Will SUPERVALU's (SVU) Wholesale Business Drive Q4 Earnings?

SUPERVALU INC. SVU is scheduled to report fourth-quarter fiscal 2018 results on Apr 24, before the market opens. This grocery dealer delivered bottom-line surprises in three of the trailing four quarters. While the company has been struggling with its retail business, its performance in the wholesale arena is laudable. Considering these, let’s delve into how things are shaping up for the upcoming announcement.

Wholesale Business Looks Sturdy

SUPERVALU’s wholesale business has been an aspect of joy for the company for a while. The company derives a major portion of its revenues from this segment. Notably, sales from this segment grew 52% year over year to $2,888 million in third-quarter fiscal 2018, representing roughly 73% of the company’s total revenues. Further, the company has been undertaking endeavors to fortify foothold in the wholesale arena, primarily through acquisitions. In this regard, the company concluded the buyout of Associated Grocers of Florida in the beginning of the fourth-quarter fiscal 2018, while it bought Unified Grocers in June 2017. Notably, Unified Grocers contributed sales worth about $860 million to SUPERVALU’s Wholesale business during the third quarter. The company is on track to generate targeted synergies from this buyout.

Apart from this, the company has supply agreements with retailers like America’s Food Basket, which is expected to fuel sales in the segment. Also, management is committed toward enhancing operating efficiency, reducing costs as well as optimizing distribution channels, information technology and logistics to support the growth of the wholesale business.

 

SUPERVALU INC. Price, Consensus and EPS Surprise

 

SUPERVALU INC. Price, Consensus and EPS Surprise | SUPERVALU INC. Quote

 

Adapting to Consumer Preferences

SUPERVALU’s efforts to augment business operations incorporates focusing on prospective business areas stemming from evolving consumer trends. Notably, the company has been evaluating prospects in the organic foods arena, given their rising popularity amid consumers’ increasing health consciousness. The company has partnered with its wholesale merchants to explore opportunities in this category.

Apart from this, SUPERVALU also strives toward improving its omni-channel capabilities to adapt consumers preference for digital transactions. In this respect, the company is on track with upgrading its website and mobile applications. Additionally, the company agreed on a multiyear contract with Instacart to provide integrated store coupons and loyalty rewards at its e-commerce sites.

Retail Business Continues to Ail

SUPERVALU’s retail stores have been bearing the brunt of brick-and-mortar sale disruption, which is accountable to consumers’ ever-growing enthusiasm for online transactions. Due to such headwinds, SUPERVALU has been resorting to store closures. Consequently, the company’s identical store sales in the retail segment have declined over the past 11 quarters. During fiscal 2016, the company sold nearly 1,350 Save-A-Lot stores.

In recent developments, the company announced plans to sell 21 of its Farm Fresh Food & Pharmacy stores. In this regard, the company has entered into definite agreements with companies like Harris Teeter, Food Lion and the Mid-Atlantic Division of Kroger. SUPERVALU is expected to undertake more Farm Fresh store closures in the near future, which is likely to drag the retail segment’s performance. Thanks to such concerns, the stock has tumbled 42.7% over the past year, while the industry declined 14.9%.

 

 

Considering the fact that the retail segment has been falling in shambles, the company’s move to strengthen its wholesale business seems quite rational and is expected to uplift its performance in the forthcoming periods. In fact, if rumors are to be believed, SUPERVALU is exploring possible options to divest its business. However, management has not issued any official statement on this matter.

All said, let’s now take a look at the picture unveiled by the consensus marks for earnings and sales as well as the Zacks Model for the upcoming quarterly announcement.  

Estimates for the Quarter

The Zacks Consensus Estimate for earnings for the fiscal fourth quarter and 2018 has been stable in the last 30 days and is currently pegged at 77 cents and $2.43, respectively. Further, analysts polled by Zacks expect revenues of $3,984 million for the impending quarter, while revenues of $15.6 billion are forecasted for fiscal 2018.

A Look at the Zacks Model

Our proven model does not show that SUPERVALU is likely to beat earnings estimates this quarter. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although SUPERVALU’s Zacks Rank #1 increases the predictive power of ESP, its Earnings ESP of 0.00% makes us less confident about an earnings surprise.

Stocks Poised to Beat Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Philip Morris PM has an Earnings ESP of +0.87% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Beer SAM, a Zacks #3 Ranked stock, has an Earnings ESP of +35.65%.

ManpowerGroup MAN, a #3 Ranked company, has an Earnings ESP of +1.94%.

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