally brought to bear.”
Late Wednesday, Supervalu said net income fell 45 percent in the first quarter. Supervalu lost revenue from selling off gas stations, and tough competition is hurting its business.
Grocery store chains increasingly compete on price, and Supervalu’s stores have lagged on that front. It’s also facing competition from retail behemoths Wal-Mart Stores Inc. and Target Corp., which have expanded their grocery store offerings.
For now, Supervalu has suspended its dividend and is trying to gain some financial breathing room by refinancing its debt. The savings it gets from doing that will help it “wage a multi-front price war” against rivals including Kroger Co. and Safeway Inc., Mushkin said.
But analysts are wary. With competition growing more intense, it will take a while for Supervalu to benefit from cutting prices, said Citi analyst Deborah Weinswig. The company is shifting into “survival mode,” according to Cantor Fitzgerald analyst Ajay Jain, and changes to stores may not win it many new customers.
JPMorgan analyst Ken Goldman agreed. He said that previously, there were two reasons to own the stock: The possibility of turning around results, and the potential for a breakup of the business that could add value to the company. But those two possibilities seem less likely now, he said. Competitors have nimbly stepped up price competition and the turnaround is taking longer than first expected.
He downgraded the stock to “Neutral” From “Overweight.”
Supervalu may not be done making changes. The company also said Wednesday that it is reviewing various options for the business. This type of review traditionally includes the possibility of selling the company.
Supervalu CEO Craig Herkert said that the chain remains profitable but the poor quarter demands sweeping changes to its strategy.
Supervalu also said it will be more aggressive in lowering prices, paying down debt and investing in its stores, all while trying to lower its own expenses.
“These are bold but necessary moves, which will position Supervalu for success in this increasingly competitive environment,” Herkert said in a statement.
Supervalu earned $41 million, or 19 cents per share, for the quarter that ended June 16. That is down sharply from the $74 million, or 35 cents per share, earned in the same quarter last year. It’s also well below the 37 cents per share that analysts had expected, according to FactSet. Revenue dropped to $10.59 billion from $11.11 billion, missing analysts’ $10.61 billion average estimate.
Supervalu brought in Herkert, a former Wal-Mart Stores Inc. executive, in 2009 to help shake things up at the company. The grocer subsequently put a heavier emphasis on lower prices and tried to position itself as a neighborhood store to draw new shoppers and keep customers.
Herkert said Wednesday that the company needs to make bolder moves in face of intensifying competition.
Supervalu plans to further cut prices. It also plans to trim $250 million in administrative and operational expenses over the next two years and slash capital spending to a range of $450 million to $500 million from $675 million. The company hopes to cut debt by $450 million to $500 million this year and pay down $400 million in each year following.
Supervalu also will replace its existing senior credit line with an asset-based lending facility and a term loan, secured by a portion of its real estate. This is aimed at boosting its financial flexibility. The company is suspending its quarterly dividend but said it will review it annually. It also withdrew all previous earnings projections for the year, in light of the massive changes.
