Cupboard bare at Jewel-Osco parent

Jewel-Osco is said to be one of the better-performing units of struggling Supervalu. | Sun-Times library

Grocery shopping used to be simple. One list would suffice.

If you’re at all savvy and selective today, you have several lists going. There’s the Jewel or Dominick’s log; the fancy Whole Foods items suitable for your next social gathering; the stuff that comes cheaper at Aldi or Costco, and the list for those smaller stores where the produce is fresher and cheaper. Oh, and there are the dollar stores for nonperishables.

The outcome of all this is bad news for the mainline groceries, stuck in a place where they can’t compete on price, selection or sometimes quality.

You can see the predicament in the shares of Supervalu (SVU), a company that can’t continue in its present form. Supervalu, based in Eden Prairie, Minn., owns 4,400 stores nationwide, including Jewel-Osco in the Chicago area, which is said to be one of its better-performing units.

Supervalu traded at more than $40 in the ancient times of 2007. It has been on a retreat ever since: $30 in 2008, $20 in 2010, $10 a year ago. Friday’s close was $2.25.

On July 11, Supervalu announced a 45 percent decline in its profit for its first quarter ending June 16. The company has suspended its dividend, announced layoffs and hired investment bankers for the old “strategic review,” a way of broadcasting that you’re for sale.

Supervalu’s operational trouble stems from its 2006 buyout of the Albertson’s chain, which saddled the company with $6.3 billion in debt while binding it to a business in decline. Analysts think a sale of the whole company is out of the question, but pieces will draw interest, such as a grocery distribution unit.

Management’s response has been to cut prices. Chicagoans might have noticed Jewel’s promotional pitch of lower prices on brand names. But Supervalu can’t wish away its higher cost structure. Its decline in same-store sales is the worst showing of its major competitors, such as Kroger (KR) or Dominick’s owner Safeway (SWY).

Evan Mann, who tracks corporate debt for the firm Gimme Credit, said the lower prices could hurt profit margins without driving up long-term sales.

Charles Rotblut, editor of AAII Journal, went on the online broadcast MoneyLife to deliver this summation of Supervalu’s strategy: “That’s a sign that basically says, ‘We’re getting beat by the competition, we need to cut prices and oh, by the way, that may not be enough.’ If you’re a shareholder, those are words you don’t want to hear.”

BANK DEAL: Investors might want to put shares of Rosemont-based Wintrust Financial (WTFC) on their watch list. Wintrust is a holding company for community banks in the Chicago area known mostly by their local names, such as Northbrook Bank and Beverly Bank.

Robert W. Baird & Co. analyst Bryce Rowe has a neutral rating on Wintrust because he expects it to feel effects from a downturn, recession, whatever is coming. But he said the bank should be in good shape when the cycle improves. He said it has a healthy loan pipeline and an ability to support more business without incurring costs. Rowe has a $35 price target on the shares, which closed Friday at $36.97.

TEMPTED TO BUY: A Northern Trust survey of 100 investment managers in mid-June found that while most are adopting a bleaker view about the economy, they’re also seeing more values in the stock market. Two-thirds called the U.S. equity markets attractively valued.

Kelly Finegan, investment analyst at Northern Trust, said the respondents are most bullish on information technology, consumer discretionary and health-care companies. Finegan said they also like private real estate but are less enamored with energy stocks and utilities.

HERE WE GO AGAIN: The Wall Street Journal says investment banks now are securitizing the rents people pay to live in previously foreclosed homes, packaging those payment streams for investors. What could go wrong?

CLOSING QUOTE: “[I]t is becoming increasingly difficult to hide the fact that top-line growth has disappeared. What value investors are willing to pay for declining revenues remains to be seen but our guess is that price/earnings ratios will continue to languish if not decline in real terms. . . . Retail sales have been down three months in a row, which is a rare occurrence but historically an event associated with recession. We look for additional pressure on retail sales as the prospects for food costs escalate the remainder of the year.” — Bruce Bittles, chief investment strategist, Robert W. Baird & Co.

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