SuperValu Inc. may be one of the nation’s largest supermarket retailer and food distributor, but that does not make the company immune to plummeting numbers. While numbers increased for the month of November, reports in previous months left investors wondering what the future of SuperValu holds.
What is really behind the numbers is weakness in its gross margins. Reasons for this include lower fees under the Transition Service Agreements. SuperValu also shows a weakness in adjusted operating earnings from independent business. Higher employee related costs also played a part in the diminishing value of the retailer. On top of these points, lower vendor funding and contraction in margins from strong private brands also had a negative impact.
SuperValu Inc. thrives on the low cost of their products. However, one of the primary causes for decline include lower prices and higher advertising costs. There have been improvements to offset some of the damage, but other factors continue to lead in a decline in adjusted earnings from the segment.
The food distributor had to work through a strike as well. The Colorado distribution center further impacted the results of the reporting quarter. SuperValu was left hiring temporary workers and the company nor the union had any desire to step down.
The food retailer has been riding a steady period of decline with earning results and pressure to cut costs impacting the stock. Shares may look appealing, but the company is unable to return cash in the form of a dividend. It is likely they will continue to simply spend money chasing down a slowly dying business.
Yet SuperValu remains hopeful that it can still overcome the challenging environment that so many retailers are facing. There has been an increase in competition to hit the grocery industry leaving companies like SuperValu consistently facing the difficulty of producing growth.