Supervalu (NYSE:SVU) has been one of the top performing stocks of this year. For a company that is rocked by massive debt problems and declining sales, the rally seems contradictory. However, the market has a positive outlook for the company. Since the start of this year, shares of Supervalu gained an outstanding 133%.
Supervalu closed at $2.50 on the first trading day of the year this year. The stock ended the last week at $5.26. For some lucky shareholders who snapped SVU shares back in October, this translates into a return of 200% within just 6 months. But for many of the long-term shareholders, the recent run does not even compensate a fraction of the losses. Can Supervalu sustain its bullish run? Or will it return back to where it started the year?
While the recent share performance is quite impressive, the figures on the balance sheets and the income statements are not. 2010 was the last time the company reported a net income of $393 million. Since then, it has been reporting net losses. It reported a loss of $1.510 billion in 2011 and $1.04 billion in 2012.
Although there are several factors that influenced the declining net income, the primary reason is the decline in total sales. The company ended 2010 with a total revenue of $40.6 billion. This amount declined to $37.5 billion in 2011 -- a negative growth of 7.54%. In 2012, the total revenues further dwindled by 3.82% to $36.1 billion.
In spite of declining net sales, Supervalu managed to reduce its total liabilities. The total liabilities reduced to $12.418 billion 2011, respectively. The total liabilities further reduced to $12.032 billion in 2012. The majority of the funding to reduce the debts came from the sale of assets.
The most recent asset sales happened just a few weeks ago on March 21. Supervalu announced that the sale of 5 retail grocery banners to Cerberus-led AB Acquisition was finally complete. These retail brands are Sav-on in-store pharmacies, Jewel-Osco, Albertsons, Star Market, and Acme. The deal was valued at $3.3 billion. It consists of $3.2 billion debt assumption and $100 million cash.
Even if some Supervalu properties were sold to make the company more focused, Supervalu still remains as a giant grocery operator with 2000 independent retailers in 42 states. Its focus has now shifted to strengthening its retail banners. The management team is hopeful that the company will have a better future ahead.
Thanks to the above-mentioned sales, the Fitch rating on Supervalu was upgraded by one notch. Likewise, Moody's rating of Supervalu was upgraded from negative to stable. The reduction in non-performing assets is projected to improve the stability of the company. With less exposure to the market volatility, Supervalu should be able to move on with better chances of survival. Having a lowered debt level will further improve its balance sheets and its future net revenues.
Dividend and Earnings History
For the past ten years, Supervalu has consistently given out quarterly dividends to its shareholders. Despite incurring negative earnings per share on some quarters, the company was committed to dividends. In fact, Supervalu used to give out dividends for 19 consecutive years since 1994. For the period 2003 to 2012, Supervalu never failed to pay quarter over quarter dividends. There were some quarters where no dividend was paid. Nonetheless, shareholders enjoyed dividend payments at least once in a year.
However, the payouts have kept going down with time. Since 2010, the quarterly dividends totaled $0.35 per share. Unfortunately, the company stopped dividends since the middle of 2012. The last payment was made on June 15 at an amount of 8.75 cents per share.
The earnings per share, on the other hand, were all negative for the past 3 years. On a quarterly basis, there were some quarters where the EPS were positive. While the annual EPS remained negative, the company is approaching break even. The total EPS in 2011 was -$7.13. This improved to -$4.91 in 2012. Some analysts project that the EPS in 2013 will be -$0.26. By 2014, I am optimistic that Supervalu might finally reach a positive EPS.
Recent Price Performance
Moody and Fitch upgrades boosted the investors' confidence on Supervalu. This is perhaps one of the reasons why the share prices were upbeat for the most part of the year. A major single day victory on the trading floor was seen last March 21 from $4.19 to $4.68. The 11.69% increase was triggered by the completion of the sale of 5 retail grocery banners.
The rally was reinforced by Supervalu's announcement on the following day regarding some changes in the executive team. However, the run suffered a slight setback when the company announced a company-wide reduction of workforce. But after a few days, the prices bounced back, fueled by another round of changes in the executive leadership team.
With so many changes happening inside, Supervalu has a brighter future ahead. This is reflected by the increasing confidence of more investors that fueled the rising trend.
The bullish run of Supervalu which started this year still continues. It has now fully recovered from a sudden plunge that occurred way back in July 12, 2012. That day, the stock plummeted from $5.29 to $2.69; a disappointing 49.15% loss in one day.
Today, prices have somehow stabilized, and have gone back to a level where they took that sudden plunge. With the new management team in place, coupled with more changes ahead, many expect Supervalu to continue its rally. This is probably one of the reason why majority of the analyst firms in Nasdaq and Yahoo voted for hold. I also remain optimistic about the company. While the challenges remain ahead, the company survived many of them already. I think Supervalu will remain as one of the largest retailers in the future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Business relationship disclosure: Efsinvestment is a team of analysts. This article was written by one of our equity analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.