Supervalu shows signs of progress

Supervalu Inc. reported quarterly profits Thursday that blew through Wall Street's forecast and also gave a better-than-expected outlook for its new fiscal year, propelling the supermarket giant's stock up almost 17 percent.

It was the biggest one-day gain as far back as the company can track.

But beneath the encouraging news for the company lurked the same old problem: a continuing downward spiral in sales, as customers abandon Supervalu-owned chains for rival supermarkets. In other words, while the outlook seems brighter for the struggling Eden Prairie-based company, analysts say it's too early to say a turnaround has begun.

"Expectations were low," said Michael Keara, a stock analyst at Morningstar Inc. "I wouldn't get too excited because they are continuing to lose a lot of market share."

But investors were clearly excited Thursday, as Supervalu's stock rose $1.53 to close at $10.61 on its highest trading volume since April 1996.

Supervalu, which owns the Twin Cities' leading grocery chain, Cub Foods, posted fiscal fourth-quarter earnings of $95 million, or 44 cents per share, down from $97 million, or 46 cents per share, a year ago. But analysts' average forecast for the most recent quarter was only 34 cents per share.

A lower-than-expected tax rate and a one-time accounting charge -- both nonoperating items -- provided about 4 cents of the 44 cents in earnings per share, analyst Edward Kelly at Credit Suisse wrote in a report. Still, Supervalu "cleanly beat consensus," Kelly wrote.

"We began implementing new tools and processes in the fourth quarter, which helped us correct over-promotion that weighed on third-quarter results," Supervalu Chief Executive Craig Herkert told analysts in a conference call.

Supervalu offered a profit outlook for its new fiscal year that was much more upbeat than expected: Earnings per share of $1.20 to $1.40. The consensus among analysts was roughly $1.15 to $1.20.

The company's guidance implies a significant recovery in sales, said Ajay Jain, a stock analyst at Hapoalim Securities.

That will be a big challenge. Supervalu has posted 12 consecutive quarters of declining same-store sales, a performance far worse than its main supermarket industry peers.

Same-store sales are a key gauge that measures sales at stores open at least one year. During Supervalu's fourth quarter they fell 5 percent, primarily because of declining shopper traffic.

Sales were again particularly dismal at Supervalu's chains in the Northeast: Shaw's, Acme and Shoppers. Excluding those three banners, same-store sales would have declined 3.5 percent, Herkert said.

Another bad sign: Same-store sales at Supervalu's Jewel chain in Chicago, one of its biggest markets, fell short of expectations.

Same-store sales declines of around 5 percent, which have been common at Supervalu for more than a year, aren't sustainable if a retail business is going to be succesful, Jain said.

Supervalu said Thursday it expects same-store sales to continue declining in its new fiscal year, but only at a rate of 1.5 to 2.5 percent.

Until Supervalu makes significant progress on improving sales, "It's still a 'show-me story' to a large degree," Jain said.