Supervalu swoon

This story and another reveals the reasons behind yesterday's swoon in Supervalu's stock price, which saw the grocery chain operator lose $5.68 per share, a drop of 17%. Analysts say Supervalu has been unable to increase prices as much as rival Safeway and others to reflect rising food costs. From Bloomberg:

Grocers in the past year raised prices to counter higher expenses for cereal and milk-based products. Supervalu's price increases trailed those of Kroger Co., the biggest U.S. supermarket chain, and Safeway Inc. A slowdown in consumer spending may hurt Supervalu's sales further.

``They really have an inability to push price increases onto the consumer,'' said David Dietze, president of Point View Financial Services Inc. in Summit, New Jersey, which owns the shares. Kroger is known as the low-price leader, which attracts shoppers, and Safeway Inc. can justify charging more because of its remodeled stores, he said.

Revenue in the three months through Dec. 1 fell 4.2 percent to $10.2 billion, Supervalu said in a statement. The quarter had one less week than a year earlier, which reduced sales by $500 million, the chain said.

Sales at Supervalu stores open at least a year, excluding fuel, increased 0.5 percent in the quarter. That matched the growth from the previous period and slowed from the 1.2 percent rise in the three months ended June 16.

Supervalu may try ``more aggressive near-term price'' cuts after same-store sales growth again decreased following an early pickup in the quarter, said Edward Kelly, an analyst at Credit Suisse Group in New York who today cut his rating on the shares. He now recommends investors hold the stock, rather than buy it, and reduced his 12-month price target to $31 from $55.

Food-price inflation was about 3 percent in the quarter and is running at the highest level in a decade, Chief Executive Officer Jeffrey Noddle said on a conference call with analysts.

Shoppers have trimmed purchases because of higher food costs, a slump in U.S. home values and a 35 percent rise in gasoline prices in the past year. ``We do sense some real cautiousness by our consumers'' in the southern California and Las Vegas markets, Noddle said.

Supervalu bought Albertson's for $6.3 billion in June 2006 and assumed $6.1 billion of its debt. It added Acme, Bristol Farms, Jewel-Osco, Shaw's and Star banners with the purchase.

``The consumer and competitive environments are probably tougher than we would have anticipated looking back two years ago now from when we'' announced the acquisition, Noddle said.

Supervalu reiterated its target of $150 million to $175 million in annual cost savings by the end of the third year after the purchase. Some of the savings will probably be delayed until the fourth year, Noddle said on the call.