Why Shares of SuperValu Inc. Plunged 10% in January

By Travis Hoium Markets Fool.com

What happened

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Shares of SuperValu Inc. (NYSE: SVU) had a rough start to the year, falling 10.1% according to data provided by S&P Global Market Intelligence, driven by an earnings report that didn't impress investors.

So what

Fiscal third quarter revenue fell slightly to $3.0 billion, and the company swung from net income of $34 million a year ago to a loss of $26 million. This continues the long deterioration of SuperValu's business. Management can't seem to find a way to grow the top line or expand the bottom line.

Image source: Getty Images.

Retail continues to struggle, with same store sales down 5.7% in the quarter. Wholesale was slightly better, showing 0.2% growth, but operating earnings were down $2 million versus a year ago to $52 million, so even the strongest business segment is seeing pressure.

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The one recent positive was the sale of Save-A-Lot, which management said will result in a $1.1 billion reduction in debt and less retail exposure. That helps reduce risk in the business, but doesn't overshadow the fact that continuing operations still lost money last quarter. And given competitive pressure, there's not a lot of hope for improvement in the near future.

Now what

The grocery business has changed rapidly in the last decade. Customers have moved to more natural, organic options, discount retailers have grown, and eating out has increased. Those work against SuperValu's wholesale and retail businesses, and they're the reasons you see weak financial results. The problem is that market pressures aren't getting any weaker, and SuperValu doesn't have an easy strategic transition to make to improve the business. That's why the stock is falling and may continue to fall in 2017.

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Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.