Why Shares of SUPERVALU Inc. Popped 12% in August

By Markets Fool.com

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What happened

Shares of grocery distributor SUPERVALU Inc. (NYSE: SVU) jumped 12.3% in August, according to data provided by S&P Global Market Intelligence, after announcing a major supply deal.

So what

In August, SUPERVALU signed a wholesaler agreement with The Fresh Market, adding a growing grocer shortly after signing a similar deal with Marsh Supermarkets. The company also filed paperwork that will move it toward spinning off Save-A-Lot.

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These moves move SUPERVALU toward its vision of becoming a stronger grocery wholesaler rather than a grocery chain. The company has sold off most of its grocery assets and a sale or spinoff of Save-A-Lot would help move the transition forward. For now, signing distribution deals with companies like The Fresh Market and Marsh Supermarkets is a good sign.

Now what

Making a transition away from groceries has been a huge undertaking for SUPERVALU, but the move was necessary given how much the company struggled with both retailers and distribution. The focus on distribution is now well under way and the company should be able to build on the profitable foundation it has today. Over the next few quarters, watch for the distribution growth leading to higher sales and margins, which could really get the stock jump-started.

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Travis Hoium has no position in any stocks mentioned. The Motley Fool recommends SUPERVALU. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.