Supervalu shares tumble 44 percent after poor results

Thu Jul 12, 2012 11:13am EDT

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(Reuters) - Shares of Supervalu Inc (SVU.N) tumbled 44 percent on Thursday as several Wall Street firms cut their price targets on the supermarket chain after it reported declining sales and profit.

Analysts also questioned Supervalu's ability to withstand a price war with rival companies such as Kroger Co (KR.N) and Wal-Mart Stores Inc (WMT.N).

Supervalu shares were down 44 percent at $2.96 in morning trading.

After the stock market closed on Wednesday, Supervalu, the third-largest U.S. supermarket operator, said it had suspended its dividend to fund aggressive price cuts aimed at winning back shoppers.

"SVU (Supervalu)'s future is highly uncertain given the magnitude and speed of the deterioration," said BMO Capital Markets analyst Karen Short.

The company, which reported a sharply lower quarterly profit, said it was mulling including a sale. Supervalu, based in Minneapolis-based, owns grocery chains such as Jewel-Osco and Save-A-Lot.

"Our belief that operations will improve has eroded meaningfully," JPMorgan analyst Ken Goldman wrote in a research note, citing the aggressiveness of Supervalu's rivals.

He said Supervalu's pricing plans boded ill for other food retailers.

Safeway Inc (SWY.N) shares slipped 9.8 percent, while Kroger fell 3.6 percent.

Supervalu said on Wednesday that it would bid to get its everyday pricing as low as those of its competitors.

"Competition is growing more intense, and we believe that it will likely take time for new price investments to gain traction," Citi Research analyst Deborah Weinswig wrote in a note. She lowered her price target on Supervalu shares to $4 from $7.

Analysts from BMO, Cantor and Guggenheim also lowered their price targets on the stock.

Guggenheim Securities analyst John Heinbockel said in a note Supervalu could still be facing declining comparable-store sales and earnings before interest and taxes in two or three years.

"It is very difficult to fundamentally alter one's price perception in any reasonable time period," Heinbockel said, adding the prospects for success in Supervalu's approach were dim.

(Reporting by Phil Wahba in New York; Editing by Bernadette Baum)

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