Supermarket operator Supervalu Inc. reported better-than-expected earnings and issued a full-year profit forecast above Wall Street's view, sending its shares up more than 12 percent in early trading.
Expectations were very low ahead of the quarterly report from Supervalu, which has been losing market share to Wal-Mart Stores Inc., Kroger Co. and others and grappling with a large debt load.
The jump in Supervalu shares appeared to be a classic short squeeze, with those who bet against the stock scrambling to cover their positions. Short-sellers have piled into Supervalu, making it the third most shorted stock on the S&P 500 after GameStop Corp. and Sears Holdings Corp. Almost 43 percent of Supervalu's shares outstanding are being held short, according to Data Explorers.
Supervalu "still has a long way to go in executing its turnaround, but for today at least, we believe the stock should clearly benefit from what has been a perfect storm for an epic short squeeze," Cantor Fitzgerald analyst Ajay Jain said in a client note.
Shares of Supervalu, the third-largest U.S. supermarket operator, were up 12.6 percent at $5.99 in early trading on the New York Stock Exchange.
'BETTER THAN FEARED'
The Minneapolis-based owner of grocery chains such as Jewel-Osco, Albertsons and Save-A-Lot has issued a string of disappointing earnings results, and Tuesday's results did little to convince analysts that a promised turnaround had yet taken hold.
"The only way you can really characterize this is 'better than feared,'" Susquehanna Financial Group analyst Bob Summers said of Supervalu's fourth-quarter results.
"I don't think this quarter is an 'aha' moment to say they've turned," he said.
Supervalu reported a net loss of $424 million, or $2 per share, for the fiscal fourth quarter ended Feb. 25, including asset impairment charges and costs related to previously announced layoffs.
That compares with a year-earlier profit of $95 million, or 44 cents per share.
Excluding one-time items, Supervalu earned 38 cents per share, topping analyst' average forecast of 35 cents, according to Thomson Reuters I/B/E/S.
Net sales fell 5 percent to $8.23 billion, below analysts' average forecast of $8.31 billion.
Identical-store sales excluding fuel fell 1.9 percent, less than the roughly 3 percent drop analysts expected. Supervalu's identical-store sales, a key performance measure, show results from supermarkets operating for four full quarters, including store expansions and excluding fuel sales.
Gross profit margin for the fourth quarter fell to 22.8 percent of net sales from 22.3 percent due to price-lowering efforts, higher advertising expenses and other factors.
Supervalu is working to get its everyday pricing as low as bigger players, including Kroger, Safeway Inc and Wal-Mart, amid fierce competition and higher food costs.
At the same time, it has been paying off debt from its $12.4 billion acquisition of more than 1,100 Albertsons stores in 2006. That burden has hampered Supervalu's ability to compete more aggressively and stand out from rivals.
The company forecast fiscal 2013 earnings per share of $1.27 to $1.42, above Wall Street's average estimate of $1.19.
© 2014 Thomson/Reuters. All rights reserved.