Supervalu to Consider Spinoff of Save-A-Lot -- Update

By Annie Gasparro and Angela Chen 

Supervalu Inc. said it is considering spinning off Save-A-Lot, a discount grocery chain that has been a rare bright spot as the company and many of its rivals struggle to distinguish themselves in the highly competitive supermarket industry.

Supervalu disclosed the move on Tuesday as it reported better-than-expected growth in profit and revenue, driven partly by Save-A-Lot. Such low-price, no-frills chains have attracted cost-conscious customers, while specialty chains led by Whole Foods Market Inc. have lured wealthier shoppers--leaving many traditional grocers in an unappealing middle ground and forcing a stream of acquisitions, store closures and bankruptcies.

Supervalu long dismissed the idea of letting go of Save-A-Lot, which it had acquired in 1993, because the 1,300-store chain was the fastest-growing and most-promising of Supervalu's empire.

But Supervalu Chief Executive Sam Duncan said on Tuesday that splitting it off could enable Supervalu to focus on its other 200 grocery stores, like Farm Fresh and Cub Foods, and its wholesale business, which is one of the largest in the country. He said such a move could help Save-A-Lot become more competitive.

"Save-A-Lot is a business with great growth prospects," Mr. Duncan said on a conference call. "One of my goals is to simplify this company, and this allows us to do that."

Supervalu said it doesn't have a time frame for the possible spinoff, which could leave Save-A-Lot as its own publicly traded company.

Shares of Supervalu, which had fallen 24% this year through Monday's close, jumped 17% to $8.60 in Tuesday afternoon trading.

Some analysts are concerned that the separation of Save-A-Lot, which makes up 26% of Supervalu's sales, could cause Supervalu to lose the scale it needs to get competitive prices on foods, and that its remaining stores are part of a dying breed.

The squeeze between discounters and high-end stores has prompted industry shake-ups--like the megamerger between Ahold NV, the Dutch owner of Stop & Shop, and Delhaize Group, the Belgian owner of Food Lion, http://www.wsj.com/articles/ahold-delhaize-agree-29-billion-merger-1435125785 and the likely demise of one of America's oldest and most iconic supermarkets, A&P. http://www.wsj.com/articles/a-p-files-for-chapter-11-bankruptcy-1437391572

Supervalu three years ago announced a major strategic review and suspended its quarterly dividend as part of a broad cost-cutting effort. Analysts suggested selling Save-A-Lot as a way to get much-needed cash. Instead, Supervalu sold some 850 of its traditional grocery stores, including Jewel-Osco and other chains, to a group of investors running Albertsons grocery stores.

In the quarter ended in June, Supervalu's traditional grocery stores reported a 0.3% decline in identical-store sales. Save-A-Lot stores logged 0.6% growth in identical-store-sales, including a 2.8% rise at the 430 company-owned locations.

Overall, Supervalu on Tuesday reported a quarterly profit of $61 million, or 23 cents a share, up from $43 million, or 17 cents a share, a year earlier. Revenue increased to $5.41 billion from $5.26 billion. Analysts expected per-share profit of 20 cents and revenue of $5.39 billion, according to FactSet.

Write to Annie Gasparro at [e-mail] and Angela Chen at [e-mail]

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