Analysts waiting to see on Supervalu's future

Analysts taking wait-and-see approach on Supervalu after sale of 5 grocery chains announced

Associated Press

NEW YORK (AP) -- Two analysts are taking a wait-and-see approach on Supervalu, a day after the supermarket operator announced that it was selling off five of its grocery chains.

On Thursday, Supervalu Inc. said that it would sell Albertson's, Jewel-Osco, Acme, Shaw's and Star Market to an investor group led by Cerberus Capital Management. The transaction includes $100 million in cash for the stores and the assumption of $3.2 billion in existing debt.

Supervalu has struggled for years to turn around its business. The broader supermarket industry has been facing growing competition from big-box retailers such as Target, drugstore chains and dollar stores. While bigger chains such as Kroger Co. have adapted by tweaking store formats and improving discount programs and product offerings, Supervalu has scrambled to keep pace.

This summer, Supervalu fired its CEO and tapped Chairman Wayne Sales to lead a turnaround. The company said at the time that it was reviewing its options, such as putting itself up for sale. In the meantime, it has closed stores and cut jobs as part of an effort to reduce costs. Sam Duncan, who most recently was CEO of OfficeMax, will replace Sales as head of Supervalu after the transaction with the Cerberus-led group closes.

Deborah Weinswig of Citi Investment Research said in a client note that the deal helps Supervalu get rid of some of its weakest chains, such as Albertson's, Shaw's and Star Market. The analyst said that the sale is not much of a surprise though, as she had written in August that the company would need to sell some of its assets to fund price cuts in its stores.

"We anticipate that Supervalu's go-forward business plan will continue to focus on right-sizing the operations and maximizing efficiencies across the company," Weinswig wrote.

The analyst reaffirmed a "Neutral" rating and $4 price target.

Janney Capital Markets' Jonathan Feeney said that Supervalu did need to take some type of action, but that the sale doesn't seem to do much to improve the company's financial position. The analyst said there still seems to be limited visibility on Supervalu's earnings since it continues to come under pressure from non-traditional competitors and shoppers remains sensitive to pricing.

Feeney kept a "Neutral" rating but raised Supervalu's price target to $3.50 from $2.

Shares of Supervalu shed 2 cents to $3.45 in morning trading.

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