Supervalu Inc. cut its full-year profit forecast and said it would take longer than first expected to turn its business around, sending shares of the supermarket operator down 12 percent.
The operator of Albertsons, Jewel-Osco and Save-A-Lot grocery stores said it now expected earnings for the 2011 fiscal year ending in February to be $1.40 per share to $1.60 per share, excluding non-cash charges. Previously, it had forecast earnings in the range of $1.75 a share to $1.95 a share.
"It will take longer than originally anticipated to realize the benefit of the marketing, merchandising and operational initiatives that we continue to build upon," Chief Executive Craig Herkert said in a statement.
Hapoalim Securities analyst Ajay Jain called Supervalu's lowered forecast a "sobering but necessary step" for the company, which has been slashing costs and selling assets as part of an ongoing turnaround effort.
But analysts also said the lowered earnings target suggests that Supervalu would attempt to stem its market-share losses by cutting prices.
"If this is indeed the case, it is a negative for the industry," said Jefferies & Co analyst Scott Mushkin in a client note.
Shares of rival Safeway Inc. fell 1.2 percent and Kroger Co. fell 1.4 percent on Tuesday.
Wall Street has been particularly bearish on Supervalu, which is underperforming key rivals like Kroger and Safeway, and is the subject of persistent takeover rumors.
Grocery retailers, including Wal-Mart Stores Inc., have been squeezed by falling prices and intense competition for cash-strapped shoppers for more than a year.
Jain said those pressures likely will continue, since U.S. unemployment has not meaningfully eased.
While Supervalu has unique challenges, Jain said, "we think there has been a growing (mis)perception that the operating environment across the sector is set to significantly improve" in the second half of calendar 2010.
Shares of Supervalu were down $1.49 at $10.91 in morning trading on the New York Stock Exchange.
PROTECTING PROFITS, SACRIFICING SALES
Minneapolis-based Supervalu reported a fiscal second-quarter loss of $1.47 billion, or $6.94 per share, compared with earnings of $74 million, or 35 cents per share, last year.
Excluding a large impairment charge, the third-largest U.S. supermarket chain by sales earned 28 cents per share.
Supervalu's gross profit margin was 22.3 percent of sales, up from 22.1 percent a year earlier.
Net sales for the fiscal second quarter that ended September 11, were $8.66 billion, down from $9.46 billion a year ago.
Closely watched identical store sales fell 6.4 percent, a bit more than the 6.1 percent drop analysts expected, Jain said.
Identical-store sales at Supervalu include results from outlets operating for four full quarters, including store expansions and excluding fuel sales.
Supervalu also said it now sees identical store sales falling 5.5 percent for the year, compared with a previous forecast calling for a decline of 5 percent.
Supervalu's strategy had been to protect profits while sacrificing sales and, as a result, it has lost out to rivals.
In its latest quarterly report, Kroger said identical supermarket sales, without fuel, increased 2.7 percent from the year-earlier quarter.
Safeway last week said a decline in price per item resulted in a 2 percent drop in identical-store sales excluding fuel.
At of the close of trading on Monday, Supervalu shares were down more than 2 percent year to date. That compares with an 8 percent rise at Kroger and a more than 5 percent rise at Safeway.
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