SUPERVALU Bids for Twin Cities Stores - Analyst Blog

SUPERVALU Inc. SVU is geared to expand its presence in the untapped markets in the grocery industry. As part of this strategy, it will participate in a consortium of traders to take over 18 Rainbow grocery stores, including 13 Rainbow pharmacies and 3 Rainbow liquor stores, in the Twin Cities.

Four other Twin Cities-based independent grocery retailers — Jerry's Enterprises, Haug Enterprises, Lund Food Holdings and Radermacher Enterprises — are also participating in the consortium.

Milwaukee, WI-based retail grocer The Roundy's Supermarkets, Inc. is selling the Rainbow stores for $65 million plus inventory. The recent economic downturn coupled with increased competitive activity has made it difficult for Roundy's to maintain top line and margin at desired levels.

SUPERVALU is paying $35 million in cash plus inventory in the bid. The deal bolsters SUPERVALU's presence in the growing retail market, the Twin Cities.

Once the deal is closed (expected to be completed by end of summer 2014), 10 Rainbow stores will be rebranded as CUB, 2 will become Byerly's outlets and 6 will retain the name under different ownership.

CUB Foods is a combination of corporate-owned and franchised locations. On closure of the deal, CUB Foods will total 66 stores in the Twin Cities and 77 stores banner-wide.

Of the 18 stores, SUPERVALU will have full ownership of 3 CUB stores, majority ownership in 2 CUB stores, minority ownership in three CUB stores and 100.0% ownership in two Rainbow stores as well as 100.0% ownership interest in eleven pharmacies.

In fourth-quarter fiscal 2014 results reported on Apr 23, SUPERVALU's adjusted earnings per share of 18 cents surpassed the Zacks Consensus Estimate of 16 cents by 12.5%. The results were much better than a loss of 11 cents reported in the prior-year quarter. The better-than-expected results were due to higher operating margins in all its segments following effective cost-reduction initiatives.

Sales of the company went up 1.3% year over year to $3.95 billion as positive identical store sales in the Save-A-Lot network and retail food segment. Sales were ahead of the Zacks Consensus Estimate of $3.88 billion by 1.8%.

Other Stocks to Consider

Supervalu carries a Zacks Rank #3 (Hold). Other stocks in the retail sectorworth considering include Pinnacle Foods Inc. PF, The Hain Celestial Group Inc. HAIN and Inventure Foods Inc. SNAK. All these stocks sport a Zacks Rank #2 (Buy).