Cuts To SNAP Benefits Add To Deflationary Woes For Supervalu

Goldman Sachs expects Supervalu Inc SVU to continue to face deflationary trend in the near-term, citing cuts in SNAP and competition.

As a result, analysts reduced ID sales outlook for Save-A-Lot and retail divisions in the short-to-intermediate term. However, they boosted forecast citing the gains from the Fresh market contract. These moves come in the wake of Supervalu reducing its EBITDA forecast from a drop of 1.5 percent to a drop of 5 percent on a year-over-year basis.

In a note, the brokerage said, "SVU now expects F2Q ID sales growth for its Retail and SAL segments to be lower in F2Q than in F1Q, implying Retail ID sales down more than 4.5% despite a much easier compare, and SAL network ID sales down more than 1.4%, also against an easier compare. We update our forecasts for these businesses."

The analysts pointed out that Supervalu has offered additional information on its contract with The Fresh Market. While pilot run would commence in the ensuing holiday season, Goldman Sachs sees the retailer launching them in March next year.

The brokerage expects 10 percent of 176 stores of The Fresh Market's to launch on the company's platform in the fourth quarter. The remaining launch is expected to happen in the first quarter of the fiscal year 2018. The analysts lifted the price objective from $4.75 to $5.00 on the stock.