Troubled supermarket giant Supervalu Inc. offered a ray of hope Tuesday, its fourth-quarter performance and its new fiscal year outlook both exceeding Wall Street's expectations.

The Eden Prairie-based company's stock soared 15 percent, making it the biggest gainer in the S&P 500, a broad measure of the stock market, which generally tanked Tuesday.

Supervalu still has a long way to go in executing its turnaround, and it "remains a major work in progress," according to a research note by Ajay Jain, a stock analyst at Cantor Fitzgerald.

"But the latest results offer validation that the business is not fundamentally broken and that [Supervalu] is not in a financially distressed situation."

Supervalu posted a third-quarter net loss of $424 million, or $2 per share, the result of one-time asset impairment charges of $492 million after taxes. The charges completed Supervalu's write-down of eroded intangible assets from the $12 billion purchase of most of Albertsons in 2006.

Excluding one-time items, Supervalu earned 38 cents per share, better than the 35 cents per share estimated by analysts for the quarter. Its sales of $8.2 billion were down from last year's $8.7 billion and below analysts' estimates of $8.3 billion.

Supervalu's same-store sales, a key financial metric adjusting for newly opened stores, fell 1.9 percent, the 16th consecutive quarter of decline. Still, that was better than the 2.9 percent drop in Supervalu's third quarter, and analysts were expecting a reprise of that number in the fourth quarter.

Perhaps most important, Supervalu's per-share profit guidance of $1.27 to $1.42 for its new fiscal year nicely topped expectations. The midpoint of that range is close to $1.35 per share, while Wall Street's consensus outlook was $1.31, Barclays analyst Meredith Adler wrote in a report.

Supervalu's "results and guidance were far better than very bearish expectations," the report said. Indeed, short sellers, who bet on a stock to fall, had been building up sizable interest in Supervalu's stock. They were faced Tuesday with a potential "epic squeeze," Jain wrote. As Supervalu shares soared on good news, shorts scrambled to buy shares to cover their positions, pushing the stock higher.

Supervalu's stock closed at $6.13, up 81 cents. The stock is trading at levels that haven't been this low in more than 25 years, reflecting the big challenges facing the company. Even with its better-than-expected outlook, Supervalu is still forecasting its same-store sales to fall 1 to 2 percent this year.

Supervalu has been hammered by a weak economy combined with fierce competition from lower-priced competitors, particularly discounters like Wal-Mart and Target.

"Delivering value and investing in price is our number one priority," Supervalu Chief Executive Craig Herkert told analysts in a conference call Tuesday. The company said it's making progress in lowering its price gap with competitors, and analysts agree.

But it's facing pressure that isn't easing. In the past few weeks, Wal-Mart has taken to running print and broadcast ads in five U.S. markets highlighting its lower prices in intricate detail. The ads are running in markets that Wal-Mart doesn't dominate, including the Twin Cities and Chicago.

Supervalu's Cub Foods and Jewel respectively are the No. 1 grocery chains in those two markets. Wal-Mart's full-page ad in Sunday's Star Tribune compared 34 items at a Wal-Mart and a Cub in Monticello. Guess which one was cheaper?

Staff writer Susan Feyder contributed to this report. Mike Hughlett • 612-673-7003