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Supervalu Trims Workforce Following Selloff

Zacks Equity Research

Leading grocery chain Supervalu Inc. (SVU) is cutting its headcount by 1,100. This follows the sale of five of its supermarkets as a part of its strategic initiatives to streamline operations and increase efficiency across its three lines of business.

The labor force reduction is to be spread over nearly all of the company’s offices and department stores. While several current positions will be eliminated, Supervalu has stated that several open positions will not be filled up as a part of this layoff program.

The store level and Save-A-Lot section of employees are exempt from the current work force reduction program of the company.

Management commented that only redundant workers are to be retrenched for a pared-down company. It expects that the move will help Supervalu remain more focused and also maintain operational efficiency.

As a part of broad-based strategic alternatives, Supervalu will sell Albertson's, Jewel-Osco, Acme, Shaw's and Star Market chains, all of which combined come to about 877 stores. These go to private equity firm Cerberus Capital Management LP, for $3.3 billion.

Only three business units, namely, Independent Business, Save-A-Lot and five strong regional retail banners remain with the company.

Management commented that it wanted to streamline its operations in order to focus on Save-A-Lot discount stores, as well as its smaller regional chains – Cub, Farm Fresh, Shoppers, Shop 'n Save and Hornbacher's.

Earlier this month, Supervalu reshuffled its management team. Michael Moore, the present chief marketing officer, was replaced by Mark Van Buskirk, from Supervalu’s rival grocery chain The Kroger Company (KR). He has taken up the responsibility of executive vice president of merchandising and marketing in the company.

The restructuring also brought in two new entrants: Randy Burdick (former chief information officer at OfficeMax Inc. [OMX]) as executive vice president and chief information officer, and Michele Murphy as executive vice president, human resources and corporate communications in its executive team.

Supervalu’s third-quarter earnings dropped below year-ago levels and also missed estimates for the quarter. Moreover, the company reported negative identical store sales successively for the past four years. The trend has continued in the first half of fiscal 2013.

Now, in order to combat four successive years of negative identical store sales and re-position the company for growth, Supervalu intends to expand its private brand portfolio and step up cost-reduction initiatives.

These are expected to reduce administrative and operational expenses by an additional $250 million by fiscal 2014.

We believe that the reduction of its workforce and executive management turnaround could prove beneficial to Supervalu’s bottom line. The U.S. government’s decision not to furlough United States Department of Agriculture (:USDA) meat inspectors is a positive not just for Supervalu (because it ensures continuous supply of meat products to the grocery chain), but also for meat producers like Sanderson Farms Inc. (SAFM).

Currently, Supervalu carries a Zacks Rank #3 (Hold).

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