UPDATE 3-Supervalu CEO: bankruptcy not part of turnaround plan
* Plans to slash capital spending
* Accelerating efforts to lower "everyday" prices
* Replaces senior debt with asset-backed loans
* Shares tumble 27 percent in extended trade
By Lisa Baertlein
LOS ANGELES, July 11 (Reuters) - Grocery store operator Supervalu Inc suspended its dividend and took other measures to fund aggressive price cuts aimed at winning back shoppers, while also launching a review of its strategic alternatives.
Supervalu, which in recent years has lost customers to lower grocery prices at Wal-Mart Stores Inc and Kroger Co , also said on Wednesday that profit fell a bigger-than-expected 45 percent in the fiscal first quarter ended June 16.
Craig Herkert, chief executive of the third-largest U.S. supermarket chain, said bankruptcy is not among the options being weighed at the company hampered by debt from its $12.4 billion acquisition of more than 1,100 Albertsons stores in 2006.
Supervalu shares closed at $5.29 and tumbled almost 27 percent to $3.88 in extended trading Wednesday afternoon.
Albertsons has been Supervalu's Achilles' heel.
Stores in key markets like Southern California and the Northeast United States have struggled to compete. While some of the supermarkets already were turning in weak numbers at the time of the acquisition, Supervalu also was devoting a significant portion of its cash to debt service rather than investing it back into its supermarkets.
On Wednesday, Supervalu said it would redouble efforts to get its everyday pricing as low as rivals like Kroger and Safeway Inc - a move that could dent profitability and potentially make it more difficult to make loan payments.
"They've clearly acknowledged that they have to lower prices a whole lot more to be competitive and their flexibility is going to be even more limited now," said Walter Stackow, an analyst at Manning & Napier, which sold its Supervalu shares in May.
Supervalu's profit in the latest quarter was half what analysts expected.
It earned $41 million, or 19 cents a share, down from $74 million, or 35 cents a year earlier. Analysts on average forecast 38 cents a share, according to Thomson Reuters I/B/E/S.
Sales for the quarter fell 4.7 percent to $10.59 million, while identical sales, an important performance measure that shows results from supermarkets operating for four quarters, fell 3.7 percent. Analysts on average forecast sales of $10.81 billion.
Aside from cutting the dividend, Supervalu plans to chop capital spending in the current fiscal year to a range of $450 million to $500 million from its previous plan of $675 million.
It will also increase debt reduction and replace its senior credit facility with loans backed by the company's real estate, a move it says will give it more financial flexibility by removing concerns about meeting certain benchmarks.
Supervalu said investment banks Goldman Sachs and Greenhill & Co will start a review of strategic alternatives.
But some questioned whether there would be a buyer for the company.
"Nobody views it as a viable buyout candidate any more," said Susquehanna Financial Group grocery analyst Bob Summers, echoing the sentiment relayed to Reuters by investment bankers. "Why pay for them when you're going to get the market share for free?"
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