Rising food prices mean grocery store chains must absorb extra costs on items like meat, seafood, and produce, or they try to pass them along to customers. But many of those consumers are unemployed or have less money to spend, even on essentials. For now, the big chains are mostly choosing to absorb. As a result, profits are falling, and so are their stocks, making them one of the few dim lights in the market in 2011.
On Tuesday, Supervalu was the first of the grocers to report quarterly results, and the numbers for its fiscal third quarter were ominous: A loss of $202 million, or 95 cents a share, compared with a profit of $109 million, or 51 cents, in the same period a year earlier. The company, which operates Albertsons, Jewel-Osco, Acme and other chains, also cut its forecast for the year.
"This is going to be a challenging year going forward to manage inflation," Supervalu CEO Craig Herkert told analysts Tuesday. "It's just a fact and we believe these inflationary measures are going to impact consumers."
The result: "Investing in (grocers) now is certainly not for the faint of heart," says Philip Gorham, an analyst at Morningstar. (more)