Supermarket operator Supervalus share price plunged Thursday, a day after the company suspended its dividend, reported dismal first-quarter results and said it would review strategic alternatives. Supervalu, which owns Albertsons, Jewel-Osco and Save-A-Lot, fell to $2.61, then recovered to $2.69 by days end, a 49 percent drop.
The stocks previous all-time low was $4.05, reached on June 11.
The company, which last month announced layoffs in Albertsons in California and Nevada, plans to accelerate price reductions and cut costs by an additional $250 million over the next two years It has retained Goldman Sachs Group Inc. and Greenhill & Co. to review its options.
Supervalu, which is still in debt from its $12 billion purchase of Boises Albertsons Inc. chain in 2006, could become the next casualty in the troubled supermarket space, as its fundamentals have finally begun to show real signs of distress after years of steady underperformance, Edward Kelly, an analyst at Credit Suisse AG in New York, said Thursday in a note to investors. Supervalu fundamentals may be beyond repair at this point.
Supervalu's losses Thursday dragged on rival grocery chain Safeway, whose shares fell $1.61, or 9 percent, to $16.37, by midday. Safeway's was the biggest percentage decline Thursday morning in the S&P 500 index.
We are not convinced that this initiative will succeed, said Kelly, who has a neutral rating on the shares. SVU may not have the ability to absorb the large earnings hit associated with material price cuts.
Some analysts have said that Supervalu could be a merger-acquisition target because of its strong cash flow and cheap share prices.
"Given the structural problems the company faces, shareholder value is entirely driven by merger and acquisition action, wrote trader Robert Broens on Seeking Alpha, a website offering stock market analysis and opinions. Competitors Kroger (KR) and Safeway (SWY) are often mentioned as consolidation partners.
Broens asked: Are competitors willing to pay a small premium for Supervalu, or will they simply let the company run into financial trouble in their attempt to gain more market share?
Supervalu employs about 1,000 people at the Boise offices it inherited in its purchase of Albertsons Inc., in addition to more than 2,300 employees at 33 Albertsons stores around the state. When Supervalu bought Albertsons, it kept only the stores it wanted including all of the chains Idaho locations and spun off the rest to a new, privately held company called Albertsons LLC, which is based in Boise but has no stores in the state.