SuperValu: Becoming a National Powerhouse (SVU, ABS, WFMI)

SuperValu Inc. (SVU) will be a major stock for me to watch during 2006-2007. SVU is trading near its 52-week low of $28.24 set on April 27th, 2006. The company pays a 2.3% dividend of .65/share.

SVU has dropped after the company announced a 93% fall in 4th Quarter 2005 profit. Taken from this AP article:

The drop stems from $72.4 million Supervalu spent in the fourth quarter to close some of its stores in preparation for its purchase of Albertson’s Inc. Supervalu will pay about $6.3 billion in stock and cash and assume about $6.1 billion in Albertson’s debt.

From another AP article:

“Fiscal 2007 will be the year we begin the transformation of Supervalu into a national retail and pharmacy powerhouse,” said Chairman and Chief Executive Jeff Noddle.

SuperValu and CVS are leading the acquisition of Albertsons Inc. in a deal that is worth $9.7 billion. I expect shares of Supervalu to remain flat or continue to drop while consolidation efforts continue. There may be a good opportunity to purchase shares as we get closer to the completion of the consolidation.

Supervalu will nearly double its 1381 stores to approximately 2500 when the deal is completed. The company is making a huge push into the organic foods market, which I am heavily bullish on. This month Supervalu is introducing a line of 50 organic products called Nature’s Best that will be priced 10-15% below national competing products.

From the Wall St. Journal's article on organic foods (sub. req.) :

Chains are also looking to push back against specialty-food retailers like Whole Foods Market Inc., which have siphoned away customers in recent years. The U.S. organic-food market generated about $13.8 billion in sales last year, up from $11.9 billion in 2004 and $3.6 billion in 1997, according to market-research firm Nutrition Business Journal. The firm estimates organics will reach $15.5 billion this year.

Following the acquisition of Albertsons, SuperValu will be the nation's second largest grocer. SuperValu may become an interesting growth opportunity, depending on the success of its push into organic foods. Moreover, SuperValu may pose some competition for chains like Trader Joe's or Whole Foods Market, Inc. (WFMI).

SVU 1-yr chart: