Still, reducing sales declines is not as cheering as accelerating revenue growth. Now leaner and meaner, SUPERVALU INC. (NYSE:SVU) still has to compete against Wal-Mart and Whole Foods Market, Inc. (NASDAQ:WFM) as well as other supermarkets. To that end CEO Duncan announced corporate owned stores would feature fresh saw-cut meat, training to improve fresh produce display and longevity, and expansion and coordination of private label brands in which it lags both Kroger and Safeway Inc. (NYSE:SWY) as a percentage of sales (29% Kroger, 25% Safeway, and 22% SUPERVALU INC. (NYSE:SVU)).
Is the party just starting at Safeway?
Safeway Inc. (NYSE:SWY), which owns banners Safeway, Von’s, and Dominick’s, reported on July 18 numbers that met expectations of $0.51 on EPS and disappointed on revenue of $8.6 billion versus $10.45 billion expected.
Still, shares rose as operating profit margin improved to 1.59%, a two basis point gain.(What did I tell you about tiny margins?) Like Supervalu it has been jettisoning parts of the operation including all its Canadian stores and spinning off Blackhawk Network Holdings Inc (NASDAQ:HAWK), its gift card division which IPOd in April. Proceeds from these two actions are to be used to pay down $2 billion in debt and buy back shares. Safeway Inc. (NYSE:SWY) still owns a 73% stake in Blackhawk Network Holdings Inc (NASDAQ:HAWK) worth $900 million.
Safeway stock has also surged by 72% but as a value name still offers a 3.00% yield at a trailing P/E of 11.78 with a price/book of 1.97. Despite that yield there still exists a high short interest of 22.40%, but decreasing.
Safeway Inc. (NYSE:SWY) has some initiatives in place that are helping margins improve: their Just for U loyalty rewards program with 5.8 million households signed up, expansion of private label, a soon to be rolled out Wellness program, and again, a new CEO in Robert Edwards.
On his first earning call as CEO, Edwards said one thing in particular which helped shares soar: “Our U.S. market share, as measured by Nielsen, grew for the fifth consecutive quarter. We gained 20 basis points in the supermarket channel and 2 basis points in the all outlet channel.”
CFO Peter Bocian offered more encouraging words that free cash flow improved by $338 million due to lower capital expenditures. Historically, CEO Edwards pointed out the company uses 75% of FCF for shareholder return and buybacks and 25% to pay down debt.
A good time was had by all
A very good time was had if you were in SUPERVALU INC. (NYSE:SVU) from its lows, but not bad at either Kroger or Safeway. I think The Kroger Co. (NYSE:KR) paid too much for Harris Teeter’s presence in saturated markets. Supervalu should be considered a small-cap speculation. Shareholder-friendly Safeway can still be bought on pullbacks by value income investors but don’t expect huge share price appreciation.
The article What’s up With Supermarkets? originally appeared on Fool.com and is written by AnnaLisa Kraft.
AnnaLisa Kraft has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. AnnaLisa is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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