By Annie Gasparro and Angela Chen
Supervalu Inc. said it is considering spinning off Save-A-Lot, a
discount grocery chain that has been a rare bright spot as the
company and many of its rivals struggle to distinguish themselves
in the highly competitive supermarket industry.
Supervalu disclosed the move on Tuesday as it reported
better-than-expected growth in profit and revenue, driven partly by
Save-A-Lot. Such low-price, no-frills chains have attracted
cost-conscious customers, while specialty chains led by Whole Foods
Market Inc. have lured wealthier shoppers--leaving many traditional
grocers in an unappealing middle ground and forcing a stream of
acquisitions, store closures and bankruptcies.
Supervalu long dismissed the idea of letting go of Save-A-Lot,
which it had acquired in 1993, because the 1,300-store chain was
the fastest-growing and most-promising of Supervalu's empire.
But Supervalu Chief Executive Sam Duncan said on Tuesday that
splitting it off could enable Supervalu to focus on its other 200
grocery stores, like Farm Fresh and Cub Foods, and its wholesale
business, which is one of the largest in the country. He said such
a move could help Save-A-Lot become more competitive.
"Save-A-Lot is a business with great growth prospects," Mr.
Duncan said on a conference call. "One of my goals is to simplify
this company, and this allows us to do that."
Supervalu said it doesn't have a time frame for the possible
spinoff, which could leave Save-A-Lot as its own publicly traded
company.
Shares of Supervalu, which had fallen 24% this year through
Monday's close, jumped 17% to $8.60 in Tuesday afternoon
trading.
Some analysts are concerned that the separation of Save-A-Lot,
which makes up 26% of Supervalu's sales, could cause Supervalu to
lose the scale it needs to get competitive prices on foods, and
that its remaining stores are part of a dying breed.
The squeeze between discounters and high-end stores has prompted
industry shake-ups--like the megamerger between Ahold NV, the Dutch
owner of Stop & Shop, and Delhaize Group, the Belgian owner of
Food Lion,
http://www.wsj.com/articles/ahold-delhaize-agree-29-billion-merger-1435125785
and the likely demise of one of America's oldest and most iconic
supermarkets, A&P.
http://www.wsj.com/articles/a-p-files-for-chapter-11-bankruptcy-1437391572
Supervalu three years ago announced a major strategic review and
suspended its quarterly dividend as part of a broad cost-cutting
effort. Analysts suggested selling Save-A-Lot as a way to get
much-needed cash. Instead, Supervalu sold some 850 of its
traditional grocery stores, including Jewel-Osco and other chains,
to a group of investors running Albertsons grocery stores.
In the quarter ended in June, Supervalu's traditional grocery
stores reported a 0.3% decline in identical-store sales. Save-A-Lot
stores logged 0.6% growth in identical-store-sales, including a
2.8% rise at the 430 company-owned locations.
Overall, Supervalu on Tuesday reported a quarterly profit of $61
million, or 23 cents a share, up from $43 million, or 17 cents a
share, a year earlier. Revenue increased to $5.41 billion from
$5.26 billion. Analysts expected per-share profit of 20 cents and
revenue of $5.39 billion, according to FactSet.
Write to Annie Gasparro at annie.gasparro@wsj.com and Angela
Chen at angela.chen@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires