Three years ago, Supervalu Inc. made a bold bet to double down on the grocery business by acquiring most of Albertson's Inc. for $12.4 billion.

Now, the Eden Prairie-based food retailer is suffering from a bad case of indigestion.

Hobbled by billions of dollars in acquisition-related debt, amid a deepening recession and intensifying competition from discounters like Wal-Mart, Supervalu disclosed Tuesday that it sold 36 Albertsons stores in Utah to Associated Food Stores for $150 million. It marked the first time Supervalu has sold any of its Albertsons stores since the May 2006 acquisition.

Though the Utah stores represent less than 10 percent of the Albertsons chain, the deal stirred speculation among Wall Street analysts that Supervalu's new chief executive, Craig Herkert, is preparing to unload other pieces of Supervalu's empire in an effort to raise cash and shrink the company to a more manageable size. Such speculation sent Supervalu's shares up 2.5 percent, or 35 cents, to $14.34 a share, on the same day that the retailer also announced a 30 percent drop in first-quarter profit and its worst quarterly sales performance in nearly a decade.

In a conference call with analysts, Herkert apologized for the company's poor quarterly results -- "these numbers are clearly not acceptable," he said -- while suggesting that more divestitures of Supervalu's assets might be in the offing. "The company must continually review its asset base and take actions to dispose of non-core holdings," he said.

Herkert also said he planned to lay out a "new vision" for Supervalu in October, without providing details.

He has already shown he's ready to move quickly. Last month, he realigned the executive suite, leading to the ouster of two longtime executives.

Analysts are betting his vision is of a much-leaner company with fewer stores and a smaller footprint. "I think Herkert will have to be brutally honest with himself and the company and the Street, and recognize that some selective pruning is in order here," said Scott Mushkin, a retail analyst at Jefferies & Co. "They're going to have to let some of these assets go."

Some industry observers went further.

"I think they're probably recognizing that it was a mistake to borrow so much money to buy an underperforming chain of stores," said David Livingston of DJL Research in Waukesha, Wis. "They bought it; now they've got to get some cash coming in, and the only way to do that is to sell a lot of underperforming assets."

The company could use the cash. For the quarter ended June 20, Supervalu's interest expense was $177 million, or nearly half its operating earnings of $362 million. Supervalu's debt-to-capital ratio of 76 percent is much higher than rivals Kroger and Safeway, said Michelle Chang, a Morningstar analyst.

Such a heavy debt load would be easier to carry in more robust economic times. But consumers are spending less and buying more items on sale, which is eating away at Supervalu's revenue. For the first quarter, the supermarket operator saw its sales fall 4.7 percent, to $12.7 billion from $13.3 billion a year earlier.

Supervalu operates such chains as Cub Foods, Jewel-Osco, Shaw's and Save-A-Lot. Sales at stores open at least a year, also known as "identical store sales," declined 3.2 percent from last year. Not since the fourth quarter of fiscal 2001 has the company seen such a large decline, according to Mushkin. Earnings at the company fell to $113 million, or 53 cents a share, from $162 million, or 76 cents a share, a year earlier.

The company said the percentage of items bought on sale rose 4 percentage points in the past year, as consumers sought cheaper items. "For many, what was an essential [item] a few quarters ago is now more likely a discretionary purchase," Herkert said in the conference call.

Profit target reduced

Supervalu on Tuesday reduced its fiscal-year profit target to $2.01 to $2.21 a share, from an earlier target of $2.50 to $2.65 a share.

Herkert provided few specifics about the Utah sale. "These locations were deemed non-strategic to our ongoing operations and will be monetized," he said.

Analysts expect that Herkert will announce sales of more Albertsons stores, or possibly entire chains, in the coming weeks or months. Mushkin suspects the company may divest stores in markets such as Seattle, Portland, Ore., and Washington, D.C., where the company is not in the top three of the local market share. "They're going to want to pay down more debt and concentrate on the assets they can save," he said.

Chris Serres • 612-673-4308